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Helen Silvis of The Skanner
Published: 10 October 2007

Drive through the streets of N.E. Portland and you will see the signs: "Prevent Foreclosure." For homeowners struggling to make mortgage payments those words may seem like the answer to their prayers.
But housing nonprofits warn that the promise of an easy solution can be deceptive. Better to get information about how to avoid foreclosure from a neutral party, they say. Better still — take a homebuying class before getting into a mortgage deal that turns into a nightmare.
Cheryl Roberts, executive director of the African American Alliance for Homeownership, said foreclosure can be prevented by getting help as soon as you are unable to make a payment.
"The way you prevent foreclosure is not to wait, but to get help as soon as your loan becomes delinquent," Roberts said. Instead they should call a neutral party such as a HUD-approved counseling agency who has nothing to gain. "We know the options and we can provide them with the information so they can work it out with their lender."
Roberts said none of the homeowners who have approached the alliance for foreclosure prevention counseling have lost their homes. That's because it often is possible to find a solution to the problem. But she has worked with people who have lost their homes after signing them over to the companies who put up those ads.
"One person was put out of their home after 16 years in that house," she said. "They tell people that if they make payments they can get their home back. That may be true, but these companies are buying that person's mortgage and if you don't make a payment they can put you out. People don't understand that once you sign that deed you become a renter."
Nationally, the number of foreclosures has shot up in the recent months – thanks in part to a drop in the housing market. Of course, foreclosures occur even in strong housing markets. People suddenly can't make their mortgage payments, perhaps because they lose a job, have a medical emergency or get divorced. Those are typical problems, said Fernando Velez, a consumer information specialist for the state of Oregon. But now conditions surrounding the national housing market have created the perfect storm, where many more people are finding themselves at risk.
"A lot of people got into buying a house thinking they would be making a profit on it," Velez said. "But in those areas where the housing market is depreciating or flattening they are in big trouble."
That is just about everywhere. Like most of the country, Oregon is just emerging from a housing bubble. For several years house prices have been increasing rapidly due to high demand.
At the same time, from about 2002, banks and lenders began to lower their barriers and more people than ever before became eligible for mortgages. Lenders began to offer nontraditional loans that allowed buyers to make lower payments for a fixed time period. Nontraditional loan buyers often begin by simply paying off the interest on the loan. The rate may start off very low at 4 percent or even lower. But payments are set to rise after this initial introductory period when they have to start paying off the principal. Often at the same time, the rate changes sharply upward. Sometimes rates jump as high as 11 or even 12 percent.
Buyers were tempted because with housing prices rising so fast, they could refinance after the initial period, using the equity they had gained from the increase in value as a down payment. They then could qualify for a traditional loan – whether fixed rate or adjustable. These loans are more predictable and have lower interest rates long term. As a result many people took out larger mortgages than they could afford, thinking that rising property values would fill the gap.
But when the housing market tanks or flattens, those profits disappear. Houses sell more slowly and prices drop. In much of Portland, house values have flattened rather than dropped. Yet, the slowdown is affecting people. 
"That's what people were betting on – that the houses would appreciate in value," Velez said. "So a lot of people got nontraditional loans, where they were paying only the interest for a period of time. But at one point you have to start making payments to the principal. And if you had an adjustable rate then you are going to see an increase in your monthly payment.
"Between now and next year a large number of loans are going to be resetting and those people need to be prepared to make higher payments."
In Portland, already a popular destination for newcomers from California and the East Coast, the housing market leaped even higher than the national average. In 2005, for example, some Portlanders saw the value of their homes rise by 20 percent.
"I couldn't buy my house now," Velez said. "Yes, I have a higher income, but because of the appreciation I wouldn't qualify. And if I had bought my house in 2000 with one of these nontraditional adjustable rate loans, there is no way I could make the payment."
Mortgage lenders are supposed to screen homebuyers to make sure they have sufficient income to cover their purchase. But some of the new loans relied solely on the stated income of the borrower. And some unscrupulous lenders encouraged borrowers to inflate their incomes.
Other lenders fudged the details when explaining the loans to borrowers, Velez said.
One Spanish-speaking woman had a good 30-year fixed rate mortgage (6.25 percent) but exchanged it for a nontraditional loan because she believed she could lock in a lower rate. Now her rate is 7.87 percent.
"The case is under investigation," Velez said. "The lender may have been lying, but the documents she signed tell the truth. You must know what you are signing."
Housing advocates urge all first-time homebuyers to attend a homebuying class so they can avoid these mistakes. Classes are available in Portland through The African American Alliance for Homeownership, the Portland Community Reinvestment Initiative and Hacienda Community Development Corporation. Just one day of study and learning that can make all the difference, said Cheryl Roberts.
And, Roberts said, even if you are struggling to make payments on your mortgage, solutions can be found. Refinancing and tax deferral (for seniors facing rising tax bills) are among the options. Worst case scenarios may include selling your home. But all of these are better than foreclosure.
'Don't wait," she said. "Don't be afraid to ask for help. There is no shame in saving your home."
To find out about home buyer classes or foreclosure counseling contact:
African American Alliance for Homeownership: 503-595-3517
Portland Community Reinvestment Initiative: 503-288-2923
Hacienda Community Development Corp: 503- 595-2111
AAAH's next first-time homebuyer class is set for Saturday, Oct. 13, Emmanuel Hospital, 501 N. Graham. Space is limited. Advance registration required. 503-595-3517
More information for people who want to buy homes will be available at the African American Homebuying Fair, Saturday, Oct. 27 at Emanuel Hospital, 501 N. Graham from 10 a.m. - 2:30 p.m. Free workshops from 11:30 a.m.

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