Dawn Turner Trice


March 26, 2007


We sort of understand how the national subprime lending mess and mortgage
foreclosures have affected Wall Street and investors. Though it's not a pretty
picture, it's all fairly clear-cut.

But beyond Wall Street, down on some Chicago streets, how to solve this
problem and stop swaths of city blocks from tanking is anything but clear-cut.

Case in point: Last October, the Chicago-based Metropolitan Family Services
agency hosted a community forum in the Roseland neighborhood to talk about
education, HIV awareness and community policing.

But the meeting took a turn with residents wanting to talk instead about
predatory lending and the new state law, the Illinois Predatory Lending
Database Pilot Program.

The law, also known as HB4050, required borrowers with credit problems to
get counseling if they were seeking non-traditional loans for properties in
ZIP codes where foreclosures were skyrocketing. The ZIP codes were in
neighborhoods such as Roseland, Auburn Gresham, Back of the Yards and West

It turns out that most of the borrowers subject to this law would have been
African American or Hispanic, since many of the distressed communities were
black or Hispanic.

Because the state did such a poor job of informing residents about the
law–intended to help stop the flood of foreclosures–ministers, mortgage
brokers and others in the affected areas were able to conjure old ghosts.

They warned residents that upstanding mortgage brokers would pull out of
the pilot communities. They warned that the law was racist. This stung
residents with clear memories of the legacy of redlining in their

To illustrate just how complicated this issue was, even some staffers in
Metropolitan Family Services' Roseland office believed the law to be racist,
even though the agency supported it.

So residents got scared. Then the state, hearing cries of discrimination,
got scared and suspended the pilot program in January. Now the governor is
attempting to lift the suspension.

Under the new and improved program, announced last week, the counseling
criteria would be based on whether a borrower was seeking a non-traditional
loan rather than on his or her credit score or the property's location. The
rules also would expand the program to all of Cook County, making it harder
for critics to cry racism.

The state now is in a 45-day public comment period, which began Wednesday.
Those who want to voice concerns can write to Craig Cellini, Rules
Administrator, IDFPR, 320 W. Washington St., Springfield, IL 62786.

After the comment period, there will be another 45-day review period.
Enough already. Some estimates suggest foreclosure rates in some of the pilot
ZIP codes average seven times the national rate.

According to the Woodstock Institute, a Chicago non-profit that studies
housing, high-cost loans, a leading culprit of foreclosures, made up 57
percent of the loans in the pilot ZIP codes in 2005. By comparison, in Cook
County the percentage was 32 percent. The 2006 numbers are being tallied and
are expected to be even higher.

By broadening the program, the state just may be causing more trouble. The
concern now is whether the infrastructure will be in place to implement so
many counseling sessions and whether borrowers who really don't need
counseling will be forced into it.

Though it may be a logistical nightmare, helping borrowers become better
informed isn't a bad thing. But the more efficient approach to fixing this
mess is to better regulate the mess makers: the slipshod lenders. At the very
least, the titleholders should be forced to maintain upkeep on these
foreclosed properties.

Last week, Sen. Barack Obama (D.-Ill.) called for a "homeownership
preservation summit."

Here's a brighter idea: The Woodstock Institute and other housing groups
are trying to pursue federal legislation that would force the lender to make
sure a loan is suitable to a borrower's circumstances. We see what happens
when it's not.

You may cringe at the thought of more government regulation. But consider
the cost to local governments (read: taxpayers) that have to intervene after
foreclosures. Next to drug dealing, few things suck the lifeblood out of a
neighborhood like these boarded-up houses.