More Americans who recently went through foreclosure or bankruptcy are getting home loans.
A new wave of nonbank lenders is bringing these risky buyers back into the housing market some seven years after the mortgage meltdown. The lenders are targeting borrowers who have recently gone through a foreclosure, short sale or bankruptcy—but who they say are safer than their credit profiles suggest. They are sometimes approving borrowers in as little as a few months or even weeks after a foreclosure.
“Lenders are trying to carve out niches that play upon the fact that underwriting remains, by historic standards, very tight,” said Guy Cecala, publisher of Inside Mortgage Finance, a trade publication. “That’s always the way it starts out and then you keep loosening and loosening—we’re right at the beginning of that.”
“Drop Mortgage has given out $96 million in mortgages since July, said its president, Jon Maddux. It has no minimum FICO score requirement but prefers borrowers above 600.”
Jon Maddux, president of Encinitas, Calif.-based Drop Mortgage, a mortgage lender that launched last year and mostly works with such borrowers, has a long history in the mortgage market, including helping borrowers to walk away from their homes during the housing crisis. Mr. Maddux co-founded YouWalkAway.com in 2008, which offered advice to homeowners who were having a difficult time keeping up with their mortgage payments or whose mortgage amounts exceeded the value of their home. The firm became popular during the downturn for its role in assisting homeowners who defaulted on their mortgages and were considering leaving their houses.
As the housing crisis eased, Mr. Maddux shifted gears and in 2012 co-founded AfterForeclosure.com, which focuses on helping former homeowners who went through a foreclosure to get back into the housing market. The website asks them a series of questions to figure out if they are eligible for a mortgage and it sells leads to lenders who contact former homeowners informing them of their mortgage options. They include mortgages insured by the Federal Housing Administration, which has low credit score requirements and can have relatively short waiting periods following foreclosure. Another option offered are loans that these lenders are holding on their books or selling to private investors.
That’s the space Mr. Maddux entered last summer when he co-founded Drop Mortgage. One way it finds potential borrowers is by searching the databases from YouWalkAway and AfterForeclosure, Mr. Maddux says, which collectively have more than 58,000 names. Drop Mortgage informs these borrowers that they could qualify for mortgages sooner than many of them think, effectively offering them a second chance at becoming homeowners again.
Mr. Maddux stands by his track record. He says YouWalkAway gave advice to homeowners who decided to stop making payments and that it never advised them to default. “Our main focus was to educate homeowner of their rights,” he says. “The experience I got from running YouWalkAway…really helped me get ahead of any competition.”