Home Buyers Return After Foreclosures

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The housing industry is slowly seeing the return of buyers like Rick LeBlanc, who lost his Michigan home to foreclosure during the financial crisis but now qualifies for a mortgage again.

Mr. LeBlanc, a 46-year-old residential-construction manager, fell behind on his $1,400 monthly mortgage payments in 2007 after suffering a 20% pay cut. He had tried to sell the property before moving to Florida for a new job. With no takers, he took on renters. But with $225,000 owed on the Highland, Mich., property, he and his wife eventually lost it to foreclosure in 2008.

In the years since, Mr. LeBlanc says he was turned down for car loans and credit cards. His credit ruined, he learned to live without debt and to pay for his family’s expenses with cash.

Then last year, with the foreclosure behind him, he found himself with a near-clean credit slate. The LeBlancs were able to purchase a four-bedroom ranch in St. Augustine Beach, Fla., after borrowing just under $300,000 with a 30-year mortgage carrying a fixed interest rate of about 4.4% from Directors Financial Group, a mortgage lender and broker.

More than five million American families lost their homes to foreclosure between 2007—the year when the crisis kicked up—through the end of last year. Foreclosures and most negative credit events stay on credit reports for up to seven years. For those who lost their homes in the early years of the crisis, credit scores are improving as the black marks drop away, improving their ability to borrow again. This could have widespread implications for the U.S. economy, including a boost in demand for mortgages in the coming years.

Fair Isaac Corp., which developed the widely used FICO credit scores, estimates that there were 910,000 consumers whose credit reports showed they had foreclosure proceedings begin on their homes between October 2007 and October 2008. Of those, some 264,400 had no evidence of the event on their credit reports by last October. That number will rise by up to 645,600 by the end of this year, according to FICO.

“The dark shadow of the foreclosure crisis is finally beginning to fade,” says Mark Zandi, chief economist at Moody’s Analytics, a unit of Moody’s Corp. “That should be a positive for single-family housing and, by extension, for the broader economy.”

The end of the seven-year period can be a game changer for borrowers, who can qualify for new home loans and lower interest rates. But not all lenders are welcoming them.

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Source: The Wall Street Journal | AnnaMaria Andriotis

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