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This is a reprint of an article in the San Diego Tribune
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Foreclosed? Maybe you can buy again
Home ownership remains goal for many who went through foreclosure, short sale during recession
When Chad Sanfillipo got the keys to his house in Ramona last year, he had come full circle in the real estate market.
After losing his home to a short sale during the crash of the housing market, Sanfillipo was once again an owner.
“It felt so exciting to be able to buy again, to have something I own,” said Sanfillipo, 45, who rented for a couple of years before a bank would lend him money again. “There’s no landlord or rent check. I get to say what I get to do with my house.”
Sanfillipo, a systems engineer, is one of roughly 116,000 San Diego County residents who had either a short sale or foreclosure between 2006 and 2014, before and after the Great Recession, according to CoreLogic, a real estate data company.
The good news for Sanfillipo and others who lost their homes during the downturn is that there’s ultimately forgiveness in the lending market. Each month, thousands of San Diegans who went through short sales or foreclosures are completing waiting periods that render them eligible to once again apply for government-backed loans. In the worst case, some must wait seven years, but others can get new loans in just one, depending on whether they go through the Department of Veterans Affairs, Federal Housing Administration, Fannie Mae or Freddie Mac.
People who lost their homes during the recession but own again are called boomerang buyers, and they’re becoming a larger part of the market.
“The scales have tipped,” said Mark Goldman, a loan officer at C-2 Financial and real-estate lecturer at San Diego State University. “Instead of having the majority of properties be distressed sales, the formerly distressed sellers are coming in as buyers who are recovering, so not only is the market recovering, the buyers are recovering.”
Boomerang buying is becoming a nationwide movement. The National Association of Realtors says that 9.3 million homeowners underwent foreclosures between 2006 and 2014. Already, 1 million of them purchased homes again, and an additional 1.5 million will become eligible over the next five years.
California has the biggest share of potential boomerangs, with 1.68 million foreclosures and short sales from 2006 to 2014. Already, 250,000 of them are once again property owners, the association reports. Through 2023, that number is expected to increase by 308,000.
Ken Fears, the association’s director of housing finance and regional economics, said California is leading the way not only because of its sheer size, but also due to its unique economic factors during the downturn: A steep run-up in prices followed by a sharp drop in employment.
“There were much larger foreclosures and short sales in that region,” Fears said. “It creates an opportunity today with more of these former short sellers and people foreclosed to return to the market.”
Generally speaking, Fannie Mae and Freddie Mac won’t back a loan for someone who had a foreclosure within seven years, or a short sale within four years. There are exceptions that reduce the waiting periods, but they apply only if someone can prove that extenuating circumstances affected their ability to pay.
The FHA, which requires only a 3.5 percent down payment, will make most people wait three years after a foreclosure or short sale, but those loans require personal mortgage insurance, no matter the down payment size. The shortest term is through the VA, which makes most applicants wait two years after a foreclosure or short sale. Goldman said those who do not qualify but still want to own can often find a five-year, adjustable-rate mortgage, and then ultimately refinance once they are eligible for more mainstream financing.
Gabe Del Rio, president of the nonprofit Community Housing Works, said a year or two ago it was rare for someone to try to buy again after going through a foreclosure, short sale, or signing over the deed in lieu of a foreclosure. Today, it’s become a fairly standard case. In all, Del Rio said most boomerang buyers are those who went through short sales, and were not foreclosed.
“Those folks actually placed more value on homeownership when they did own a home,” he said. “You can tell by their behavior, and their behavior was going through all the steps you had to do to get permission from your lender to sell your home for less.”
Sanfillipo, who served in the Air Force, got his new loan from the VA. He didn’t lose his job in the recession, but he said that after he and his wife split, they couldn’t afford two house payments, plus day care for their two children. They couldn’t sell their three-story Santee townhome because they were underwater by $50,000, even though they bought the property with a $60,000 down payment. Ultimately, the home sold for $297,000, a 39 percent drop from the 2008 purchase price of $413,000.
After the short sale, Sanfillipo rented for two years as he waited for his VA timeout period to end. He wrote a letter to the administration explaining his hardship and why they should lend to him again, but otherwise, he said, it wasn’t hard to get another mortgage. He said that waiting period, during which he couldn’t get credit, irked him.
“It feels a little bit, for lack of a better term, degrading,” he said. “I can’t buy a house, and I’m just giving (my house payment) to somebody and just renting and renting. I like to have ownership and do things to my house and improve it.”
While Sanfillipo is thrilled to own again, others who lost their homes in the recession want nothing to do with ownership ever again.
Kevin Bacon, 53, lost much of his real-estate business in 2007, the year the Great Recession began. He and his wife got behind on their payments for their La Mesa townhouse, and despite efforts to work with their lender, decided to stop paying altogether. Bacon, a realtor, took a job in retail, paid off other debts, and after two years their property was finally foreclosed. Bacon and his wife Robin owed $360,000 on the townhouse, which sold for $240,000
Today, they rent a single-family home in Fletcher Hills. Bacon says he will rent for the rest of his life — by choice. The money he keeps from the reduced expenses and lack of down payment goes to savings and travel.
“Blindly thinking owning is better than renting; it’s not. It has to be looked at in 30-year terms. I’m (53) with nobody to leave anything to,” Kevin Bacon said. “I consider us much better off than we were, and even if we bought a couple years ago, the appreciation rates still aren’t that high.”
For others, the transition delivered an easier lifestyle. Henry Orozco, a U.S. Customers and Border Protection agent, used to commute 80 miles from Temecula to his job at the border. Orozco, who is married with four children, was said their newly built home lost about $200,000 of its value, so he and his wife stopped making payments and they arranged for a short sale.
The Orozcos rented for a while and finally purchased a $475,000 home in Spring Valley. During the process, Orozco said he never lost his desire to own a home.
“That’s the American dream, right?” he said. “My intention the whole time was to get that short sale behind me and get into another house. It just makes more sense for me, because renting is basically just pretty much throwing your money away.”
Goldman, the loan officer, said he’s not concerned about people who lost their homes during the recession owning again. This time is different, he said, because lenders are actually doing their homework before approving a mortgage.
“People are verifying income, values are more stable, employment has improved,” he said. “All the elements on that perfect storm of destruction are kind of resolved.”
Brian Sacks – Top Originator