Short Sale and Foreclosure - Effects on Credit

The Impact of Short Sales / Foreclosures on Credit Reports and Timeline of Home Purchase Afterwards

This is to help clarify some of the misconceptions and state the facts of Short Sales vs. Foreclosures in regards to your credit rating and

ability to purchase a home. (This is based off the Credit & Underwriting Guidelines as of 10/30/08)

Foreclosure / Deed in Lieu and Shorts Sales all affect your credit score negatively, about 200 to 300 points. That means if the

homeowner currently has a FICO score of 720 it would go down to the low 500’s or mid to high 400’s. The reason for this is that the

creditor reporting (such as Countrywide for example) the derogatory item is sending the account information to the credit bureaus under

the same credit code 022 which is - serious delinquency, derogatory public record or collection filed. The end result is that both Short

Sales and Foreclosures will drop your credit score 200 to 300 points.

The benefit of doing a short sale over a foreclosure is three fold. First, on a short sale you will be able to purchase a home in 2 years vs.

4 years on a foreclosure, based off of today’s Fannie Mae guidelines (see chart below). Second, it’s good for the economy by not passing

on more foreclosure costs to the banks, providing commissions to Realtors which keeps revenue flowing through the local economy and

keeping home values from dropping further from having unoccupied dilapidated properties. Third, it’s an integrity issue, whether it’s

mentioned or not in society, foreclosure is a perpetuating downward cycle of giving up and letting others take the loss, whereas short sales

shows personal responsibility and integrity in doing everything possible to come up with the best solution for the consumer and the bank

who lent the money.

Action Current Requirements New Requirements

Foreclosure 4-year time period from the

date the foreclosure sale was

completed (“completion

date”)

5-year time period from

completion date

Additional requirements that

apply after 5 years up to 7 years

following completion date:

• The purchase of a principal

residence is permitted with a

minimum 10 percent down

payment and minimum

representative credit score of 680.

• Purchase of a second home or

investment property is not

Action Current Requirements New Requirements

Time Period After Preforeclosure Sale (Short

Sale)

No existing policy 2-year time period from

completion date.

Additional Requirements: None

Note: No exceptions are

permitted to the 2-year time

period due