A federal mortgage-backing giant will soon fix a credit flaw that led former homeowners' short sales to be mistakenly reported as foreclosures, Sen. Bill Nelson said Thursday morning.
Fannie Mae plans to make changes to its reporting system "any day now" that will prevent the damaging error, the Florida Democrat said in a statement. Affected homeowners saw their credit scores damaged by a "kiss of death" and faced longer delays before they could sign for a new loan.
Banks and credit bureaus blamed the error on credit-reporting software that lacked a distinct code for short sales, in which homeowners work with banks to sell their homes for less than they're worth.
Sales of "underwater" homes were a rarity before the housing crisis but accounted for nearly a quarter of all Tampa Bay home sales last year.
In May, one month after the Tampa Bay Times reported on the flaw, Nelson pushed for a fix to the "disturbing" problem from federal regulators.
Changes by Fannie Mae, which backs nine out of 10 new mortgages, could allow short sellers to buy homes three to five years earlier than if their credit was marked with a foreclosure.
Nelson's office said Thursday an announcement from Fannie Mae was imminent, but did not specify when.
"Regardless of the cause, I'm glad Fannie Mae is fixing the problem," Nelson said in a statement. "You can't punish homeowners who went upside-down solely because of the economic downturn and loss of value in their home." Pam Marron, a Trinity mortgage broker who works with short sellers, said the fix would be crucial to clearing up confusion from sellers accused by lenders of lying or hiding their foreclosure.
"This is incredibly great news. I'm speechless," Marron said. "People were putting all this money down and getting great credit scores and removing their hardship, and we were still locking them out."
Drew Harwell can be reached at [email protected] or (727) 893-8252.