BY MIKE DUFFIN

Special to the Daily Southtown

April 8, 2007

 

With the number of foreclosures skyrocketing in the past
year, lenders are coming under intense scrutiny for the type of loans they give
out.

 

The Woodstock Institute, a nonprofit community
development organization, recently reported that foreclosures in the Chicago
area for 2006 were at an eight-year high.

 

Joe Stanfa, president of Blue Sky Lending, blames lenders
who specialize in stated-income loans.

 

“People are having trouble making their payments, homes
are going into foreclosure,” he said. “The stated income loan is the problem.
I’ve talked to lenders who have told me that their worst performing loan on
their books was a stated-income loan for someone who is a wage earner.”

 

David Hochberg, president of Townstone Financial, hosts a
weekly show about the real estate industry on 105.9 FM (WCKG).

 

“I tell people not to buy houses all the time,” he said.
“You can’t control people from screwing themselves up.”

 

Some lenders struggling to survive

 

Because of the sluggish real estate market and the
growing number of foreclosures, some lenders are finding it harder to stay in
business.

 

Although far from bankrupt, national attention has
focused on the heavy losses of sub-prime lending giant Option One, which is
owned by H&R Block.

 

Hochberg said lenders have no one to blame but themselves
for their failures.

 

“Their guidelines were too liberal and they got burned,”
he said. “They’ve literally lost billions of dollars.”

 

Why so many radio ads?

 

In the past year, lenders have flooded the airwaves of
local radio stations with commercials boasting of low interest rates, pain-free
debt consolidation and little or no closing costs.

 

The fact that lenders advertise their services and make
outrageous claims is nothing new. But the frequency of these ads is making a
lot of people scratch their heads.

 

On some radio stations, it is not uncommon to hear
back-to-back ads from lenders. Some of these commercial spots have resembled
political ads as one lender refutes what another claimed.

 

“There’s a lot of competition out there,” said Tom Rogus,
a mortgage consultant with WestAmerica.

 

Dale Taylor, a Realtor with Re/Max and former president
of the Realtor Association of West/South Suburban Chicagoland, said lenders are
advertising more because they want to capitalize on the number of Adjustable
Rate Mortgages (ARMs) that are maturing.

 

Hochberg takes issue with lenders who make outrageous
claims such as no closing costs.

 

“They make promises they can’t deliver,” Hochberg said.
“No closing costs mean you’re putting the client into a quarter-of-a-point
higher rate.”

 

John Petruszak, executive director of the South
Suburban Housing
Center, said the increased number
of loan products has allowed predatory lending to thrive. Whether it be
commercials or e-mail, he said “watch out for anyone aggressively soliciting
them.”

 

“The mortgage products are getting pretty hard to
understand,” Petruszak said. “It’s pretty confusing. The best way to avoid
problems is to have a third-party look at what they’re getting into.”

 

State likely to intervene

 

To curb risky lending practices, the state legislature
has made some attempts to regulate the industry. One such example has been
Illinois House Bill 4050.

 

Designed to eliminate predatory lending practices, it
focused on 10 zip codes in Chicago.
Instituted in January of 2006, the program lasted less than a year.

 

In its latest incarnation, expected to come into effect
sometime this spring, the law will only apply to loans in Cook
County. It will require borrowers
with certain types of loans such as interest-only, ARMs and stated-income to
attend credit counseling courses if they are first-time homebuyers, have not
purchased a home in the last three years or are refinancing.

 

Hochberg is just one of many lenders who are adamantly
opposed to such a law.

 

“House Bill 4050 is the biggest joke around,” he said.
“The government doesn’t need to get involved. People just need to be more
credit-savvy.”

 

“What can you really do to safeguard the consumer?” Rogus
said. “The industry will regulate itself as these types of loans continue to
under-perform.”

 

“The good intentions backfired,” Taylor
said of the original version of the law. “I think they will come up with a plan
that keeps the predatory lenders away.”

 

Regardless of the law, Taylor
advises prospective homebuyers to attend counseling classes offered by groups
such as the South Suburban Housing
Center.

 

“It’s one of the best-kept secrets,” he said. “It lasts
an hour and covers every aspect of the process.”

 

Speakers at these seminars include Realtors, lenders,
home inspectors, real estate attorneys and insurance agents.

 

“After they attend one of those seminars we encourage
them to come in for a one-on-one session,” Petruszak said. “Anyone who goes
through this process is better prepared.”

 

While it may be controversial, Petruszak is a firm
believer in the process.

 

“A significant number of the foreclosures can be reduced
if they had counseling,” he said.