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25 April 2013

Boomerang Buyers Aid Recovery

When Nancy and Scott Horrell had to short sell their house three years ago, the Redding couple knew they would buy again one day. It was just going to take some time. “We knew we had to wait a certain period of time for the short sale to be behind us to be able to […]

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When Nancy and Scott Horrell had to short sell their house three years ago, the Redding couple knew they would buy again one day.

It was just going to take some time.

“We knew we had to wait a certain period of time for the short sale to be behind us to be able to qualify (for a loan),” Nancy Horrell said.

Their wait ended last fall when the Horrells bought a home in north Redding for $108,000 using an FHA loan. They qualified for a fixed-rate 30-year loan at 3.75 percent — considerably lower than the rate they paid on the house they lost to a short sale.

What’s more, the Horrells’ monthly mortgage, including taxes and insurance, is nearly $200 less a month than what they were paying in rent.

The Horrells are “boomerang buyers,” families who lost their homes to foreclosures or short sales during the Great Recession and are hopping back into the market.

“I am hoping they (boomerang buyers) become very prevalent because they are signs that folks are rebuilding after arguably the toughest time in their lives,” said Redding real estate broker Doug Juenke, who helped the Horrells buy their house.

Some have suggested these boomerang buyers will be important in helping the housing market’s continued rebound.

Jon Maddux, who co-founded the website AfterForeclosure.com, said a recent Moody’s Analytics study estimated 1.5 million Americans who went through foreclosure will be eligible to buy again by the first quarter of 2014. And that number will continue to grow.

“As they begin to enter the market again, that is a pretty big demand,” said Maddux, whose free website has generated interest from roughly 5,000 potential buyers since its launch in March. The site also has a loan eligibility app that helps boomerang buyers determine if there is a loan program right for them.

Three years ago, Nancy Horrell lost her job and their living expenses were piling up. Like millions of Americans, the Horrells were under water on their mortgage: they owed more than their house was worth. So they decided to do a short sale.

“We moved out of that house and then we rented for three years,” said Nancy Horrell, whose husband, Scott, works at the Wal-Mart distribution center in Red Bluff.

For the Horrells, it was the low interest rates and the feeling they were “throwing” their money away in rent that prompted them to buy again.

“That was the main reason because we wanted to lower our living expenses, and we didn’t want our monthly living payments to go up, because they will go up when you rent,” Nancy Horrell said.

Generally, somebody who has lost a home to foreclosure or a short sale has to wait three to seven years to buy again, depending on the type of loan they want to get. The market started to turn in 2007. Foreclosures peaked in Shasta County in 2010.

A credit score of at least 640 is required to get a FHA, VA or conventional loan, said Darrel Miller, a senior loan specialist with Prime Lending in Redding.

“They need to show they have re-established credit with a minimum of three credit accounts for a minimum of 12 months,” Miller said. “All that does is give a picture showing they know how to manage credit again.”

Over the last five years, foreclosures and short sales have ravaged neighborhoods and brought down values, but getting those families who lost their homes to return to the market is a good thing, said Ken Lawrence of Silverado Mortgage in Redding.

“The lender is trying to make a good loan and wants to reason through the circumstances with the buyer,” Lawrence said, adding that another precipitous drop in values is unlikely because the market has stabilized. “And the easy loans with risky features are mostly gone from the marketplace.”

Maddux of AfterForeclosure.com understands that underwater homeowners who continue to make their mortgage payments on time instead of walking away might be upset over what they think are unfair circumstances.

“However, they will benefit from it,” Maddux said of the boomerang buyers. “Anyone who owns a home has seen their value drop or tank. It will drive up prices. . . They will gain equity again.”

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