SBWire Short Sales vs. Foreclosures

Home Forclosure Sign

Freddie Mac says a short sale is the better alternative and has streamlined the process.

According to a blog post by Freddie Mac SVP Tracy Mooney on Monday, there are common misperceptions regarding eligibility requirements about short sales that act as a barrier in their use. She is attempting to set the record straight regarding Freddie Mac short sales. Common perceptions such as it is harmful to personal credit, restricted to specific circumstances, difficult and lengthy cause many over burdened homeowners to shy away from the option.

A short sale can be a viable option when a homeowner owes more on the house than it is worth or they are unable to make their mortgage payments. For both the homeowner and the mortgage-holder, a short sale circumvents the negative repercussions of a foreclosure. Although short sales have been known to drag on, Freddie Mac has streamlined the process.

The Standard Short Sale offered by Freddie Mac necessitates servicers to deny or approve the application within 30 days of filing. According to Mooney, the process should close within 60 days after approval. Of course, there are general eligibility requirements. If you are current on the loan, “the property must also be your primary residence and your debt-to-income ratio must be greater than 55 percent,” said Mooney.

In the case of second mortgages, Freddie Mac is “offering up to $6,000 to subordinate lien holders—who are like second mortgage companies—in exchange for releasing the subordinate lien, extinguishing the underlying indebtedness, and waiving the right to pursue deficiency.” For homeowners, the main concern of a short sale or a foreclosure for that matter is the impact it will have on their ability to obtain another mortgage in the future.

Obviously, your credit score is initially going to take a hit in either case. “While only the credit reporting agencies that calculate your credit score will know for sure, it’s possible that a short sale might be better for your score than a foreclosure,” said Mooney. “Even if it isn’t, a short sale gives you time to find a more affordable place to live and exit gracefully from your obligation.”

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