Renters again, with an asterisk
For Southern Californians losing their homes to foreclosure, there’s both good news and bad as they enter the rental market. The good news is that there are plenty of rentals available. The bad news is that a foreclosure taints a credit record, making it harder to rent a place.
Rental housing is plentiful in the Greater Los Angeles area -- even more so in the Inland Empire and San Diego County, areas hard hit by foreclosures. So, landlords have an incentive to loosen applicant criteria, according to rental market experts. But although a few have, most are still evaluating what they want to do.
The reception that people who have experienced foreclosure receive varies by property, the area and whether the landlord has multiple housing units or is a sole owner.
“Apartments are very much available,” said John Schulhof, president of the Apartment Assn. of Greater Los Angeles and president of First Charter Capital Inc. “Our vacancy rate is averaging about 5%, about the same as a year ago.”
Karen Fricke, executive director of the Apartment Assn. Greater Inland Empire, said members are experiencing the first wave of sub-prime foreclosure renters now returning to the rental market.
“Some of our members with management companies are seeing that people who just barely made it into a home are already coming back into apartment living,” she said. “Many seem to be going back to the places they were renting from before, because they have a rental history there.”
Bluestar Properties, one of the largest management companies in Victorville, reported that in October, nearly 15% of its new monthly leases were signed by people who had lost their homes to foreclosure.
Bluestar owns 1,200 apartments and 280 single-family rental homes in the High Desert area of San Bernardino County. Ben Lamson, president of Bluestar, said his company generally leases 35 to 40 properties a month to new renters.
That was the first month the company had “people disclosing that they’re walking away from their homes,” Lamson said. “We had six who said they couldn’t afford their mortgages anymore, and all downsized from houses where their mortgages ranged from $1,700 to $2,250 a month to a rental home with us.” Bluestar’s three-bedroom houses rent for $1,100 to $1,300 a month.
The vacancy rate in the Inland Empire is 4% for single-family rental homes and 6% for apartments, Lamson said, making it relatively easy to find units. And, as the housing market has cooled, some speculators who bought homes to flip have instead turned them into rentals.
In selecting tenants, Lamson said, his company looks at three factors -- rental or homeownership history, gross monthly income and credit history, which includes a FICO score.
“We like to see a 550 or better FICO score,” Lamson said. “If people are paying their bills regularly and have no credit problem, they usually have FICO scores in the high 600s to middle 700s. A foreclosure alone can lower that score 100 points. If a person has a foreclosure, but good credit otherwise, their FICO would still be above 550.”
Up to October, Bluestar did not accept applicants who were behind in mortgage payments.
“But if they’re a homeowner losing a mortgage, and are no more than 60 days delinquent, as long as the rest of the credit is OK, and income is still three times the monthly rent, we’ll work with them,” Lamson said. “If they have a bankruptcy in the last two years or any type of evictions, we don’t take them. About 20% of our applicants get declined.”
A common mistake people facing foreclosure make, he said, is trying to hold onto the house as long as possible by maxing out credit cards and not making car payments. Such actions damage credit ratings even more.
Getting rental approval
Lamson advised those who can’t get rental approval from a management company to look for a home rented out by an individual owner, who may be inclined to offer a lease with a larger security deposit.
Debra Sans, a business development manager with Allmark Properties in Rancho Cucamonga, which has 1,400 apartment units in the Inland Empire, said the company is reevaluating its applicant criteria as well.
“In the next three to six months, we project an increase in applications from people who have lost their homes to foreclosure,” Sans said. “People are calling now, probing about the application process, but not actually applying. Some people are living with family or friends, paying their moms $500 a month to show they can make regular payments.
“We have renters calling us who left for one of those sub-prime loans. In the past, they were ideal renters. Should we look at them now as bad renters?”
Sans said she’s noticed that some competitors have begun accepting renters who lost homes to foreclosures, charging them higher security deposits or requiring them to have co-signers on their leases.
“Typically, foreclosures are viewed as negatively as an eviction is in our industry,” Sans said. “As we evaluate things, it’s possible we may change our rental criteria to accommodate renters in this situation.”
As owners lose homes to foreclosure, they will be competing with renters in the market who may have better credit profiles, said Danilo Pelletiere, research director for the National Low Income Housing Coalition in Washington, D.C. “It’ll be much more difficult to find a rental match.”
In San Diego County, landlords also are coping with an increase in applications from people who have lost their homes to foreclosures.
“People are reexamining their rental criteria,” said Robert Pinnegar, executive director of the San Diego County Apartment Assn. “My advice to people is . . . do everything you can to maintain the integrity of your credit, and be honest and upfront about the foreclosure on your rental application.
“They’re going to do a background check on you, and there’s nothing you can hide.”
