A fund started a year ago to help Chicago-area victims of predatory loans now has a companion program that has more services and is designed to reach more people.
Neighborhood Housing Services of Chicago Inc. and the Legal Assistance Foundation of Metropolitan Chicago are broadening their relationship with lenders to provide public education, counseling, and refinancing capital on top of the loan assistance the original program provides, said Rochelle Nawrocki, director of program development at Neighborhood Housing Services.
In the original program, Neighborhood Ownership Recovery Mortgage Assistance Loan, or Normal, 17 area financial institutions and the City of Chicago put up $2.2 million in a fund to refinance people who had taken out high-rate, high-fee loans. Twenty institutions, including Household Bank, Manufacturer's Bank, Northern Trust Co., General Motors Acceptance Corp., and Lehman Brothers Bank, have contributed $3.9 million to the new program, the Home Ownership Preservation Initiative.
"There was always the notion that it required something more than capital," said Brenda L. Grauer, staff attorney at the Legal Assistance Foundation's Housing Law Project for Seniors. "With the Normal loan fund, you can only reach a limited number of people."
Ms. Grauer said about one-third of the victims of these loans would have been able to qualify for conventional ones before the predatory loan ruined their credit rating.
The Home Ownership Preservation Initiative helps people negotiate with loan-servicing agents, provides legal counseling, and offers refinancing with Normal loans.
Ms. Nawrocki explained that predatory loans are usually originated by mortgage brokers who promise a low cost for home improvements. Through the addition of service fees, single-premium credit insurance, and high interest rates, a loan that might have been $20,000 can end up as high as $70,000.
Brokers then sell these loans to banks through the secondary market in bundles with legitimate loans, and the loan servicing tends to be done by a third-party agency. National Housing Services tries to get the loans restructured so that the terms are more in line with the borrowers' income and assets.
"What we've agreed to do is to work with the loan-servicing institutions and put them on alert if they get a call" from Neighborhood Housing Services "to give them support to get the problem resolved," said Thomas P. FitzGibbon, senior vice president at $1.3 billion-asset Manufacturer's Bank of Chicago.
Beyond that, lenders have agreed to make phone calls when Neighborhood Housing needs extra help.
"It's just to add expertise, so to speak," said Charles A. Colip, president and chief executive officer of $9 billion-asset Household Bank FSB in Chicago.
Mr. FitzGibbon has made several of these calls. He said borrowers are initially reluctant to refinance to a lower level of debt principal but change their mind once they realize their chances of repaying under the original loan agreement are poor.
By getting involved with the program, banks are protecting their own interests, Mr. FitzGibbon said. He explained that predatory loans often are home improvement loans taken out as second mortgages. Banks such as Manufacturer's, he said, often hold the first mortgages.
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