This week, it's our annual holiday special. We investigate the psychology of holiday giving with Stephen G. Post, a researcher on the benefits of helping others.
After a wave of short sales, a coming flood of 'boomerang buyers'
Short sales in the Valley peaked in 2011, and that meant a lot of people went from being homeowners to renters. Many had to wait to be eligible for a home loan. Now, a lot of those people are once again and the wave of boomerang buyers is just starting.
On a recent Saturday, a few dozen people showed up to Neighborhood Housing Services of Phoenix for a day-long class on credit.
Patrick Ritchie, a mortgage broker at Freedom Mortgage, teaches the class. At the beginning of every class, he asks what they came to learn, and how many of them have owned a home before.
Ritchie says a lot of people come to the class because they’ve been through a foreclosure or a short sale, and they want to own a home again. He’s taught credit classes for years, but during the recession, he says he realized a lot of people wanted to know how to fix their credit because of a hit their credit took from a short sale or foreclosure.
Linda, who was in Ritchie’s class, is one of those people. She didn’t want us to use her full name because she doesn’t want her co-workers to know about her short sale. She’d been a homeowner for 30 years, had owned four homes, and was always responsible.
“I never in a million years dreamed I’d go through such a thing,” Linda said. “I’ve owned four homes, paid bills all my life.”
But she lost her job in 2009. She tried to modify her loan but the bank told her they couldn’t start the process until she stopped paying her mortgage. She’d never missed a payment on her loan until her bank told her to stop paying.
“So I stopped paying as they said and it threw me into foreclosure,” she said.
Linda was able to work out a short sale, which took more than a year. In the process, she lost all the money she’d invested in the house, and all the equity she’d built up.
Short sales exploded during the recession.
In November 2009, more than 50,000 homes in the Valley had foreclosures pending. That’s ten times the number expected in a normal market, according to Arizona Regional Multiple Listings Service. A lot of those were resolved as short sales, which means they sold for less than the balance of the mortgage.
For many, a short sale was often the best way to get out from an underwater mortgage after home prices plummetted.
But there’s a price: A short sale usually means a major hit to credit and losing all of the equity built up in the house.
It also means waiting before being able to buy again.
“The most important thing is when is someone eligible for financing again,” Patrick Ritchie said. “Under FHA, the worst case scenario is three years.”
Ritchie says it’s not just about being eligible for a loan, you have to qualify.
“You still have to have the income, the down payment, the process is basically looking at do you make enough money to support this debt and the debts that you have currently,” Ritchie said.
But a lot of people have already turned that corner – rebuilt credit, saved money for a down payment. Realtors are seeing the beginning wave of so-called boomerang buyers.
“I’d say it’s a trickle right now,” said Scottsdale-based real estate agent Neil Brooks. “There are still some people who are working on their credit, but I honestly believe that most of these people who were homeowners before want to be homeowners again.”
That’s true for Kevin Flynn.
ago, a short sale meant losing his dream home and a lot of money. He had
a big, 3,000 square foot home in a new development in
“It was way up
Flynn bought the house for $440,000 right as the market started to collapse. A year later, it was worth half that. He was underwater and it seemed like there was no good way out.
So the question was -- walk away and lose all the money he’d already put into it, or stay put and throw good money after bad.
“I’ve never really gone bad on a debt before,” he said. “Paid all my bills on time, never dreamed of not paying a mortgage.”
By 2009, his house was worth half of what he’d bought it for. A job change made his commute 70 miles round trip. Then, he was in a car accident that left him unable to work for a month. He says he felt trapped.
“I had no hopes of owning that home, so I decided to stop paying and go thru the short sale process,” Flynn said.
But Flynn found a way around waiting to qualify for a loan again -- about ten months after his short sale, he moved into a house that his parents bought. Three years after his short sale, he’s getting a loan to buy it from them.
"Ii was fortunate that I had them to back me up," Flynn said. “If I didn’t have them, I’d have a place to live, I wouldn’t be homeless. But I wouldn’t have a house, a home. That’s a big deal."
A lot of people found a way to get back into a home of their own without having to wait. Some bought a new house before getting out of an underwater mortgage through a short sale. Others sold short on a home in their name, and bought another house in their spouse’s name.
There’s nothing wrong with this. For many, it was just a way to work around the system and remain homeowners.
But for Linda, waiting and working on her credit was the only option. She’s been renting for three years, and now she wants to buy again.
"I don’t look at it as that home that you’re going to have forever and hand down to your kids," Linda said. "That dream doesn’t exist anymore."
Linda says she will be happy to be in a home that she owns again, even if she does it hesitantly.