You might know someone who got caught in the meltdown of home values. You might have friends whose only “fault” was buying at the wrong time. They have paid their mortgage on time, every time, but now find themselves upside down, owing more than their property is now worth.
These are good people with good credit who, through no fault of their own, are now stuck with negative equity and an interest rate significantly higher than today’s rates.
But then your friends discover some good news: Lenders have issued more generous guidelines for people like your friends.
Fannie Mae and Freddie Mac, which provide money to mortgage lenders and banks, will accept a short sale. This means they will allow home owners to sell back their property to the lender for less than what they owe.
But wait, there’s a catch.
Home owners who have never been late on their mortgage will take the same drastic hit on their credit scores as home owners who are massively late, who failed to make a payment month after month after month.
According to the credit bureaus, their scores can drop by 150 points or even more.
This credit hit will put them in a category to pay more on their auto insurance and credit cards, as well.
Is this fair, or is this a rip-off? Should people who have never been late on their mortgage receive the same penalty as people who have been late — just because they opt to do a short sale?
What do you think?