Borrowers must wait as much as four years following a bankruptcy to qualify for a Fannie Mae-guaranteed mortgage, according to the U.S. agency’s guidelines. A seven-year wait is required after a foreclosure, or three years with documented extenuating circumstances, such as a job loss.
The house in Fortuna, California, that Bertain bought for $522,000 in 2006 was sold out of foreclosure last year by Bank of America for $244,000, he said.
Starting Over
“I have to start over and rebuild my credit and that’s definitely frustrating,” said Bertain.
Borrowers whose credit was wrecked during the housing bust are going to have difficulty despite the Fed’s efforts, Eric S. Rosengren, president of the Federal Reserve Bank of Boston, said in a Dec. 3 presentation in New York.
“Does it work perfectly? No,” he said of keeping interest rates at rock bottom. “Does it work better than not doing it? Definitely. You have to weigh the costs and the benefits. I think so far the benefits have outweighed the costs.”
Not all the benefits go to the borrower. Mortgage lenders are able to profit from the sale of their home loans to the Fed, said Rael Gorelick, co-founder and principal of Charlotte, North Carolina-based Gorelick Brothers Capital LLC, which invests in mortgage funds. The central bank buys mortgage-backed securities at a 2.5 percent yield, meaning the banks make the difference between that and the prevailing home-loan interest rate, he said. That’s about 1 percentage point on every loan that ends up on the Fed balance sheet.
Making Money
“The mortgage banking people are making a ton of money, they just don’t want anybody to know about it,” said Paul J. Miller Jr., a bank analyst at FBR Capital Markets Corp. in Arlington, Virginia. Critics could cast the Fed’s asset purchases as another back-door bailout of the big banks, Miller said, though bank profits will decline once the Fed-fueled refinancing boom is over.
The largest residential lenders are San Francisco-based Wells Fargo & Co., with about one-third of the market, and JPMorgan Chase.