Yet on Wednesday — only three years after their foreclosure — the couple signed the papers to buy a four-bedroom house in Livermore. Their avenue to homeownership? A loan backed by FHA.
“We’re as happy as can be,” Stacy Davis said.
The ability to get an FHA loan so quickly after a foreclosure could be welcome news to thousands of people who lost their homes during the housing bust. In the coming 12 months, about 22,000 Bay Area foreclosures will hit the three-year mark.
While mortgage giants Fannie Mae and Freddie Mac make people wait seven years after a foreclosure, the FHA will approve loans after three years, providing the buyer has established good credit and the ability to pay the mortgage.
“There’s definitely a movement of folks who have had a foreclosure to re-emerge and re-engage in the market,” said Dustin Hobbs of the California Mortgage Bankers Association. He said brokers around the state have picked up on the trend.
“It helps the housing market,” said Guy Schwartz of CMG Financial in San Ramon, which handled the Davis’ mortgage.
The FHA, which is self-supporting, provides mortgage insurance for loans with low down payments and more flexible household income requirements. The Davis loan came with a 3.5 percent down payment plus required monthly mortgage insurance and a 3.75 percent interest rate on a 30-year loan.
“An FHA loan is a good option for those who can qualify,” said Paul Leonard, California director of the Center for Responsible Lending. And there couldn’t be a better time to try, he said.
The Davis’ journey from foreclosure to new home began in 2005 when they bought a condo in Concord for $262,000 at the peak of the market.
The couple’s interest-only, 100 percent-financed loan was a classic bubble product that became a formula for foreclosure during the housing crash.
To make things worse, the condo was in a rough neighborhood, said Stacy Davis, who is a special-education teacher at Mission San Jose High School in Fremont. Her husband is a senior producer for the Golden State Warriors.
They tried to sell the condo after their daughter was born, but no one wanted to buy it, Stacy Davis said. “We decided we’re going to try to stick this out. We owned it and we would make it work.”
So they remodeled, put in a new kitchen and molding.
Meanwhile, the neighborhood deteriorated. Shopping carts piled up on the sidewalk, she said. Graffiti blossomed on walls.
After their son was born, they tried a short sale and found a buyer. “Within a week, an upstairs bathroom pipe busted open and flooded the whole place — the new kitchen, the molding, all destroyed. So the buyer backed out,” she said.
Their condo in ruins, they moved to a rented house in Dublin and the bank foreclosed. Their credit rating dropped to about 500, but they were able to build it back to about 700. “Within a year we were getting credit card applications. We didn’t feel like it affected our lives at all,” she said.
The purchase of the house in Livermore completed, the Davis family will begin moving in early next month.