Builders put home buyers into credit boot camp ... - Financial Post

In the United States? post-housing crash world, Kelly and Jeff Clark are the kind of people who are not supposed to be able to buy.

For a down payment, they had nothing. Their credit scores were sub-par. But this Christmas, the Clarks will move from their rundown rental into a brand new, four-bedroom home in an amenity-loaded development outside of Lakeland, Fla. All without paying a dime.

They are part of a new rehab program being offered by some U.S. home builders, doling out sophisticated financial advice to prospective buyers who would not normally qualify for loans.

Just five years after the biggest housing meltdown in generations, some consumer experts are wondering if builders are up to their old tricks again.

?You have people applying for loans that there?s no way they can pay, but it doesn?t matter because the ability to repay isn?t the basis of the loan. It?s the ability to pass underwriting so the loan can be sold,? says Washington, D.C.-based bankruptcy attorney Brett Weiss.

The financial advisors go by names such as ?mortgage advisors,? ?credit advocates? or ?loan officers.? They help prospective customers create budgets and slash spending. Some also help out with ?credit repair,? the practice of analyzing credit reports to determine the best strategies for raising scores as quickly as possible.

The Clarks thought they would remain renters forever. But early in the summer, a friend recommended they meet Janet Backman, a sales agent for Southern Homes.

During that first meeting, Ms. Backman pored over the Clarks? financials and decided to put them in what she calls her ?incubator.?

That?s the process Ms. Backman uses to convert the credit-challenged into homebuyers within a matter of months. It drives her crazy that people in her area pay more to rent than to own, with monthly mortgage costs now lower than rent in nearly every major U.S. metro area.

The Clarks had no credit cards and paid for everything with cash. So as Ms. Backman talked with them that first day, she simultaneously signed them up for credit cards online.

Then she told the couple that, if they made US$50 worth of purchases each month, but only paid the balance down to US$25, their credit scores would likely rise immediately.

Within a month, she got the couple?s scores up enough to qualify for the zero-down, government-backed loan she secured for them through a partner lender.

Southern Home?s sales agents have sold 162 homes so far this year, with nearly all buyers getting similar advice and loan terms.

Says Backman: ?Every time I hear about how hard it is to purchase a home, I?m thinking, what planet are they living on??

These fiscal rehabs are one reason many builders are boosting sales, even though most loans that banks are underwriting now meet stringent government standards.

PulteGroup Inc. said in July that its financial program could help its sales for some time. On Monday, Lennar Corp. said revenue from home sales rose 33% last quarter from the same quarter a year earlier. Orders for homes rose 44%, helped by the 25% increase in membership in its Homebuyers Club since last year.

Providing financial therapy solves a huge problem for the builders: How to sell to first-time home buyers when so many younger consumers are saddled with student debt and bad credit.

The number of people aged 25-to-34 who bought homes in 2011 fell to 27%, the lowest share in the past decade, according to the National Association of Realtors.

Rising student debt has played at least some role in that decline, analysts said. According to the U.S. Consumer Financial Protection Bureau, about 50% of young people that started college in 2003 were paying more than 10% of their income on student debt.

? Thomson Reuters 2012

Source: http://business.financialpost.com/2012/09/27/builders-put-home-buyers-into-credit-boot-camp/

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