Mortgage hangover begins to ease

The credit binge that helped lead to the mortgage bust left quite a hangover that many past home loan borrowers haven’t gotten over yet. But there’s been some good news uncovered.

The first bit of good news, according to new research from TransUnion, is that time has been healing, among some of the suffering borrowers who encountered some major credit ill related to their bubble-era mortgages.

They’ve progressed enough that they could, once again, buy a home with a mortgage. TransUnion found that approximately 700,000 people could reenter the housing market in 2015. This estimate is made on the basis of their credit have improved to the degree that they now appear to meet FNMA standards.

More hangovers will be lifting

Some additional good news: TransUnion’s research indicates that other groups will be joining the ranks of the recovered over the next five years. Over that period, approximately 1.5 billion additional people will gradually become potential mortgage candidates. As projected by TransUnion: 300,000 more in 2016; 500,000 more in 2017; 400,000 in 2018; and 300,000 in 2019.

The universe examined for the research are those who had such credit troubles as being 60+ days delinquent on a mortgage; having lost a home through foreclosure, short-sale, or other non-satisfactory closure; or having a mortgage loan modification. Different types of problems require longer periods before they will no longer stand in the borrower’s path to another mortgage.

“As consumers responsibly manage their credit and pass these milestones, we anticipate a tide of newly mortgage-eligible consumers entering the market,” said Joe Mellman, vice-president and head of TransUnion’s mortgage group.

The credit agency’s study looked at 180 million consumers, concentrating on the portion that had mortgage credit trouble during the bust.  About 43% of the total had a mortgage and about 8% had some negative impact.

Of that 7 million-person slice with negative impacts, 18% had recovered sufficiently to obtain a mortgage by yearend 2014, leaving 5.7 million not yet recovered. (TransUnion says that 42% of recovered customers once again have a mortgage, while 58% have yet to seek a mortgage since recovering.) However, the research’s year-by-year findings, recounted earlier, indicate that 2.2 million of the 5.7% will recover within five years.

How to work with these findings

TransUnion suggested that this is an opportunity for loan-hungry lenders to reach out with credit education.

“As ‘boomerang’ buyers who experienced foreclosures or other negative impacts become eligible to re-enter the mortgage market, they may not immediately do so if they are not aware they are eligible again, or feel daunted by their prior experience,” says Mellman.

TransUnion suggests improving or creating triggering or pre-screening programs to identify when mortgage oriented consumers have recovered, so lenders can market to them again.

The company also suggests inviting impacted consumers into credit education programs now, so they can be shown how to re-enter the home credit market when they are ready.