By Dow Jones Business News.
Less than one-third of families who lost their homes to foreclosure or other distress events in the past decade are likely to become homeowners again, according to an analysis by the National Association of Realtors.
More than 9.3 million homeowners went through a foreclosure, surrendered their home to a lender or sold their home via a distress sale between 2006 and 2014. Of those, about 2.5 million either have already jumped back into the housing market or will do so within the next eight years because they have the financial ability to purchase and are eligible for a mortgage, according to the Realtor group. Most of the rest won’t be eligible to borrow or won’t have the desire to buy again, the analysis found.
Real-estate agents and economists have been anxious about the return of formerly foreclosed upon homeowners, whose re- emergence could boost the housing market and the broader economy. Borrowers who went through a foreclosure or other negative event are ineligible to obtain a government-backed mortgage for up to seven years afterward. For families who lost their home in the early years of the crisis, the penalty phases are ending, creating optimism about a large new pool of potential homeowners.
But Lawrence Yun, chief economist at the Realtor group, cautions that the pool may not be as large as some are expecting. Many won’t return because they are unlikely to improve their credit or income enough to qualify for a mortgage. Even those who have decent credit will be held back by “overly stringent” lending standards. He estimates that 490,000 buyers who are or will be eligible for mortgages backed by the Federal Housing Administration and similar programs won’t qualify unless there is a loosening of stricter-than-normal requirements.
Others, he said, won’t return due to lack of desire to own a home after being burned during the crash.
Still, the 2.5 million buyers that the Realtors expect to return will have a significant impact on housing, especially in California, Florida and Arizona, the report said.
Nicole Brule-Fisher, president of the Tucson Association of Realtors, said that agents there are already seeing a number of buyers return after foreclosure. And unlike during the boom years, buyers today are more cautious. “They’re looking at it as what they’re going to be living in as a home, as opposed to that old mindset…they’re going to flip it in a few years because they’re going to double the value,” she said.
One of those return buyers is Rodolfo Alvillar, a 44-year-old construction manager, and his wife, who bought a $ 220,000 home in the Phoenix suburb of Tolleson in December. The couple purchased their previous home for $350,000 in 2008 but lost it to foreclosure in 2011, after the monthly payments on their adjustable-rate mortgage jumped by $500 to $3,000.
The couple’s new 30-year fixed-rate FHA mortgage is more affordable, with monthly payments of $1,462 and another $260 in mortgage insurance fees. To get there, Mr. Alvillar said, he spent much of the last few years building up his credit score by paying down debts and keeping on top of his bills. After the foreclosure, his credit score went down to about 540 and now it is back up to 670.
Brokers said they have been counseling their clients to work on their credit scores, rather than becoming defeated and assuming they can never own again. “They’re building their credit back to get to that 700 mark. That’s mainly the mantra that we’ve been trying to get across,” said Mr. Alvillar’s agent, Paula Serven. “They’ve lost their place but that doesn’t mean they have to be a renter for the rest of their lives.”
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