ATTOM: Post-Recession Resurgence in Creative Financing for Low-Value Homes

ATTOM Data Solutions, Irvine, Calif., reported a post-recession resurgence in financing for low-credit borrowers with little or no down payments, in particular using contract-for-deed instruments.  

The company’s analysis of contract for deed data (http://www.realtytrac.com/news/mortgage-and-finance/contract-for-deed-data-exclusive-analysis/) shows more than 103,000 contracts-for-deed recorded nationwide in the five years following the end of the Great Recession (2010 to 2014), a 10 percent increase compared to the previous five years (2005 to 2009).  

A contract for deed, also known as a bond for deed, land contract or installment land contract, occurs when the seller finances the sale of his/her own property. In this transaction, the buyer agrees to pay the purchase price of the property in monthly installments. The buyer immediately takes possession of the property, often paying little or nothing down, while the seller retains the legal title to the property until the contract is fulfilled.  

The report noted following the subprime lending collapse in late 2008, a void emerged in financing for low-credit borrowers with little or no down payments. Loans backed by FHA stepped in to fill some of that void, with FHA purchase loans jumping from just 3.3 percent of all purchase loan originations in Q4 2006 to 27.2 percent in Q4 2008.  

But beginning in 2010, contracts for deed gained traction in the years following the collapse of subprime lenders, particularly for low-value homes in Rust Belt cities. Counties with above-average increases included Trumbull County/Youngstown, Ohio (136 percent increase); Wayne County/Detroit (63 percent increase); Genesee County/Flint, Mich. (53 percent increase); Marion County/Indianapolis (46 percent increase); Dane County/Madison, Wis. (26 percent increase); and Hamilton County/Cincinnati (24 percent increase).  

ATTOM reported the average sales price for the 2010-to-2014 contracts-for-deed nationwide was $87,010, 38 percent below the average sales price of $141,423 for contracts-for-deed recorded between 2005 and 2009. Over the same period, average contract-for-deed prices fell by 70 percent in Michigan, by 15 percent in Ohio, by 10 percent in Wisconsin and by 12 percent in Indiana.