FNMA has announced a solution to the long-standing problem of short sales being being improperly recognized as foreclosures. In it’s August 22, 2013 Desktop Originator / Desktop Underwriter Release Notes, FNMA has provided a mechanism allowing lenders to override incorrect foreclosure trade-line data appearing on consumer credit report.
“Underwriting when Conflicting or Inaccurate Foreclosure Information Provided on DIL or PFS Tradeline
Fannie Mae has been made aware that there are often inconsistencies in the credit data when DIL and PFS events occur, and in an effort to assist borrowers in obtaining a new loan in an appropriate timeframe, DU will be updated to disregard the foreclosure information on the credit report when instructed to do so by the lender on the online loan application.
When DU identifies a foreclosure on a credit report tradeline that appears to be one that was subject to a DIL or PFS, the lender may instruct DU to disregard the foreclosure information on the credit report by entering “Confirmed CR DIL” or “Confirmed CR PFS” in the Explanation field for question c. in the Declarations section of the online loan application and resubmitting the loan casefile to DU. When DU sees this indication, the foreclosure information on the credit report tradeline that also has a DIL or PFS Remarks Code will not be used.
DU will issue a message stating that the foreclosure information included on the account was not used in the eligibility assessment because DU was instructed by the user to underwrite the loan casefile without the reported foreclosure information. The lender must then document that the account was subject to a DIL or PFS, that the event was completed two or more years from the credit report date, and the loan casefile complies with all other requirements specific to a DIL or PFS, as specified in the Selling Guide.
The changes included in this release will apply to new loan casefiles submitted to DU on or after the weekend of November 16, 2013. Loan casefiles created in DU Version 9.0 and resubmitted after the weekend of November 16 will continue to be underwritten through DU Version 9.0.”