Dec. 6, 2008: Seriously, who's a better risk for a mortgage than someone who has already lost a home to foreclosure?
We talked last week about credit flexibility among merchants as they try to find ways around the banking crunch. The flip side of the same coin is how the credit marketplace will react, going forward, to home foreclosures.
You've heard all your life that a foreclosure is second only to a bankruptcy in the way it will ruin your credit. This is still true, but "ruin" may turn out to be an adjustable calamity.
Here's why: A lot of people are going through foreclosure. Ninety percent or more of homeowners are unaffected by the wave of bank repossessions, but that still leaves millions of people who are going to have a foreclosure on their credit for the next seven years.
What's going to happen to those folks when they go to the furniture store or the jewelry store or the car dealership? They might end up paying a higher interest rate, but they're still going to get financing.
I have been advising my investor clients for months to ignore recent foreclosures on credit reports. Past performance on every other sort of credit account matters a lot. But if landlords refuse to rent to folks who have lost their homes, they will be turning away half or more of the tenant population.
My take is that, right now, a recent foreclosure is like hospital debt: If everyone else was getting paid before, during and after the financial catastrophe, you just have to look past the elephant in the room.
And here's the funny part: I am sure this will apply to home loans in due course, also. If mortgage money remains freely available, lenders will find a way to overlook recent foreclosures in order to underwrite new home loans.
We can hope that, this time, interest rates will reflect the true risk lenders are taking on. But this country runs on credit. Just because a borrower recently defaulted on a six-figure debt, that's no reason to withhold the unlimited boon that is homeownership.
In America, we can sell ourselves on anything -- provided we don't have to pay for it today.
Greg Swann is the designated broker for BloodhoundRealty.com, a full-service Metropolitan Phoenix real estate brokerage. This article originally appeared in the West Valley regional sections of the Arizona Republic.
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