More than 1.5 million "boomerang buyers" – those negatively affected by the housing crisis – could re-enter the housing market at some point in the next three years, according to a study released by TransUnion on Wednesday.
Boomerang buyers include those who are 60 or more days delinquent on a mortgage loan, have had a mortgage loan modified, or have lost a home through foreclosure, short sale, or deed-in-lieu of foreclosure. TransUnion estimates that about 700,000 boomerang buyers could re-enter the mortgage market in 2015, and another 2.2 million could re-enter the market over the next five years.
"Based on our study findings, the burst had a significant and dramatic impact on many consumers' ability to re-enter the mortgage market after suffering through the downturn," said Joe Mellman, vice president and head of TransUnion's mortgage group. "It's been over seven years since the beginning of the mortgage crisis; this is significant because many derogatory items, such as foreclosures and short sales can prevent consumers from qualifying for a new mortgage for a period of time. The timing of that challenge can vary: for example, four years must pass after a short sale and seven years must pass after a foreclosure. As consumers responsibly manage their credit and pass these milestones, we anticipate a tide of newly mortgage-eligible consumers entering the market."
In order to determine consumers' ability to re-enter the mortgage market, TransUnion's study analyzed the credit-active population in the United States during a three-year period from the end of 2006, which was the end of the housing bubble, until the end of 2009, which was the end of the housing bust and in 2014.
The study found that only about 18 percent, or 1.3 million, out of the 7 million impacted consumers had recovered enough by December 2014 to meet agency credit underwriting guidelines. The study also determined, however, that 2.2 million of the remaining 5.7 million consumers could potentially meet those underwriting guidelines over the next five years.
TransUnion found that about 42 percent of those 1.3 million consumers who have recovered currently have a mortgage, while 58 percent of consumers who have recovered do not."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," Mellman said. "Lenders can help consumers ease this transition with credit education programs addressing consumer eligibility, and help them better understand their borrowing options."
The study also examined the impact of the mortgage crisis on consumer credit scores and found that about 39 million consumers dropped at least one credit score tier during that three-year period between the end of the bubble and the end of the bust. By the end of 2014, less than half of those (16 million) had recovered enough to be in the same risk tier they were in prior to the housing bust.
Certain credit risk score tiers have shown marked improvement in scores, however, according to Trans Union. About 7 million consumers moved into the prime or better risk categories between 2009 and 2014 (meaning they have a Vantage Score 3.0 credit score of 661 or higher ) while an additional 8 million moved from the subprime risk tier (credit score of 660 or lower with VantageScore 3.0) into a higher risk tier during that period.
"An important question lenders face is when to re-engage with consumers who have been challenged managing credit in the past. Despite the negative impact of the mortgage crisis on many consumers, we're seeing promising recovery as consumers shift to lower risk tiers," said Ezra Becker, VP of research and consulting in TransUnion's financial services business unit. "The pronounced decline in the number of subprime consumers indicates that time has diminished the impact of Burst-era derogatory items on consumer credit. While some lenders may be hesitant to offer loans to these impacted consumers, our data show these consumers are becoming better credit risks. Our study puts a framework around the re-engagement question relative to the mortgage crisis, and that's good news for both lenders and consumers alike."
Click here to see the entire study from TransUnion.