Root of Foreclosure Code Problem

The Root:

1) Lenders Commonly Require Mortgage Delinquency Before Short Sale Help Will Be Given.

2) For mortgage credit accounts, delinquencies past 120 days are commonly credit coded as a foreclosure.

Delinquency is commonly required by lenders in order to process and complete a short sale for negative equity homeowners.

The current credit code for a short sale is either AU(account paid in full for less than full balance) or CM (collateral released by creditor/balance owing). This code is in the Metro 2 system and is borrowed code from a foreclosure. The code is publicly seen in the Experian glossary of account conditions and payment status under “Special Comment Codes”.

This was not known, or visibly seen, until it started showing up in the Fannie Mae and Freddie Mac automated underwriting system (AUS) findings and resulted in a mortgage denial for a new mortgage. Past short sellers who have proof of the short sale are shocked to be told that their short sale appears as a foreclosure, and that they have to “fix it” before a new mortgage can be granted.

Unfortunately, most past short sellers are unaware that their short sale credit is coded as a foreclosure until they apply for a mortgage again, years later.

On August 16, 2014, Fannie Mae made changes in the automated Desktop Underwriter/Originator system to allow lender to correct automated findings when the erroneous FORECLOSURE code is present for a past short sale.Lenders, please go to: Fannie Mae “fix” 8/16/14 for directions to make the correction.