Though about five million families lost their homes to foreclosure from 2009 to 20013, some seven million consumers’credit was negatively impacted by the housing crash. Today, only 1.2 million, or 18 percent, have completely recovered. But over the next five years some 2.2 million of the remaining 5.7 million unrecovered consumers could meet agency underwriting guidelines, according to a report from TransUnion.
During the mortgage bubble in 2006, 78 million consumers, or 43 percent of credit-active consumers in the U.S., had a mortgage. More than 8 percent of these consumers were “impacted,” defined by TransUnion as 60+ days past due on a mortgage loan, had lost their mortgage through foreclosure, short sale or other non-satisfactory closure, or had a mortgage loan modification between the boom and the crash.
The TransUnion study found that approximately 700,000 boomerang buyers may be able to re-enter the housing market in 2015. Over the next five years, TransUnion anticipates an additional 2.2 million boomerang buyers could re-enter the market, leaving 3.2 million, 46 percent of impacted consumers of with credit scores below 620, unable to qualify for a mortgage.
The study also looked at how big of an impact the mortgage crisis had on consumer credit scores. Some 39 million consumers dropped at least one credit score tier. As of 2014, 16 million of these consumers had recovered sufficiently to reach at least the risk tier they were in before the bust.
Many have moved into better risk tiers than they rated before the bust. The study found that seven million more consumers have moved into prime or better risk categories (VantageScore® 3.0 credit score of 661 and above) between the crash in 2009 and the close of 2014. Additionally, 8 million consumers left the subprime risk tier (VantageScore® 3.0 credit score of 600 or below) to enter higher risk tiers during the same timeframe.
“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.”
TransUnion analyzed, on a depersonalized basis, every consumer it could longitudinally track between 2006 and 2014, which came to 180 million consumers. During the mortgage Bubble in 2006, 43 percent of that population, or 78 million consumers, had a mortgage. Approximately 8 percent of these consumers had a negative impact on their mortgage — 60+ days delinquent, foreclosure, etc. — between the Bubble and Burst.
TransUnion analyzed this impacted population of 7 million consumers to determine how many consumers had recovered to meet agency credit underwriting guidelines by the close of 2014. The study found that only 18 percent of consumers impacted had recovered by December 2014. However, the study found that 2.2 million of the remaining 5.7 million unrecovered consumers could meet agency underwriting guidelines over the next five years.
Consumers Who Could Meet Agency Selling Guidelines in the Next Five Years