Lenders Trying Harder to Assist People With Bad Credit
Bankruptcies, foreclosures, short sales.
Traditionally, would-be home buyers with one of these pockmarks on their credit wouldn’t even think about applying for a new home loan until at least several years had passed since their financial misfortune. These financial setbacks remain on credit reports for seven years and can do a lot of harm.
A combination of economic recession and the financial aftershocks from the 1994 Northridge earthquake, however, has apparently changed the outlook of many lenders. Legions of previously credit-worthy people now swell the ranks of those who have at some point filed for bankruptcy protection, been foreclosed on or who have negotiated a short payoff with a lender for less than the full balance of a home loan. With a good enough explanation of their previous hardship, some borrowers are overcoming their past and getting new real estate loans.
“Lenders are working at a record rate with people who have less than perfect credit,” said Ben Hunnicutt, a CPA and president of Southland Financial Network Inc. in Woodland Hills. If the would-be borrower has a good enough explanation for what happened in the past, he said, the borrower may even be able to get those loans that are usually reserved for the most credit-worthy customers.
“I have had a number of clients with significant earthquake damage who couldn’t continue to make mortgage payments,” Hunnicutt said. “We’ve been able to find them new loans with good terms as long as we provide a letter and documentation about their situation.”
Hunnicutt also recalled a recent client who had her house foreclosed on after her husband left her and refused to help pay for the mortgage on the home they jointly owned. “The bank considered the husband’s departure as a reasonable excuse for the wife not being able to pay the mortgage,” Hunnicutt said. She has now been able to buy another property in Van Nuys that is more affordable.
How cooperative a lender is going to be depends on the circumstances that led to the bankruptcy, foreclosure or short sale, Hunnicutt said. “Our job [as mortgage brokers] is to help borrowers show that there was a hardship and there was a legitimate reason for what happened in the past.”
Bank of America will consider loans to people who have recently had a bankruptcy, foreclosure or short payoff, but the lender wants to be sure that there was a really good reason for what happened and that it won’t be repeated, said spokesman Richard Beebe.
“Clearly, we would be less inclined to deal with a person who had the ability to repay and didn’t, versus someone whose circumstances were beyond their control--such as an earthquake,” Beebe said.
“Today, it wouldn’t surprise me to see someone buy another property within as little as six months after a foreclosure or short sale,” said Charles Rambo, housing coordinator for the nonprofit Consumer Credit Counseling Service of Los Angeles, which has offices in Tarzana and Burbank.
Would-be borrowers who have filed for bankruptcy will have a tougher time getting new credit, he said, but even that’s not impossible. Borrowers with blemished credit, however, may not be able to get the loans with the best rates and terms, Rambo conceded.
“From what I’m hearing, the lenders are being more lenient with credit-blemished borrowers,” said Jason Katzman, manager of operations for Paramount Properties Inc. in Woodland Hills. “The lenders are able more than they were a long time ago to push deals through--as long as the borrower can provide a convincing letter of explanation,” Katzman said. “It all depends on the situation.”
Gladys Azenzer, sales manager at the Tarzana office of Fred Sands Realtors, has a more circumspect perspective about would-be borrowers with credit problems. “The lenders are very cautious today. Once you have had a foreclosure or short sale, lenders are not very eager to lend--they don’t want a repeat performance,” Azenzer said. “They want to know that their borrowers are stable people.”
Borrowers who previously have left a mortgage holder with a loss are not looked on favorably by lenders, Azenzer said. “Once they have a mark on their record when it comes to a mortgage payment, borrowers pay a price when it comes to getting a new loan,” she said. She hasn’t even heard of too many lenders being sympathetic about people who defaulted on a loan because of the Northridge earthquake. “That really doesn’t cut it with a lot of lenders. They feel bad for these people--but so what.”
Lenders, real estate brokers and credit counselors offer the following advice to borrowers with serious problems in their credit history:
* Document the reasons for problems that happened in the past and explain why there won’t be a repeat of the same problems.
* Make sure that payments after your financial misfortune are right on time. This will evidence to some extent that you have cleaned up your act.
* Try to save enough money for a larger down payment for a home or condominium. The larger the down payment, the better your chances of getting a favorable loan.
* Try to find a seller who is willing to finance the purchase of his or her property. This way, you may be able to avoid the rigors of qualifying for an institutional loan.
* Look for a loan that is assumable. Pre-1988 FHA loans, for example, are assumable with almost no qualification requirements for the new borrower.
* Get a copy of your credit report and take whatever actions are needed to clean up whatever negative entries may be corrected.
Those interested in obtaining a credit report may want to contact the three major credit reporting bureaus: Telephone TRW Information Systems & Services at (800) 392-1122. TransUnion’s number is (601) 933-1200. Equifax Inc. can be reached at (800) 685-1111. Consumer Credit Counseling Service can be reached by calling (213) 808-4222. There’s also a CCCS in Ventura at (805) 644-1500.
