CHICAGO - Fourteen local banks have banded together with community groups and city government to help victims of predatory lending.

In a pilot project believed to be the first of its kind, the banks have committed $4 million to provide legal assistance and refinancing to Chicago-area residents trapped in high-rate, high-fee home loans. The consortium made its first loan this week, to an elderly woman who had been persuaded to refinance her entire home to pay for repairs to her front steps.

"This isn't a cure to stop predatory lending … it's a Band-Aid to keep people in their homes. At least it's a start," said Thomas P. FitzGibbon Jr., a senior vice president at Manufacturers Bank in Chicago, one of the lead participants.

Predatory lenders are so called because they tend to prey on the elderly and poor. Their loans often contain hidden fees, rates in the mid-teens, balloon payments, and legal clauses that restrict borrowers' ability to refinance elsewhere.

One state, North Carolina, has legislated limits on financing rates and fees; other states and Congress are moving toward similar action. In Chicago, aldermen are weighing a proposal that would bar the city from doing business with banks that fund predatory loans.

Mr. FitzGibbon and other participants in what is called the Normal program - for Neighborhood Oriented Recovery Mortgage Assistance Loan - say this is the first time that banks have joined forces to combat predatory lending.

Most participants are community banks such as $470 million-asset PrivateBancorp and $1.3 billion-asset Manufacturers. The larger ones include Bank One Corp. and Harris Bankcorp, a Bank of Montreal subsidiary.

People who think they may have been victimized by a predatory lender can contact either Neighborhood Housing Services of Chicago or the Legal Assistance Foundation of Chicago, both nonprofits. The foundation tries to get them out of their loans. Then Neighborhood Housing Services buys the loans and refinances them at going market rates; it is to hold the credits for 12 to 18 months while counseling the borrowers.

From there the 14 banks are to buy the loans, on a rotating basis. They can sell them into the secondary market or hold on to them. If they keep them, the city has committed at least $600,000 to guarantee against default, Mr. FitzGibbon said.

"This program should help people get back on track after they've been raked over the coals by predatory lenders," said Caroline Goldstein, Bank One's Illinois community reinvestment officer.

Carmella Stendson, 70, on Monday became the first person to refinance through Normal. Ms. Stendson, who had a solid credit history, owed $70,000 on her house in mid-1998 when she spoke with a home-repair contractor about replacing the front steps, said Brenda Grauer, a senior staff attorney at the Legal Assistance Foundation.

The contractor told Ms. Stendson that the work would cost $4,000 and put a mortgage broker in touch with her, Ms. Grauer said.

But instead of financing just the $4,000, the broker persuaded her to borrow against the equity in her home and take out a $93,500 mortgage at 12.25% a year. Ms. Grauer said the broker did not tell Ms. Stendson that the "low payment" of $890 per month did not include the $195 per month she would owe in taxes and insurance - items usually included in mortgage bills.

"These are the kind of ploys that these predatory lenders will use to snatch unsuspecting homeowners," Ms. Grauer said. Ms. Stendson now has an 8.75% loan and a monthly payment of $702, including taxes and insurance.

As a pilot program, Normal is expected to originate loans for just one year. But participants say they hope to add banks and keep the program running indefinitely. They also plan to hold community workshops.

"These lenders migrate toward areas where there're a lot of elderly and low-income" people, said Irene Catanese, a spokeswoman at $9.8 billion-asset Household Bank in Wood Dale, Ill. "We need to make people aware of what these high-rate, high-fee predatory loans are before they get into one."

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