Some foreclosed-upon homeowners getting mortgages
Stuck renting for a few years, Tampa Bay area residents who had a foreclosure during the housing crash are buying homes again.
Among them is Xiomara Mewa of Tampa. A former loan officer, her finances tumbled five years ago when the lenders she worked with collapsed and the housing market crashed. She tried selling off her townhome in a short sale, but when it fell through she found herself staring at a foreclosure notice.
Today, three years after the bank took back her townhome, she's been approved for a new loan insured by the Federal Housing Administration. Her only challenge today: Investors keep snapping up homes before she even can make an offer on them.
“Right now, I'm very discouraged,” she said. “I don't know how I'm going to be able to use the approval that I have.”
Conventional wisdom is people must wait seven years after a foreclosure to get another mortgage. But the wait actually can be as little as two years for loans backed by the Department of Veterans Affairs and three years for FHA-backed loans.
That two- or three-year wait is now over for a growing number of local residents, and local mortgage lenders report a small but growing supply of applicants with foreclosures in their credit reports.
How many such people are in the market is a mystery, because the leading agency that backs them, the FHA, doesn't track the phenomenon. The FHA itself is in financial trouble because of all the defaulted loans it endorsed before the crash. The publisher of a mortgage industry trade journal suggests the number of newly eligible borrowers is too small to make a big impact on the housing market.
Still, local lenders insist the trend is real.
“If more and more people knew they could buy after three years, that would help the economy and all of us,” said Dave Ansel, a lender at VanDyk Mortgage in St. Petersburg. “If you're not in this business, you think you're damaged goods forever.”
In fact, most conventional loans issued by the big banks do require a seven-year wait before someone with a foreclosure can get a new home loan, mortgage brokers say. That long wait has helped create a huge market for rental homes in states hit hard by foreclosures.
Big investment firms such as the Blackstone Group are buying thousands of homes in the area to rent out.
Anecdotally, the numbers of people taking advantage of the government's more lenient standards for new mortgages seems to be small.
Kay Hubbard of Hubbard Lending Corp. in South Tampa said the people she's been able to write loans for have kept paying their other bills, even if they lost homes during the crash. So, they were able to repair their credit scores quickly.
“I think you probably have a large majority that just let everything go,” she said.
Mewa had to live frugally for the past few years to rebuild her credit, and she had to fight with a credit bureau to erase a bogus ding on her credit report. Turns out, a bank errantly reported she had two mortgages, when she only had one.
“I had to write letters and write letters and write letters until finally the credit bureau told me, 'You're right, you only had one loan,'” she said.
Mewa now works for a Tampa nonprofit group that counsels people through their housing problems, the Housing & Education Alliance.
In Tampa, Scott Kepler of AnnieMac Home Mortgage said his office meets about once a week with clients who experienced a previous foreclosure. Ansel said he may have closed a half-dozen loans to people with foreclosures.
How much the newly eligible borrowers will affect the housing market is debated.
One leading national economist, Mark Zandi of Moody's Analytics, predicts that a surge of people with credit problems tied to their homes at least will be eligible for new government-backed loans in the next couple years.
Since 2006, about 7.5 million homeowners lost their homes through foreclosures, short sales or a similar event called a deed in lieu of foreclosure. Today, slightly more than 1 million of them are eligible for a new mortgage, because they are past the three-year waiting period and they have credit scores of 620 or higher, Zandi's data show.
Their ranks should rise to more than 1.5 million by early 2014 and 2 million by early 2015, Zandi said.
However, no one should assume all of those people actually will win new loans, said Guy Cecala, who publishes a trade magazine called Inside Mortgage Finance. The government sets easy-to-achieve standards for the mortgages it guarantees, such as a minimum credit score of 580 for an FHA loan, but the lenders that actually write the loans have stricter standards, he said.
For example, the average person who got an FHA-guaranteed loan recently had a FICO score — a commonly used form of credit score — of 697. That will keep many people renting, even if they're beyond the three-year wait for a new mortgage, Cecala said.
Kepler and Ansel, the two local mortgage lenders, said that's a bit overstated and that lenders will finance people with credit scores in the low to mid-600s.
Mewa has been renting for five years since falling into foreclosure in 2008, actually two years before the bank took back the home. She's going month-to-month with her landlord in the hope of finding a new townhome soon.
“I love being a homeowner,” she said.