After foreclosure, former home buyers back in the market

More people who lost their home during the darkest days of the recession are doing what might have been unthinkable just a few years ago: They're becoming homeowners again.

"Boomerang buyers" — former homeowners who have gone through a foreclosure, short sale or bankruptcy — are restoring their credit ratings, getting mortgage approval and hitting the streets in pursuit of homeownership in Minnesota and across the country.

Already, one in 10 home buyers this year has gone through a foreclosure or short sale, more than double the rate in 2012, according to John Burns, a national research firm on the housing industry. Boomerang buyers are emerging at even greater numbers in communities hardest-hit by the housing collapse, including Phoenix, where one in five sales will involve a buyer who had to give up his home.

"People are starting to find out that they can get back into homeownership, and they're rebuilding their life, credit and equity," said Rebecca Brown, an agent for Re/Max Results in Maple Grove.

Some boomerang buyers say they are emboldened by an improving economy, punctuated by a steady climb in home sales and prices. In Minnesota, where more than 150,000 homes fell into foreclosure from 2005 to 2012, personal incomes are holding steady, and the state has recovered most of the jobs lost during the ­economic ­downturn.

"As we slowly recover from this crisis, we're certainly seeing a resurgence," said Ed Nelson, spokesman for the Minnesota Homeownership Center, which offers guidance to home buyers.

Jennifer Piper and Jerry Kempenich, for example, lost their St. Paul home in foreclosure after Kempenich was twice laid off, and they were unable to sell the house, which was worth $100,000 less than they paid.

"We thought [that] from now on we're going to be renters and paying someone else's mortgage," Piper said.

For three years, they have been pinching pennies and cutting back on vacations. Their jobs are stable, and they have saved enough money for a substantial down payment. That led to the couple getting preapproved for an FHA mortgage.

"It astounded me that we were eligible," Piper said, noting that she and her husband are eager to buy now.

Mortgage rates have been on the rise, and the mortgage insurance deduction expires at the end of the year.

"There is a time crunch," Piper said. The positive momentum in the housing market comes at a time when nearly one in five homeowners remain underwater on their mortgage. And while the foreclosure rate is declining, more than 16,000 Minnesotans received a preforeclosure notice during the first six months of the year.

Real estate agents see boomerang buyers as an expanding, untapped market that is motivated to regain what was lost and often better qualified because of what they have learned when they lost their homes.

Chris Fellerman, an agent for Edina Realty, said 10 to 15 percent of his current buyer pool has been through some serious financial hardship, including foreclosure. "It's a vibrant sector of the market today," he said.

The recession devastated homeownership across wide swathes of the country, as millions of homeowners had no choice but to give up their homes and move into the basements and guest rooms of friends and relatives. The homeownership rate across the United States plummeted to 65.1 percent, the lowest since 1995.

But as the economy gains a sluggish, if not steady, momentum, faith in the housing market has deepened. For those who lost their home in a foreclosure or short sale, however, there is a waiting period of sorts.

That waiting period is heavily dependent on the type of mortgage and an individual's personal circumstances. To qualify for an FHA mortgage, the waiting period is three years for a foreclosure or short sale, but can be shorter if you can prove that circumstances beyond your control, including lack of employment or medical conditions, led to the default.

"There's a much broader population of borrowers who are in that situation than ever before," said Tom Joslyn, senior vice president for Bell Mortgage.

In the end, individual investors and lenders decide when someone is ready for another mortgage, but it's clear that there's no shortage of people who want to try again. Bell Mortgage is getting dozens of applications every month from boomerang buyers.

As home prices increase and the recovery solidifies, Joslyn said that lenders are increasingly willing to accept an application from a borrower with less than sterling credit, provided they have other strengths.

"The pendulum was swinging over the last five years to a more onerous credit process," he said. "That pendulum has slowed."

Sherri and Sean Ussery of Anoka were surprised when they qualified for a mortgage just three years after going through a short sale in which they sold their home for $50,000 less than they owed on it.

As the housing market collapsed, Sean Ussery — a finish carpenter — lost about 75 ­percent of his income. The couple, who have three children, couldn't keep up with a growing pile of debt and filed for bankruptcy. They lost their home and moved in with friends for six months.

Since then, the construction industry has bounced back, and Sean Ussery is earning more than he did before the recession. The couple saved enough for a down payment, and they have dramatically improved their credit score, enabling them to buy a $170,000 house. It's a bit of a fixer-upper, he said, but the mortgage payment is $100 less than their rent.

"It was a very humbling experience, and I would never wish it on anyone," Sean Ussery said of losing their home. "But at the same time, we learned so much."

Real estate agents say they're reaching out to former clients who lost their homes to let them know that homeownership is once again a possibility.

John Schuster, a Coldwell Banker Burnet agent who specializes in short sales, contacted Jon Berg earlier this year to encourage him to consider buying again. Berg gave up his home in a short sale in 2011 after enduring numerous setbacks, including a parent's death and the loss of full-time work.

With a major ding on his otherwise strong credit, he moved into a cramped apartment, where there was little room for him and his son. Two years later, Berg is working full time and nearly debt free.

In June, a community bank helped Berg get a mortgage for a tidy $180,000 rambler with two fireplaces and an extra bedroom for his son. He's grateful for the second chance.

"The avalanche quit," Berg said, "and I was able to walk away from the rubble."