Housing experts are trumpeting changes that allow foreclosure sufferers to buy back into the American Dream sooner than they probably imagined, calling 2014 the year of the "boomerang buyer."
Revisions made over the summer to Federal Housing Administration guidelines and technical updates in November to Fannie Mae loan approval systems have opened the door for some former homeowners to buy again just one year after foreclosure.
Founders of the San Diego-based company AfterForeclosure.com say millions of banned borrowers nationwide will be eligible for a mortgage next year.
Jupiter, Fla., mortgage broker Skip McDonough said his firm is already doing deals with homebuyers who were forced into default during the housing bust.
"The old-fashioned way of doing it was a seven-year waiting period," says McDonough, president of Family Mortgage. "That's changed, and people who don't believe they can qualify are qualifying."
McDonough and Jon Maddux, co-founder of AfterForeclosure.com, say the boomerang buyers are necessary to maintain a growing economy as other drivers fade.
Investors, who bolstered home sales during the real estate recovery, will reduce purchases as prices climb. Recent college graduates with student debt may not have the means to buy. And underwater homeowners are still stuck in a holding pattern - unable to sell so they can move up and buy anew.
"People who are primed to buy are the ones who qualify on all levels but had a short sale or foreclosure on their record," Maddux says. "The refinance boom is over and lenders are looking for a way to capture more business."
Under the Federal Housing Administration's "Back to Work" program, it will approve certain borrowers for a home loan just one year after a foreclosure, short sale, deed in lieu of foreclosure or bankruptcy. FHA's previous timeline was three years for a short sale and foreclosure and two years for a bankruptcy.
Federal mortgage backer Fannie Mae has previously allowed homebuyers who completed a short sale to buy again after two years if they put 10 percent down, but an automatic underwriting system couldn't differentiate a short sale from a foreclosure and would spit out a denial. The application could then be referred for a manual review. But those were often denied based on the computer's refusal, Maddux said.
Eligibility for a loan fast-track hinges on whether borrowers suffered a specific financial event during the recession that, through no fault of their own, caused them to lose their home. Also, the foreclosure or short sale should be the only blemish on a credit report. For an FHA mortgage, the homebuyer must take a housing counseling class. People who walked away simply because their house was underwater likely won't qualify.
Michael Kodsi, chief executive officer of Choice Mortgage Bank in Boca Raton, Fla., said he's had three inquiries in the last week from boomerang buyers.
"They've been taught a lesson. They want their house payment to be affordable," Kodsi says. "The people I've dealt with are more excited than ever to own their own home and are sick of renting."
But there is a reality check. People who can get a loan may not always be able to find a house. They're coming into a market with historically low interest rates, but also low inventory. And because they have a default on their record, they may not qualify for the amount of loan they want.
"A lot of people who did a short sale for a low price are getting back in the market and have sticker shock," says Realtor Shannon Brink, with Re/Max Prestige Realty in West Palm Beach, Fla. "The prices are higher and financing is a challenge."
Still, it's happening. McDonough had a client buy a $515,000 Jupiter home this fall, less than three years after a short sale on his previous property. The short sale reduced his credit to below 600, but two years of good payment history shot it up to 740.
Former North Palm Beach homeowner John Lebeau battled through a nasty - and he says fraudulent - foreclosure for years before it ended in an October eviction. He said he's having trouble finding a place to rent because his credit is shredded, but is eager to buy again when he can.
Lebeau says it makes more financial sense to own, especially with today's lower interest rates and if the plan is to stay in the home five years or more.
There are other reasons too.
"These are people who believe in the American Dream and believe homeownership is the way to go," McDonough says.
Requirements for FHA's "Back to Work" program:
- Foreclosure, short sale or bankruptcy was the result of income or job loss beyond the borrower's control.
- The borrower has financially recovered from the event.
- It's been one year since the foreclosure auction or short sale closing.
- Borrower has completed housing counseling.
Kimberly Miller writes for The Palm Beach Post.