Education is key to preventing another foreclosure crisis

Before the housing market crashed, adjustable rate subprime mortgages were a popular way for people with shaky credit or low incomes to buy or refinance a home.

Sold on the promise of deals that sounded too good to be true, many people took out loans they didn't understand on the hopes they could refinance later into a fixed rate.

Advocates say classes like this one could have prevented many people who lost homes to foreclosure from taking risky loans in the first place.

"Owning a home is expensive. There are things you might not be quite aware of yet. A house is like an ongoing living creature that you are having to maintain," housing consultant John Trostle says.

He stands at the front of a conference room in North Minneapolis. A few dozen would-be homebuyers sit quietly, taking notes. In the first hour of this nine-hour class, called Homestretch, Trostle covers the basics -- everything from property taxes to weatherization.

Demand for the classes, which are offered by nonprofit groups statewide, is up dramatically as home prices drop and interest rates hit record lows. A big chunk of the class is devoted to financing.

"How many people have $5,000 saved up?" Trostle asks.

A few people raise their hands.

"How about $2,500? How about $500? How many people have some change in their pocket and they're hoping that is a good start?" he jokes.

Trostle warns the students not to buy more house than they need, and to put off buying if they can't really afford it.

He says predatory lending is dangerous, particularly for people without the financial literacy to resist. That's why, when they finish the class, each buyer will meet one-on-one with a counselor to go over their finances and look at loan options.

A recent University of Minnesota study found the majority of owner-occupied foreclosures between 2006 and 2008 in Minneapolis affected Spanish-speaking immigrants. Overall, the study found that foreclosures affected African-Americans and Hispanics at a much higher rate than other groups.

Mortgage counselor Mark Dorshak says more first-time homebuyer education is critical to preventing more foreclosures in the future.

"As we see in the foreclosure situation here, many people have not taken an educational class and didn't know what they were getting into," Dorshak says. "One of the important questions we ask is, 'Are you a first-generation homeowner?' because they may not have the background to know everything that is entailed in ownership."

Dorshak says renters can also have a tough time transitioning to the responsibillities of ownership.

Renters Marian Dickson and Mose Stamps are ready to buy. But first, they're trying to learn as much as they can about the process.

"Some people, I think they just rush into it not knowing what the backdrop could be on it," says Marian.

"You have to do your homework," says Mose. "They are going to give us the information that is needed and we just follow up on it."

"And not only with this program here. You have to do research and stuff on your own about buying a home," Marian says.

Housing consultant Trostle says homeowners with this kind of cautious approach are usually headed for success.

"They got the home or the kind of home they really need, first of all. It's in good condition with a mortgage they can handle. And that they are going to be not only happy and successful in this home, but it's going to prepare them for the inevitable when they sell this home, get the equity out of it and are able to move on to the next," he says.

Trostle says helping more responsible homeowners stay in their homes for the long haul will also help everyone out of the economic crisis.

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