Many home owners who sold their homes via short sale have been contending with a Fannie Mae software glitch that is unintentionally harming their credit score. For some, they have incurred additional penalties as a result, but Fannie Mae says they are in the process of remedying this problem.
Senator Bill Nelson, a Florida Democrat, is spearheading the effort to correct the issue. According to Fannie Mae, their software does not offer a “short sale” label, so many have been incorrectly labeled as foreclosures by the GSE.
Nelson added: “Regardless of the cause, I’m glad Fannie Mae is fixing the problem. You can’t punish home owners who went upside down solely because of the economic downturn and loss of value in their home.”
In the wake of the housing crisis, short sales became a common way for home owners to avoid losing their homes. Those who owed more than their houses were worth and could no longer make their mortgage payments were able to work with lenders to sell the home at a loss. The advantage of a short sale versus a foreclosure is the effect it has on a person’s credit score. While short sales do affect your credit to a degree, they are far less harmful than a foreclosure.
Incidentally, the mislabeling of some home owners’ accounts has had negative repercussions on their credit score. A foreclosure can prevent an interested buyer from obtaining another mortgage for nearly seven years. However, after a short sale, a borrower only has to wait two years before they are able to apply for a mortgage again.
Senator Nelson’s focus has a lot to do with the state he represents. Florida was one of the hardest hit during the housing crisis and faced some of the highest foreclosure and underwater rates in the country. His hope is to bring some relief to his constituents along with other affected Americans.
According to Nelson’s office, Fannie Mae should have a fix in place with their software by Nov. 16. For consumers who have been negatively impacted by this software issue, they should contact the CFPB website to file a complaint.