Will 2 million 'boomerang buyers' ignite housing?

Since the epic housing boom and bust of the last decade, nearly 8 million borrowers have lost their homes to foreclosure. Now, with credit repaired, some of them are finally returning to home ownership. The numbers are small to start, but so-called boomerang buyers could become a significant driver of new housing demand over the next few years.

Lenders require seven years of credit repair after a foreclosure and four years after a short sale before they will consider another mortgage.

About 700,000 boomerang buyers would therefore be eligible for credit again this year, and up to 2.2 million over the next five years, according to TransUnion, a credit information company. TransUnion defines these buyers as having been 60-plus days delinquent on a mortgage loan, having lost a mortgage through foreclosure, short sale or other nonsatisfactory closure, or having a mortgage loan modification.

"As consumers responsibly manage their credit and pass these milestones, we anticipate a tide of newly mortgage-eligible consumers entering the market," Joe Mellman, vice president and head of TransUnion's mortgage group, wrote in a release.

These borrowers may be eligible, but the question remains: Are they willing? Of the 1.3 million so far who are now eligible, less than half have purchased another home, according to TransUnion.

"That says to me either they don't want to, or maybe they don't know that they're qualified," said Steve Chaouki, executive vice president of financial services at TransUnion. "So I think it's incumbent upon lenders to let them know that they're qualified, and then they can make the decision as to whether they want to buy a home or whether they prefer to rent or something else."

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Widmark Cano, who works in financial services, was living in South Florida with his wife, Jenny, and three children during the height of the housing boom. They owned a home in West Palm and had taken out a second mortgage to do some renovations. When the recession hit, he lost his job and, with it, his six figure salary.

"I was upside down on the house. I couldn't refinance. I lost credit," said Cano.

With his income slashed, the Canos decided to relocate to Atlanta and start over. Now, seven years later, at age 49, Widmark is back on his financial feet and ready to buy again. Despite the bad experience in home ownership, Cano said it comes down to simple math: "If I buy the home and put some money down, my mortgage is cheaper than the rent. It's the best value right now when you compare it to the availability of rental properties. It's cheaper to buy and own than it is to rent," said Cano.

The mortgage process, Cano admitted, was, "a little tricky," due to strict underwriting. "It's a little tougher sledding."

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He is now pre-approved for a loan and shopping for a five-bedroom house.

Others may not be as quick to jump. Witness the huge growth in single family rental home demand. Investors who bought thousands of distressed properties during the housing crash are, for the most part, holding and renting them. They are commanding high rents and seeing very low vacancies. While some consumers may have repaired their credit, not all are ready to boomerang back to buying.

"I think people are just generally cautious these days. Even the most prime consumers have deleveraged," said Chaouki.