Despite a lack of empirical data, interviews with more than 30 Realtors, lenders, builders and consumers suggest that a small but growing number of American borrowers are bouncing back to homeownership relatively quickly following a foreclosure, bankruptcy or short sale.
“Most are not ashamed or bashful about what happened because so many people were forced into that reality in the last six years,” says Graham Epperson, an executive with major homebuilder PulteGroup.
The bulk of consumers who have reentered the ownership market have done so because of FHA loans. Home financing backed by the agency may have a higher interest rate than conventional mortgages, but it does not demand proof of income, a high credit score or a sizable downpayment like other loans.
The rising number of FHA-insured loans, however, is giving some economists flashbacks of the subprime-lending era. “FHA is putting people back into situations that still have a high risk of default,” warns American Enterprise Institute resident fellow Edward Pinto.
Frank Donnelly, president of the Mortgage Bankers Association of Metropolitan Washington, D.C., however, insists that most of the loans going through FHA are for borrowers who have significantly repaired their credit. “They have to prove (to the lender that) it was something like a job loss that caused this and not chronic delinquency,” he says.
Lenders tend to be more forgiving if a consumer suffered a job loss than if he or she simply chose to walk away from the mortgage when they could afford the payments.
[Reuters.. Mincer, Jilian]