When Jennifer Anderson's family could no longer afford their mortgage and lost their home, she expected many years to pass before they would again become property owners.
But less than two years later, in March, they purchased a $297,000 house outside Phoenix, Arizona, after qualifying for a loan backed by the U.S. government.
They joined a small but growing number of Americans who are making a surprisingly quick return to homeownership after defaulting on their loans or being forced into short sales that cost their banks money.
"We didn't really expect it," said Anderson, 40. "We were resigned to the fact that we were going to be in a rental property for a while."
Financial problems arose after she lost her job as a customer service representative for a health insurance company and her husband's hours at an automaker were cut. To make matters worse, they used up her retirement savings trying to keep their home.
Data is not available, but interviews with more than 30 lenders, builders, Realtors and consumers suggest that a growing number of Americans are getting back into the housing market, even though they went through a foreclosure, bankruptcy or short sale in recent years.
"Most are not ashamed or bashful about what happened because so many people were forced into that reality in the last six years," says Graham Epperson, vice president of sales in Arizona for the PulteGroup, a leading U.S. homebuilder.
They want to escape rising rents and take advantage of home prices, which are down by about a third from an April 2006 peak.
FHA to the rescue
Much of the comeback wouldn't be possible without help from the U.S. government, namely the Federal Housing Agency. It was created in the 1930s as part of a broader push by Washington to foster home ownership and fight the Great Depression.
The number of FHA-insured home loans has soared in recent years as subprime loans have disappeared and fewer Americans have qualified for conventional mortgages backed by Fannie Mae and Freddie Mac, which were rescued in 2008 by the U.S. government after loan losses.
Federal Reserve Chairman Ben Bernanke stressed the point last week, saying banks have become so restrictive that many worthy homebuyers are being frozen out of the market, and lending practices are not likely to loosen any time soon.
In contrast, FHA-backed loans are an option for many who defaulted on their mortgages or were forced into a short sale. FHA loans, combined with those backed by the Department of Veteran Affairs or the Department of Agriculture, had a record share of the market in 2011.
"These are not mainstream programs geared for mainstream borrowers," says Greg McBride, senior financial analyst at Bankrate.com, who expects to see more of those with blemished credit reenter the housing market.
Most of these reentering buyers are using FHA-insured loans, which at the end of 2011 accounted for about 30 percent of loans for home purchases, compared with 4.5 percent in 2005.
A conventional mortgage typically carries a lower interest rate than does an FHA-backed loan, but it also requires a credit score of at least 720, proof of income and a significant down payment. In contrast, FHA loans historically have been available to help low and moderate-income families buy homes.
FHA borrowers typically need a credit score of at least 620 and a 3.5 percent down payment. The FHA charges an upfront mortgage insurance premium of 1.75 of the loan (which can be rolled into the mortgage) and an annual 1.25 percent premium on the outstanding loan.
For some economists, alarm bells are ringing.
Edward Pinto, resident fellow at American Enterprise Institute, a conservative think tank, said the rise of FHA-backed loans flies in the face of the government's stated mission of getting more private capital into housing finance.
Furthermore, a requirement that borrowers taking FHA-backed loans make a down payment of just 3.5 percent of the purchase price brings back bad memories of how many subprime mortgages turned bad as housing prices began to fall in 2006.
According to the S&P/Case-Shiller 20-city composite index, U.S. home prices were down 3.5 percent in February from a year earlier and are now at their lowest since late 2002, although there have been some signs that prices are beginning to inch up.
"FHA is putting people back into situations that still have high risk of default," Pinto said.
He noted that a lot of these loans are made to consumers with credit scores well below 720 -- the median national score for all households-- and that about 15 percent of loans made to people with scores of 620 to 659 are likely to fail.
There have been about 4.2 million foreclosures in the United States since 2007, according to data firm RealtyTrac. It expects that number to climb to 6 million by early 2014.
A bankruptcy remains on a consumer's record for seven years, but that consumer can start raising his or her credit score in several months by decreasing debt, not borrowing more and paying bills on time.
"Most of the loans that are getting done are for people who have really rebuilt their credit," says Frank Donnelly, president of the Mortgage Bankers Association of Metropolitan Washington, D.C. "They have to prove (to the lender that) it was something like a job loss that caused this and not chronic delinquency."
As well as a minimum credit score of 620, lenders look at why the person lost the home. They're much more likely to lend to people who lost a job than to consumers who could have afforded their mortgage but chose to default.
Builders eager to sell homes are not only offering to help once debt-mired clients find loans but providing free credit-counseling programs like the Homebuyer Solutions program offered by Quadrant Homes in Bellevue, Washington.
"A lot of times when people enroll they just don't know where to start," says Teage Christensen, manager of the program. His goal: help clients get at least a 600 credit score.
Debra Eaton stumbled on the program when she and her husband were visiting model homes out of curiosity. They had filed for bankruptcy in 2008 after her husband was seriously injured at work and she took time off from her job to care for him.
After the bankruptcy, their credit score plunged to 460. "It's not that you don't pay your bills because you want to go on vacation," she says. "You don't pay because you don't have the money."
By November 2011, their credit score had improved to 680 and Eaton and her husband, a veteran, qualified for a Veterans Administration loan to purchase a $252,000 home near Tacoma, Washington. They moved into the three-bedroom house the day before Thanksgiving.
"If you would have asked me then if I was going to buy another home, I would've told you no way," she says.