Second Time Around

The temperature magnet on Cynthia Hocker’s refrigerator door read 83 degrees at 7 p.m. on a midsummer evening.

“It’s even worse in the winter,” she said of the extreme temperatures. “We’ve only got one wall unit in the hallway to heat the place, so we turn on the oven to try to get warm.”

The run-down Tujunga row house isn’t this single mother’s idea of a great place to raise her children Wesley, 11 and Caitlyn, 9. But having lost a home to foreclosure four years ago, Hocker was desperately trying to re-create in a rental what she had lost.

“I took this place,” she said, “because it was the closest thing I could find to a house.”

Besides having oppressive heat or freezing cold, depending on the season, the house is small--just 800 square feet. Playing in the yard or enjoying the small concrete patio is usually out of the question for the children because Hocker, a Seventh-day Adventist, fears her children will begin to pick up bad habits from the neighbors, who she said swear, drink and smoke outside their units.

“I look around me,” Hocker said, “and I wonder how I got here.”

In 1994, Hocker--who has raised both of her children alone--had a $43,000-a-year job and was living the good life in a new home on a cul-de-sac on the west side of Palmdale. The 1,650-square-foot house--with three bedrooms and two bathrooms--was loaded with amenities: a roman bath, a kitchen with an island, a fireplace in the living room.

“It was my dream home,” she recalled. “It was the perfect place for raising kids. We were enjoying it, and life was good.”

But in 1998, Hocker was laid off from her job as an administrative assistant at a Burbank hospital when the facility closed its doors. About six months later, she found she could no longer make the payments on the house, filed for bankruptcy and went into foreclosure.

“Leaving was the hardest thing I’ve ever had to do,” she said. “I was giving up security for my kids.”

But today Hocker, 49, has started to regain her footing with a stable job grossing about $30,000 a year. She’s even managed to put $3,000 into a 401(k). Now she’s hoping to move out of the $825-a-month Tujunga rental and find a home again.

Even with Hocker’s troubled financial past, there is hope for her, experts said.

“Some people think that if they’ve had a foreclosure,” said Alfred King, a spokesman with Fannie Mae, the nation’s largest source of financing for home mortgages, “that they are forever barred [from homeownership], and that’s not true.” Though there is no specific guideline, King said, waiting two years to reestablish credit is a good rule of thumb.

Hocker’s foreclosure and bankruptcy was discharged well within that time frame, but before she can reclaim her status as a homeowner, she will have to continue to do some work cleaning up her credit.

Even though Ann Carlton Bose, president of Estate Funding Inc. in Woodland Hills could approve Hocker for a $0-down $125,000 loan for the purchase of a single-family home, Hocker would have to show that she has $7,500 in cash reserves--money she doesn’t have. The reason for the cash reserves, Bose said, is that unpaid items are still showing as outstanding on Hocker’s credit report when they should be showing as discharged from the bankruptcy.

Bose suggested Hocker send notices to the three credit bureaus along with a copy of the discharge of her bankruptcy to improve her credit score. Lenders, as a rule, take the middle of the three scores reported by the credit bureaus measuring such factors as late payments, credit used versus credit available and employment history. For the $0-down loan, Bose said, the middle score would need to be 620. Hocker’s is 606.

“I cannot guarantee the scores will go up,” Bose said, “but I am sure willing to work with you on it.”

According to Bose, cleaning up Hocker’s credit could take anywhere from 60 to 90 days. Bose figured that with an improved credit score, Hocker could get approved for a loan with less cash reserves, which she would be able to afford.

The loan that Bose had in mind for Hocker, offered by Fannie Mae, is called the Timely Payment Rewards mortgage. With that program--which has been available since 2000--the interest rate on the loan is reduced up to 1% if mortgage payments are made on time for 24 consecutive months. The downside is the loan requires the payment of points--each point being equal to 1% of the loan amount payable in advance to the lender. Additionally, the interest rate on this type of loan is higher than the going market rate.

In Hocker’s case, the $125,000 loan would have a 7 5/8 interest rate and would require she pay 2 3/4 points, or $3,437. Bose estimated another $3,063 would be needed in closing costs, bringing the full amount Hocker would need to close a deal to about $6,500. Because Hocker would still need to show some cash in reserves, Bose recommended Hocker negotiate with the seller to pay her nonrecurring closing costs.

“All the seller would have to do,” Bose said, “is bump up the price of the house in order to pay your closing costs.”

“You pay a bit more for the house,” she said, “but the seller is paying more of the cash at the closing.... It’s a wash for them.”

The monthly payment on such a loan--including principal, interest, tax and mortgage insurance of $135 a month--would run $1,187. After 24 months of payments, that monthly payment would drop to between $960 to $1,000 a month. The exact drop in the interest rate--0.5% to 1%--would be decided by the lender based on the borrower’s credit history.

Without a program such as Timely Payment Rewards, Bose said, consumers such as Hocker would have to go to sub-prime lenders that charge higher-risk borrowers additional fees and higher interest rates.

Even with the probable approval on her loan, finding a home in today’s seller’s market in the $100,000 to $125,000 price range will be difficult.

Hocker said she had wanted to live in the areas of Altadena or Tujunga--close to her work and her children’s school. But real estate experts were not able to find her anything in those neighborhoods.

“The problem is we just don’t know when the [housing price] bubble is going to burst,” said Julie Mahoney, an agent with Dilbeck Realtors/GMAC in La Canada-Flintridge. “I hate to paint a picture of gloom and doom for her.”

Mahoney, who specializes in real estate in La Canada, Glendale and Tujunga, was only able to find one property--a 536-square-foot studio condominium in Glendale for $99,950--too small for Hocker’s growing children.

Altadena home prices, according to Mahoney, range from $180,000 to $225,000 in today’s market, and Tujunga’s entry-level homes cost about $230,000.

Mahoney did find 10 properties in Hocker’s price range in Palmdale with at least two bedrooms.

Though Hocker thought many of the homes would suit her family, they didn’t come close to the west end neighborhood she left behind. “There was no comparison to my old place,” she said. But most important, Hocker said the homes were too far of a commute--some 60 miles--to her job in Glendale and her children’s school.

To try to get Hocker in the areas she wanted, Mahoney recommended she consider pooling her money with a friend to purchase a home together. “In this market, you’ve got to get creative,” she said. Another option, Mahoney said, was that Hocker wait to purchase.

“I think she should just hold on,” she said. “I don’t think this market can go on forever.”

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This Month’s Home Buyer Make-Over

Home buyer: Cynthia Hocker, 49

Occupation: Administrative assistant with a property management company

Gross annual income: $30,000

Goal: To reestablish herself as a homeowner after losing a home to foreclosure--and filing for bankruptcy--in 1998.

The problem: Although Hocker is close to receiving approval for a loan, she still needs to clean up some credit issues and accumulate more cash reserves. Still, she may be unable to find a home she can afford in today’s seller’s market.

Recommendations:

* Hocker needs to work with the three credit bureaus to have items still on her credit report marked as discharged due to bankruptcy. Doing so may raise her credit score enough to get her a loan that does not require a large cash reserve.

* Consider paying more points for a Fannie Mae-offered loan that will reduce the interest up to 1% for 24 months of on-time payments.

* Ask the seller to increase the purchase price of the home by the amount of the closing costs. While Hocker would have to pay more for the house, the seller is paying more of the cash at closing.

* Consider pooling resources with another family or another single mother to increase purchasing power.

Meet the experts:

Ann Carlton Bose is the president of Estate Funding Inc. of Woodland Hills. She has been a mortgage broker since 1983 and is a licensed California real estate broker.

Julie Mahoney has 10 years of experience in real estate. She is with Dilbeck Realtors/GMAC Real Estate. Mahoney specializes in La Canada Flintridge, Glendale, La Crescenta, Tujunga and Pasadena.

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Allison B. Cohen is a Los Angeles freelance writer.