Borrowers hang on with help from state

Mortgage aid keeps some from losing their homes - for now
by: JAIME VALDEZ Debbie Vilcko, here with her two sons, Gabe Vilcko (left) and Tom Charbonneau, hopes to receive federally funded foreclosure-prevention money to pay for her mortgage and property taxes in the next year.

Debbie Vilcko and her husband are two months behind on the mortgage of their Southeast Portland home.

They're still paying down credit card debt stemming from past efforts to cover the mortgage when their work hours were slashed.

And Debbie just threw a rod in her 1976 Volvo.

Still, the Vilckos may be among the lucky ones who manage to stay out of foreclosure during the Great Recession.

They're among 1,155 Multnomah County families hoping to get their mortgages and property taxes paid for the next 12 months, courtesy of the Oregon Homeownership Stabilization Initiative, a federally funded foreclosure-prevention program for the 'hardest-hit' states.

In all, nearly 6,000 Oregon families are anxiously awaiting word that they won final approval for the program and will start getting the money.

Until then, the Vilckos and the other families are in limbo.

'Part of me doesn't believe it's going to happen,' Debbie Vilcko says.

When homeowners were provisionally accepted for the program in December and January, 'we were looking at folks who had pretty much reached the end of their rope,' says Lisa Joyce, policy and communications manager for the state Department of Housing and Community Service.

People had to show they had lost jobs or income during the Great Recession, were earning no more than 20 percent higher than the median income and had only enough cash or savings to cover four months' house payments or less.

That was three months ago, and nobody's gotten any money yet.

The program delays 'can only increase the stress on the individual family,' says Tom Cusack, publisher of the Oregon Housing Blog, and the retired federal housing chief for Oregon. 'There's always the fear by the homeowner that they're going to lose their home in the interim.'

'I urge them to hang in there,' says Joyce, who is keenly aware that things could be worse now for families who were deemed in 'hard straits' back in December.

'We're working as fast as we can to get those payments out the door, while being responsible stewards of the resources,' Joyce says. 'We're hoping for the bulk of the payments to start flowing in April.'

Huge potential

If the program is successful, it could be a lifeline to keep families in their homes until the job market improves. It also could prevent as many foreclosures in Oregon as the Obama administration's top foreclosure-prevention program, the Making Home Affordable, or HAMP initiative, Cusack says.

If 6,000 Oregon families manage to stay out of foreclosure, that also avoids dumping all that distressed property onto the market, which would depress home prices and delay recovery of Portland's housing market.

Compared to big banks, the state has ramped up the new foreclosure-prevention program in speedy fashion. But the state housing agency is gaining more appreciation for how complicated it is to keep distressed homeowners in their homes, Joyce says.

The state now is trying to get approvals from all the applicants' lenders that they'll accept payments under the program. And the state must complete underwriting, making sure people's income, assets and other claims are well documented.

Until those occur, people won't get final approval for the mortgage-payments program.

While HAMP and bank loan-modification programs have focused on lowering people's monthly payments so they can stay current on their mortgages, the new state program is unique. It pays the entire mortgage for a year, or up to $20,000, whichever comes first.

The mortgage payments are technically a loan, not a grant. But if people keep making payments and remain in their home for five years, the loan gets excused. If, on the other hand, they sell their home sooner, they'd have to repay part of the loan from the sale proceeds. And if they land new work that makes their income exceed program requirements, the mortgage payments will end.

'The best way to look at it is like an unemployment benefit,' Joyce says. It's designed as a transitional device to keep people from losing their homes while they're unemployed or underemployed, until their job prospects improve.

Oregon received a whopping $220 million in federal aid because of its high foreclosure rate, and the mortgage payment program is expected to use the first $100 million of that sum. Other phases are planned to roll out later.

About 16,000 Oregonians applied for the program, but the state determined only 5,994 were eligible. Now, it turns out, there's enough money to serve them all, Joyce says.

Initially, only 253 slots were reserved for Multnomah County homeowners. However, fewer people than expected signed up in several rural counties, freeing money for urban areas.

Now, 1,155 Multnomah County homeowners will be offered help, plus 541 families in Clackamas County and 387 families in Washington County, Joyce says.

Cusack suspects key personnel turnover at the state housing agency explains some of the program delays. Gov. John Kitzhaber fired Oregon Housing and Community Services Director Victor Merced. He also borrowed Michael Kaplan, who had been running the foreclosure program, to join his staff for the legislative session.

Joyce says state employees have stepped up to keep the program moving forward despite the management shuffle.

Through the wringer

By this stage of the prolonged economic downturn, the Vilckos and others awaiting assistance have endured many traumas to keep their homes.

'It started a few years ago,' Debbie Vilcko says. 'I had lost my job and my husband's hours were cut, and we started getting behind on our mortgage.'

They had a subprime mortgage - loans granted to people with weak credit that typically reset to much-higher interest rates after two years. When recipients stopped being able to refinance out of subprime loans, that sparked the initial wave of foreclosures that led to the Great Recession.

The Vilckos, unlike many others, managed to refinance their subprime loan, though that meant a higher monthly payment.

When their income dropped, they tapped three different credit cards to pay the mortgage.

Debbie landed work at a Taco Bell, and then as a parking lot attendant. Her husband delivers medical gases to nursing homes, hospitals and other locales.

The couple supports two grown sons still living at home, a 19-year-old with Asperger's Syndrome who is attending college and a 29-year-old who has a more severe form of autism.

After a long struggle, the Vilckos managed to get their loan modified by Chase Bank.

They've lived in their home near Southeast Powell Boulevard and 74th Avenue for some 13 years and hope to retain it, even though they're 'under water' on the mortgage. They owe $323,000 on a home worth about $247,000, Vilcko says.

After what she's gone through, Vilcko worries what happens if one year of mortgage payments isn't enough. The family still faces $1,950 monthly payments for the ensuing four years, and if they can't afford that, they'd have to repay part of the government assistance as well.

In such cases, the federal handout would add more debt to the cash-strapped homeowners.

'It might give us a break for year,' Vilcko says, but then what?

'That's what scares me about it.'

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Oregon spends hard-hit funds

Here's how Oregon proposes to use its $220 million in federal foreclosure-prevention funds for the 'hardest hit' states:

• $100 million to cover mortgage payments and property taxes for nearly 6,000 families for up to a year.

• $7.5 million to help facilitate short sales, when a distressed homeowner sells his or her home to a third party for less than the mortgage, if the lender agrees to write off the remainder of the home loan.

• $26 million to help people qualify for the federal HAMP mortgage-loan modification program, which cuts their monthly payments.

• $67 million to help people who regain employment pay off past-due loan payments and fees accrued while they were unemployed.

• $10 million for a pilot program in Jackson and Deschutes counties, to purchase homes from distressed homeowners and then sell them back at a reduced amount.