Boomerang Buyers Making a Comeback

(MCT)—Andreea Stucker thought she made a good investment when she bought a Huntington Beach, Calif., condo with her boyfriend in December 2005.

But then she and her boyfriend split up. He moved out just as the housing market crashed, leaving Stucker broken-hearted and broke.

With her own income down at least 60 percent, the real estate agent was unable to make the $4,400-a-month mortgage payments on her own, even after taking in roommates.

“I begged the bank for over seven months to grant me a loan modification to reduce my payments, because I was rapidly going through my savings,” Stucker, 34, recalls. “I ended up completing a short sale on my home, and my credit took a huge hit.”

Three years later, Stucker has mended both her heart and her credit score. She has a new husband and, “miraculously,” a new house.

Stucker is among the emerging ranks of boomerang buyers—people who bounce back from foreclosures or short sales to become homeowners again.

Generally, buyers must wait at least three years after a foreclosure or short sale to qualify for a government-backed Federal Housing Administration mortgage. It can take seven years to get a conventional loan backed by Fannie Mae or Freddie Mac.

“I think over three-fourths of these folks will take a stab at the comeback trail,” says Paul Scheper, division manager for Greenlight Financial in Irvine, Calif. “Even though some are coming off a bitter experience, most will be looking to regain the American Dream.”

Three to five people who went through a foreclosure or short sale show up each month at the Credit Counseling Service’s homeownership courses in Santa Ana, Calif., and Irvine, or up to 20 percent of the attendees, said Sahara Garcia, the agency’s director of education. She first noticed the boomerangers in late 2011.

“They’re out there,” Garcia says.

After 3 1/2 years, Stucker still cries at the memory of losing her Huntington Beach condo.

She and her ex-boyfriend paid $613,000 with no money down for a two-level condo with cathedral ceilings and skylights, two bedrooms, two bathrooms and a spacious loft less than two miles from the beach.

They spent $40,000 more installing granite countertops, hardwood and travertine floors, new bathroom vanities, recessed lighting and other upgrades.

But it turns out that the real estate game isn’t just about location, location, location. It’s also about timing.

By December 2005, Orange County home sales had just headed into a three-year nose dive. Home prices soon would follow.

Stucker’s income as a real estate agent dropped. Her boyfriend moved out after five months. Eventually, she depleted $29,000 in savings, then quit making house payments.

Unable to get a loan modification she could live with, Stucker sold the condo in May 2009 for $425,000 — $188,000 less than what she owed on two mortgages.

Her credit score went from 798 in December 2005 to the low 500s by May 2009.

“It was probably nine months that I fought for that home,” Stucker says. “I loved my house, and I wanted to stay.”

In the nation as a whole, more than 3.4 million households potentially could qualify for an FHA loan because it’s been three years since their short sale or foreclosure.

But many people still do not have the money or sufficient credit to get a loan.

Natalie Lohrenz, the Credit Counseling Service’s director of development and counseling, says there are two types of foreclosed homeowners: those who had a bad loan they couldn’t afford, and those whose finances got nuked.

The first type couldn’t make their house payments, but still had enough income to stay on top of their other bills.

The second — because they went through a divorce, illness, job loss or business reversal — basically ended up with nothing, and trashed their credit across the board.

Stucker fits the first category, and her story serves as an example of how people can recover from a housing market wipe out.

She followed this approach: She paid her homeowner association dues. She paid her bills. She kept credit cards and car payments current.

When Stucker went from homeowner to renter, she could show the landlord everything apart from the mortgage was paid on time.

From then on, she kept her nose to the grindstone and kept paying her bills.

“Eventually, enough time passed, and I didn’t have any 60- or 90- or 180-days late on my credit,” she says. “Right before the two-year mark, I checked my credit for something else. … It had gone up more than 100 points.”

HOW LONG A WAIT:

Here’s a breakdown of waiting periods for boomerang buyers who lost their homes due to a foreclosure or a related event:

Foreclosure:
—Seven years for a government-backed Fannie Mae or Freddie Mac loan.
—Three years for a Federal Housing Administration (FHA) loan.
—One to two years for a FHA loan if there were extenuating circumstances (such as illness or death of a wage earner).

Short sale:
—Seven years for Fannie Mae or Freddie Mac with less than 10 percent down.
—Four years for Fannie Mae or Freddie Mac with 10 percent down.
—Two years for Fannie Mae or Freddie Mac with 20 percent down.
—Three years for an FHA loan.

Deed in lieu of foreclosure:
—Seven years for Fannie Mae or Freddie Mac with less than 10 percent down.
—Four years for Fannie Mae or Freddie Mac with 10 percent down.
—Two years for Fannie Mae or Freddie Mac with 20 percent down.
—Three years for FHA.
—One to two years for FHA loan with extenuating circumstances.

SOURCE: Fannie Mae, Department of Housing and Urban Development