Borrowing becomes easier as housing market softens
King and Snohomish counties both showed slight price drops from September to October, but home prices were up 5 and 15 percent, respectively, for the year.
Seattle Times business reporter
As the housing market slows, borrowers with tarnished credit are finding an opening to qualify for mortgages and own a home again.
Over the summer, mortgage-buying giant Fannie Mae notified lenders it was reducing the waiting period for borrowers who’ve been foreclosed to qualify again. While lenders know about the policy changes, the public is largely unaware of it, mortgage bankers say.
“It is easier for people to qualify now than it was even six months ago,” said Kim Toskey, president of the Washington Homeownership Resource Center, a nonprofit that fields calls from homeowners in financial crisis and links first-time homebuyers to classes.
David Floan, executive vice president of loan production at Evergreen Home Loans, said news of the changes hasn’t trickled down to prospective buyers.
“It’s going to allow more first-time homebuyers into the marketplace,” he said.
That could be welcome news to a housing market that’s softened from last year’s frantic pace.
The median price of single-family homes sold last month in King County was $447,250, about 3 percent lower than in September, the Northwest Multiple Listing Service said Wednesday. In Snohomish County, the median price was $328,000, down less than 1 percent from September.
The median price of homes sold last month was still up over the year by 5 percent in King County and 15 percent in Snohomish County, according to the MLS.
In Seattle, the median price rose 8 percent over the year to $515,000. The median price in Southwest King County, the most affordable area, was $255,000, 6 percent more than a year ago.
But sales volume this year is lower than last year, reflecting a national trend: Through October, there were 20,541 closed sales in King County, down about 3 percent, MLS data show.
After local sales came to “a screeching halt” in August, they picked up a bit in September before slowing again in October, said Bob Papke, a RE/MAX agent who covers Issaquah and Sammamish.
“Our second selling season was pretty short-lived,” he said. “Buyers have gotten a lot more picky in terms of what they want.”
For condominiums, King County’s median price last month was $246,500, up about 5 percent over the year. In Snohomish County, the median price was $234,750, up 48 percent from a year ago.
Nationally, the Mortgage Bankers Association forecasts $1.11 trillion in purchase and refinance mortgages this year, down 40 percent from $1.85 trillion last year.
“What’s happened is business has slowed,” Floan said. “The big guys have been loosening their credit standards because they’re willing to go after those loans they otherwise weren’t willing to go after.”
So-called “boomerang buyers” who lost a home to foreclosure may qualify for a mortgage now, experts say.
Before the recent changes, borrowers who lost a previous home in a foreclosure sale would have to wait at least seven years before they could qualify for a Fannie mortgage.
After the change, for those who lost their home as part of a bankruptcy filing, the waiting period is based on the date of discharge from bankruptcy, not the foreclosure, which typically happens later.
That effectively cuts the waiting period to four years, and perhaps even two years, if the lender shows the borrower was a victim of events beyond their control, such as a major illness or sudden job loss, according to Fannie Mae.
Likewise, those who had sold their home in a short sale and wanted a Fannie mortgage previously had to wait seven years if they were putting 5 percent down. Now they only have to wait four years, or as little as two years if their lender can document circumstances beyond the borrower’s control.
However, said Toskey, “No one should construe this as any kind of return to the crazy days.”
The looser guidelines could help borrowers like Frank, who spoke on condition his full name not be used. The 42-year-old manufacturing employee was recently turned down for a mortgage.
He and his then-wife bought a condo in Kent in 2005 for $124,000. Frank said a series of events prompted the couple to walk away from their mortgage: job loss, divorce, medical bills, a soured business venture and the inability to sell or rent the unit out to cover the monthly payments. The bank foreclosed on the condo in 2011.
The next year, Wells Fargo sold the condo for $43,900 to Habitat for Humanity, which sold it to an individual for $50,000, county records show.
Frank said he’s now steering clear of condos and searching for a single-family home.
“I feel property values are going to start going up rapidly again,” said Frank, who is renting now. “I’m already virtually priced out. If I have to buy anywhere I’m going to have to get a run-down or a fixer.”