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Error detected in credit rating system

On Behalf of | May 24, 2013 | Debt Management |

Wisconsin residents who negotiated short sales with their mortgage lenders may be unknowingly suffering a greater negative impact to their credit profile than they initially anticipated. A recent inquiry has revealed that the current credit rating system is unable to distinguish between short sale and foreclosure. Because the system does not include a distinct code for short sales, short sales are often coded as foreclosures.

While short sales and foreclosures are negative credit scoring events, there are major differences. Short sales are often completed faster and involve less financial loss than foreclosures. In the eyes of lenders who draw a distinction between the two, consumers who have a past foreclosure on their credit report may be required to wait up to seven years before they are able to qualify for a new mortgage. However, consumers who have a past short sale with positive recent history and who are able to pay a significant amount for a down payment may qualify in as little as two years.

Senator Bill Nelson of Florida called for the FTC and the CFPB to investigate the error and penalize those who do not correct their practice of using the wrong code within 90 days. Not only have those who have completed the short sale process and gone on to practice good credit behavior “done their time” so to speak, but Senator Nelson pointed out that barring otherwise qualified borrowers from the market stifles economic recovery.

People may find themselves unable to pay their mortgage for a number of reasons, including unexpected medical expenses, job loss or having extensive repair bills for property that was damaged due to a natural disaster. Those who feel they have no way to repay their substantial debt may consider bankruptcy. A bankruptcy lawyer is qualified to inform consumers about their options, and may possible be able to help struggling homeowners avoid losing their home.

Source: Washington Post, “Short sales may be treated like foreclosures by credit-reporting agencies“, Kenneth R. Harney, May 16, 2013


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