Thousands of blacklisted Florida borrowers who lost a home to foreclosure can get back into the housing market more quickly under a rule change that reduces the wait time for getting a new mortgage.
The Federal Housing Administration will approve certain borrowers for a home loan just one year after a foreclosure, short sale, deed-in-lieu of foreclosure or bankruptcy. FHA’s previous timeline was three years for a short sale and foreclosure, and two years for a bankruptcy.
Eligibility for the new loan hangs on whether borrowers suffered a specific “economic event” during the recession that, through no fault of their own, caused them to lose their home.
For example, someone who was laid off, got a salary cut, or suffered an illness, may pass muster for a new mortgage. It’s up to borrowers to prove their circumstances to qualify, and they must take a housing counseling class before being approved.
“This is a pretty big event,” said Alice Vickers, an attorney who works for the Florida Consumer Action Network. “The housing bubble came about through no fault of consumers so it seems right to address this issue and allow them to more easily become homeowners again.”
Palm Beach County has seen more than 110,000 foreclosures filed since 2007, according to court records. Statewide, about 340,000 foreclosure cases are still mired in the court system.
Scott Tennell, broker owner of Continental Capital Funding in Loxahatchee, said the one-year wait time starts after a final foreclosure auction, the date of closing on a short sale, or the discharge date on a Chapter 7 bankruptcy.
The new rule is good through Sept. 30, 2016.
“Lending got so rigid for a while,” Tennell said. “But now Wall Street has been doing well, earnings are up, and people are trying to get back into the market. They’re kind of doing an about-face.”
Borrowers are still required to prove they can afford the mortgage and show that their financial record has been clean for at least a year.
FHA, which insures loans, is already considered highly lenient compared to related federal mortgage financers Fannie Mae and Freddie Mac, which require a seven-year waiting period on foreclosures and four years on bankruptcies. It’s also attractive because it requires only a 3.5 percent down payment for most loans. According to a second quarter report from the Mortgage Bankers Association, there are 398,466 FHA loans in Florida
The U.S. Department of Housing and Urban Development quietly announced the FHA rule change last month, saying that one negative mark on a person’s credit isn’t always a good indicator of a borrowers’ “ability or propensity to repay a mortgage.”
Florida mortgage brokers said they’ve been fielding calls about the new rule since the announcement. People who thought they would be renters for years now hope to own again.
“This will open up a lot of opportunities for people who had problems that were beyond their control,” said Jonathan Shapiro, manager at the Fort Lauderdale office of Paramount Residential Mortgage Group.
Shapiro said he is working on a loan under the new rule for a man who lost his home 14 months ago because he couldn’t work following a heart attack.
“These aren’t people who walked away because their home values were under water; they lost their home because a disaster occurred in their life,” Shapiro said.
It’s up to banks whether they are willing to offer loans under the new terms. There is still risk involved. If FHA rejects a loan, then it will likely stay on the bank’s books because no one wants a property that is 96.5 percent financed, Tennell said.
JPMorgan Chase and Wells Fargo said Tuesday that they are still reviewing the new rule. Bank of America could not be reached.
But Adam Cohn, senior mortgage originator with Primary Residential Mortgage in Fort Lauderdale, said it would be unusual for banks to buck an FHA rule change.
“There’s really nothing for them to lose as long as they originate the loans within the guidelines,” said Cohn, who has fielded about 20 calls from people interested in applying under the new rule. “No one wants to rent when they can own.”
*Foreclosure, short sale or bankruptcy was the result of income or job loss beyond the borrower’s control.
*The borrower has financially recovered from the event.
*It’s been one year since the event, such as from a foreclosure auction or short sale closing.
*Borrower has completed housing counseling.