Foreclosure vs. Short Sale

Oh boy, is this a hot topic!

So, before we get any further, I want to clarify once again that this is not a commentary on what is morally correct (if morals even play a part), what one should or should not do when faced with this choice, etc. We are strictly speaking about what happens on your credit report and how some mortgage lenders view the subject.

What is a foreclosure? (Yes, we all know what a foreclosure is...but humor me for a moment...) When home forecloses, whether it's done through bankruptcy or involuntarily, the bank takes possession of the home. Your credit report will reflect the foreclosure under the mortgage(s) that were affected. While your home is in the process of foreclosing, you will have derogatory reporting of 30, 60, 90, and 120 day lates...typically with the notation "foreclosure started" or "notice of default."


What is a short sale? You sell your home at a mutually agreed upon price by a buyer and the mortgagor who will be taking a loss. Severe delinquency is usually a factor in this process (including the "foreclosure started" or "notice of default" notation on the credit report), and the shortage may also appear on your credit report as remaining balance...depending on the lender that is reporting.

What's the difference on your credit report?

According to John Ulzheimer, formerly of Equifax and Fair Issac (www.JohnUlzheimer.com), "They basically have the same effect on the score, but a foreclosure has a stigma that lenders shy away from, which in essence makes the foreclosure worse, even though the score drops equally."

Mortgage lenders certainly do shy away from foreclosures. No surprise there. In fact, many times just the word "foreclosure," as in "foreclosure started," may be enough thwart your home purchase activities depending on when it occurred.

Todd Vinther at Countrywide says that foreclosures and short sales are viewed essentially the same in mortgage lending. There are some rare instances in which, depending on credit score, loan vs. value, and an extremely good explanation that a loan can be approved...but again, it's rare.

This is not to say that you should lose heart if faced with this decision. There is life after foreclosure, short sales, and general bad credit. Whatever your situation is, DON'T MAKE ASSUMPTIONS! (You know what they say about assuming, don't you?) Ask for help! Ask early. Every person's situation and credit profile is different.

If you need some assistance in the decision making process...or just want to keep your home, where ever you are in the country, Alex Leon at www.ForeclosureStoppers.biz is a great resource for you.

For mortgage, contact my office by phone or email. We will put you in touch with a reputable lender (and I don't use that term lightly.)

If you need help with a credit report, damaged or otherwise...call us! That's what we're here for. www.RosettaCredit.com

And keep those questions coming!

A Tasty Recipe

No, silly. Not for my cookies. I'm not giving that info up so easily.

We're talking credit here, right?

What is the ideal mix of types of credit to build a strong credit profile?

If you answered 'liens and judgements', you're going home with no consolation prize.

The answer to the million dollar question (really, account diversity makes up 10% of your credit score...maybe worth a million to a few) is:

- A mortgage
- An auto loan
- 3-5 revolving credit accounts
- A home equity line of credit

Easy as pie.

Proposed Credit Card Reforms

Have you checked the interest rate on your credit card statement? What about the month before? Have you ever been late on one credit card and noticed your interest rate skyrocket on another?

What has been happening for some time now with credit card issuers is a Big Brother attitude. They are very interested not only in your payment history with the credit plan they have issued you, but also how you are behaving with others. It has become common practice among these banking giants to periodically check your credit report and use a derogatory mark on another trade line as the basis for increasing your interest rate without warning.

That's right. It's legal.

Thankfully, the Federal Reserve...along with other banking regulators...has taken notice. The Fed has recently approved a proposal that would ban that practice. Credit card issuers would be prohibited from raising interest rates on unpaid balances based on information on an unrelated bill. They would also be required to notify consumers 45 days in advance that they may raise rates.

In a lending climate where things are getting tighter and tighter...this is excellent news!

Look for finalization of this rule by the end of 2008.

http://www.reuters.com/article/wtMostRead/idUSWBT00892120080502

The Inaugural Post

Welcome to my new blog where we are going to be exploring the mystical topic of CREDIT...how your credit report is utilized and impacted by a variety of conditions, and what you can do to make improvements.

It is my wish that this blog serves as a valuable tool to both the consumer and those in the lending industries.

If you have a specific question about credit that you would like to have addressed, please forward it to Dana@RosettaCredit.com.

I look forward to your emails!

Dana