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Foreclosed Homeowners Getting Second Chance

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NEW YORK (4/4/13)--Of the seven million mortgage holders who left their homes since 2007 because of foreclosures or short sales, more than one million are getting a second chance, with eligibility for Federal Housing Administration (FHA)-backed mortgages. And that will grow to two million by 2014.

FHA requires a three-year waiting period and a 3.5% minimum down payment to be eligible, Moody's Analytics Inc. Chief Economist Mark Zandi told (April 3).

Some consumers will still experience barriers, caused by insufficient income, savings and credit, but by the end of 2014, eligibility for mortgages could increase to nearly two million, and that could trigger a housing demand, said Zandi.

During the recovery so far, consumers have worked on improving their credit scores, with more mortgage borrowers now seeing scores of 800 or more than in 2011. More consumers are also reaching the 560-660 credit-score range, said FICO in the article. In 2012, the median credit score was 714, up from 711 in October 2011.

Another factor in the increase in mortgages: Lenders are loosening credit score requirements for a conventional home mortgage to 761 in February, compared with 764 a year earlier.

Veterans United Home Loans told Bloomberg that borrowers who rebounded from short sales or foreclosures made up about 6% of its $3.3 billion in loans last year.

The article also noted that  some borrowers are experiencing  unnecessary delays in eligibility for mortgages because Fannie Mae's automated underwriting system treats foreclosures and short sales alike. Those who foreclosed are barred from obtaining a Fannie Mae or Freddie Mac mortgage for seven years, while short sales can qualify in as little as two years, according to the National Consumer Reporting Association.