Mortgage

Say goodbye to foreclosures and hello to new homeowners

As distressed property issues fade and sales increase, consumers need more mortgage options
  • The housing market appears to be in full swing with improved sales numbers and prices. However, the mortgage-finance industry remains cautious.
  • By many indications, one of the biggest challenges the housing industry faces is finding financing for potentially credit-challenged borrowers to enter the housing market.
  • Even though it seems as though the majority of lenders are still looking for customers with great credit and significant cash reserves, more and more lenders are creating new loan products to extend mortgage credit across a broad range of borrowers.

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Since the housing crisis began, distressed propertiesforeclosures, short sales and bank-owned real estate — have dominated much of the conversation around real estate and real estate finance. The latest data, however, seems to indicate those days might be over.

According to CoreLogic, this past April’s foreclosure inventory rate was at its lowest point since September 2007, and the number of mortgages in serious delinquency, after declining 21.6 percent from April 2015 to this past April was at its lowest point since October 2007.

This past May, the number of properties with foreclosure filings declined 21 percent year-over-year, according to RealtyTrac, which makes May the eighth consecutive month with a year-over-year decrease.

It is time to move past these foreclosure woes and change the conversation. The housing market appears to be in full swing with improved sales numbers and prices.

The National Association of Realtors reports that existing single-family home sales increased 4.7 percent from May 2015 to this past May. In the same timeframe, the median sales price increased 4.6 percent to $241,000. In fact, the median sales price for foreclosures also is increasing and was up 4 percent year-over-year this past April.

Mortgage finance remains cautious

Although homebuyers seem to be moving back into the real estate realm more enthusiastically, the mortgage-finance industry remains cautious. Credit has remained relatively tight since the housing crisis began, and underwriting requirements often contain challenges many potential buyers cannot overcome.

As the crisis begins to fade in the industry’s rearview mirror, former homeowners who suffered through delinquency and foreclosures are starting to come back into the market.

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According to Fannie Mae’s underwriting guidelines, seven years after the completion date of a foreclosure action, borrowers are once again eligible for a Fannie Mae loan. Borrowers with a short sale in their credit history are eligible four years after the sale.

But are these, and other potentially credit-challenged borrowers, actually able to find financing to enter the housing market? By many indications, this remains one of the biggest challenges the housing industry faces.

According to data from Ellie Mae, the average FICO score for all closed loans was 724 this past May, the fourth consecutive monthly increase, though a slight-year-over year decrease from the average score of 730 seen in May 2015.

Borrowers with a credit score from 600 to 649 represented just 8.76 percent of the closed purchase loans this past May, and borrowers with a credit score below 600 represented a meager 0.47 percent of closed purchase loans.

Even Federal Housing Administration (FHA) loans still have relatively high average credit scores. Although the FHA allows for scores as low as 500 with a 10 percent down payment or 580 with a 3.5 percent down payment, the average FICO score for a closed FHA purchase loan was 686 this past May, according to Ellie Mae. Borrowers with credit scores below 600 represented just 4.17 percent of closed FHA loans.

Although foreclosure and delinquent debt no longer loom largely over the industry, the shadow of its effects remains, and mortgage credit can still be elusive for many who seek to enter the housing market.

Many lenders continue to require high credit scores and significant down payments, even for government-guaranteed loans with less stringent guidelines.

What agents can do

Real estate agents with potential homebuyers who are falling between the cracks of the current lending environment should partner with lenders with a wide variety of loan products and with requirements that meet today’s financial realities.

Even though it seems as though the majority of lenders are still looking for customers with great credit and significant cash reserves, more and more lenders are creating new loan products to extend mortgage credit across a broad range of borrowers.

Real estate agents can help home seekers become homeowners by being knowledgeable about loan products and programs available to help a diverse array of borrowers.

In fact, many lenders today have lowered their credit-score requirements and down payment minimums, as well as created programs to helps borrowers with various loan-related fee structures.

Agents with clients seeking FHA or other government loan products should also seek lenders that specialize in government-sponsored loans that have manual underwriting capabilities to help potential borrowers with more challenging or unusual credit profiles.

Lenders that offer a wide variety of programs, including conventional loans and FHA-backed products, might be best-suited to help the diverse clientele with which many real estate agents work.

Although the foreclosure crisis is waning, there are still many states that are suffering with significant foreclosure inventory.

In fact, in New Jersey this past May, one in every 559 housing units had a foreclosure filing, while Maryland, Delaware, Florida and Nevada also had high foreclosures rates, according to RealtyTrac.

Regardless of whether your business deals with short sales, foreclosures or conventional purchases, real estate agents must be prepared to help their potential homebuyers purchase the home they desire.

By partnering with experienced lenders that offer a diverse array of loan products for every type of borrower, agents can help improve and grow their own business while also helping clients secure the financing they need to become a homeowner.

Ray Brousseau serves as president of Carrington Mortgage Services LLC. Please follow Carrington on Twitter or LinkedIn.

Email Ray Brousseau.