Senator Bill Nelson (D-FL has asked for an investigation and possible "crackdown" on the manner in which short sales are impacting consumer credit files. Nelson said that short sales are now often reported to the credit agencies using the same code that designates a completed foreclosure.

In letters sent earlier this month to Edith Ramirez, Chairwoman of the Federal Trade Commission (FTC) and Richard Cordray, Director of the Consumer Financial Protection Bureau (CFPB) Nelson called the credit coding practice "disturbing" and said that there are key differences between a short sale and a foreclosure and both have major but different implications for consumers' credit ratings.

"If a short sale is reported as a foreclosure, it could unfairly ruin short sellers' credit scores and make it more expensive for them to borrow," the letters said. "Instead of being able to qualify for a new home loan in just two years due to a short sale, they may have to wait up to seven years if that short sale is reported as a foreclosure. This actually could delay their re-entry into the housing market, stifling economic recovery for all homeowners."

Nelson said that the practice is also tainting consumers' ability to qualify for other types of credit such as auto loans and can affect their costs for insurance as well. "Based on recent reviews conducted by mortgage giants such as Fannie Mae and Freddie Mac," he said, "the controversial reporting practice is widely known in the industry but little has been done to fix it."

Short sales are becoming increasingly common and Nelson represents a state that continues to be among theworst in the nation for the number of homeowners who have negative equity or who are unable to make mortgage payments and must exit - voluntarily or otherwise - home ownership. Some homeowners seek short sales even while making mortgage payments in order to avoid an eventual default. "Many homeowners who go through short sales are hoping for a fresh start," Nelson said in a news release. "Instead, a lot of them might not even know they're continuing to be punished."

Banks and credit bureaus contend the problem lies in the standardized credit reporting software which, they say has no special code to report a short sale. Nelson said regardless of the reasons many homeowners are being punished twice, first because of the economic downturn and loss of value in their home, then because of incorrectly coded credit reports. This is occurring even as homeowners are offered encouragement and even incentives from banks and the government to pursue short sales.

Nelson asked both agency heads to "vigorously and immediately enforce the accuracy provisions in the federal credit-reporting law; and, to conduct a complete and thorough investigation of the aforementioned credit-reporting practices. I also ask that you penalize responsible parties in the mortgage- and credit-reporting industries, if they don't fix this coding problem within 90 days."