On FICO’s Dubious Explanation of Why it Treats Short Sales the Same as Foreclosures « naked capitalism

April Charney sent me a link to a post which had a condescending explanation of a recent piece by FICO that warrants further discussion. The FICO article attempted to justify its position that someone who enters into a short sale gets his credit score dinged as badly as for a foreclosure. Yes, you read that correctly. One of the reasons many borrowers go to the effort to arrange a short sale, as opposed to the faster and easier process of “jingle mail” is that they assume that the damage to their credit score will be lower.
Here is the rationale, per FICO’s Banking Analytics blog (emphasis theirs):

One of the questions we get asked most often is whether it remains appropriate for the scoring model to treat a short sale in a manner similar to a foreclosure….
…we conducted a study isolating more recent occurrences of mortgage stress events. By studying the subsequent performance of these borrowers on all accounts, we determined the credit risk associated with their mortgage events. Looking at data from October 2009 to October 2011, we were able to verify that short sales and other events of recent mortgage distress continue to represent a high degree of risk. These results closely match earlier studies of the risk associated with short sales and other events of mortgage stress.
As the graph below shows, short sales remain extremely risky. However, foreclosures have a bad rate of 72.0% while short sales have a better bad rate of 55.1%. Should that lead to less punitive treatment for short sales?

Read more at http://www.nakedcapitalism.com/2012/09/on-ficos-dubious-explanation-of-why-it-treats-short-sales-the-same-as-foreclosures.html#93m6YrfxW0o0ylFW.99



On FICO’s Dubious Explanation of Why it Treats Short Sales the Same as Foreclosures « naked capitalism

Visit Income Property Las Vegas at http://www.incomepropertylasvegas.com