The Daily Northwestern

We have all seen the commercials, the mailings and the billboards that tell us anyone can get a big-time loan. And while many people toss out the postcards and disregard the advertisements, some people — in dire financial situations — call the number at the bottom of the screen.

Although some companies that make up the subprime lending industry — corporations that will lend to people with poor credit histories — closely follow the nation’s financial laws, others practice sly, deceiving and dirty lending practices. These companies often are accused of being “predatory lenders.”

Predatory lending only recently has become a pressing problem, but legislatures across the country already have begun to pass a variety of laws aimed at punishing such lenders. In Evanston local housing organizations and State Rep. Julie Hamos, D-Evanston, will join forces as early as this summer to embark on widespread campaigns to educate the community about the deceptive practices, saying the only way to prevent the problem is to raise awareness.

“The word needs to go out,” said Michele Taylor, the fair housing coordinator at the Winnetka-based Interfaith Housing Center of the Northern Suburbs. “Cities need to really work hard at informing their residents of the resources that are available, and that it’s not embarrassing to ask for help.”

Sometimes people do not even know when to seek assistance. Brokers often mislead borrowers into loans or mortgages that they cannot afford, leading people to lose their money, their possessions and their homes.

“Rather than looking at what that person can really afford, there may be at times a focus on giving a person a mortgage knowing pretty well that within a year or two foreclosure may begin,” Taylor said. “You hear ads from them on TV. They call up and they are very sly, they try to build someone’s trust.”

The predatory lending problem has not gone unnoticed at city, state or national levels. Chicago passed anti-predatory lending legislation in 2001 and was one of the first municipalities to do so. The Federal Trade Commission and the U.S. Department of Housing and Urban Development successfully sued predatory lenders on a national level. And in January an Illinois law went into effect that holds all parties in the process responsible for predatory loans.

A growing trend

The most recent statistics show predatory lending is a growing issue. In 1993 101 home foreclosures were initiated by the subprime lending industry in the greater Chicago area. By 1999 the number had jumped to 3,847. Likewise only one foreclosure occurred in Evanston in 1993 and 40 in 1999. Many of the foreclosures happened in Evanston’s Fifth Ward.

Tracy Leary, the community reinvestment organizer at the National Training and Information Center in Chicago, which compiled the statistics, said predatory lending may not be a new problem at all — but people are more aware that the problem actually exists.

“In the last five years, we’ve simply pulled back the layer of predatory lending, and we’re just uncovering now what this lending actually is,” she said. “We’re seeing more people coming to us in dire situations than I did when I first got here, but I don’t know if they are new loans or older loans.”

RAISING AWARENESS IN EVANSTON

Even though predatory lending has become an increasingly visible problem, Hamos’ Chief of Staff Michael Gwinn said more needs to be done.

“There has been action at the state level, but it doesn’t help people that don’t know the law is out there,” he said. “The only way I think to really fight this is by the individual person-to-person basis and raising people’s awareness not to enter into these agreements.”

For that reason, Hamos’ office is going to sponsor an education campaign involving local neighborhood organizations that would go door-to-door and talk to people about the dangers of predatory lending.

“It’s an incredibly touchy subject and people may not be willing to come right out and talk about that,” Gwinn said. “The challenge is really to find the groups that have the good ties with people in the communities to make sure that they can cut through the embarrassment.”

Yet some organizations already have started their education campaigns — including the Interfaith Housing Center. The center has held seminars aimed at increasing awareness of the issue. The most recent seminar took place a week ago.

Sue Carlson, an Evanston resident who works at the center, said the average person who lives and works in Evanston would not know predatory lending is a problem.

“I don’t think there is a big awareness in the city, and that’s one of things that we are trying to bring to the fore,” she said. “Some people are really needing money, and they get these lines from people, it sounds wonderful and so they fall victim.”

Preying on seniors

Although predatory lending may seem improbable on paper, it happens, and Helena Walls, a housing counselor who works for the Lake County Housing Authority, has seen it.

She described the case of an African-American woman in her 70s who saw a commercial on TV, called the number, discussed mortgage terms, but then did not read lengthy documents at the closing. The lenders, however, had changed some key terms of the mortgage without her knowledge, a classic predatory tactic called “bait-and-switch.”

Walls also worked with another 74-year-old African-American woman who was duped into replacing her roof for an exorbitant price. She took out a loan from a mortgage company, refused to pay bogus fees of more than $35 per month and then was threatened with foreclosure on her home.

Both cases have relatively happy endings — Walls helped the women to refinance — but they underscore that predatory lending is a definite problem, especially for senior citizens.

“It’s out here,” Walls said, “and it’s running rampant.”

There is nothing surprising about these cases, at least for Dan Lindsey, a lawyer for the Legal Assistance Foundation of Metropolitan Chicago, which provides free legal defense to people meeting certain income requirements. Lindsey helps homeowners, who often are frightened by threats of foreclosure, to fight back against predatory lenders in court.

“Most people are just upset, and they are afraid of losing their home,” he said. “Sometimes there is something that makes them angry, but it’s usually more of an overwhelming thing and they don’t know where to go.”

predatory tactics

The most common indicator of predatory lending is when brokers mislead borrowers into loans that eventually will force the foreclosure of their home, Lindsey said. Other times borrowers get hit with illegal extra fees. And some firms that are supposed to be collecting the loan payments withhold them, and then charge the borrowers late fees, a practice called predatory servicing.

“(The servicers) can’t really handle the workload they have and also may have been trained to just be harassing the borrowers,” he said. “The experience that many people have is that when they fall behind one month, it’s like you’ve entered the fourth circle of hell.”

In court many predatory lenders tell the borrowers that no one forced them to sign the documents. But the lenders often violate laws about disclosure, fees and rates — including switching the terms of the loan in a lengthy agreement without telling the borrower, just as Walls described.

“People are intimidated and often they don’t question, they just say okay,” Leary said. “Imagine someone that is looking at a 150-page loan document and understanding all those terms. That stuff is complex.”

As a diverse jumble of people — state officials, activists and lawyers — work to minimize the threat of predatory lending, Gwinn perhaps sums up why so many individuals continue to fight against the damaging and deceptive practice.

“You just hear these stories about the crap that they pull, and it makes your blood b
oil that people can sleep at night taking advantage of trusting people the way that they are,” he said. “We’ve got to do something.”