Default rates jumped in 2006 and between then and 2014 nearly 9.3 million borrowers were foreclosed on, received a deed in lieu of foreclosure, or short sold their home. To date, nearly a million of these former owners have returned to the market and many more of these “return buyers” are already qualified, but waiting. Overlays and credit impairment have held a significant number back and could impact thousands more potential return buyers in the coming years. Roughly a third of formerly distressed owners will ever return to the market.
NAR Research analyzed these former owners taking into account multiple factors:
- The time a buyer must wait to be re-eligible for a financing program with timing like the FHA
- The time necessary to repair the distressed seller’s credit
- Whether the distressed seller’s credit profile, at the time of purchase, was unacceptable by historic, sound underwriting standards
- Whether the return buyer would meet credit overlays in the current stringent environment
- The time needed to build down payment for a purchase
- Whether the buyer has the desire to own again
This analysis revealed that the long time to repair credit scores, time to build down payment, and overlapping post-distress factors limit a former owner’s ability to return.
- Since 2006, 950,000 of these former owners likely already purchased a home again
- However, tight conditions in financial markets limit access to 350,000 of these FHA re-purchase eligible borrowers
- An additional 1.5 million return-buyers will likely purchase over the next five years as they become eligible, but overlays will act as headwinds for 140,000.
- As many 260,000 of current and future program eligible borrowers may not return as their former ownership was facilitated by excessively loose lending in the mid-2000s
