Fund Designed to Counter Predatory Loans

October 01, 2003
By  Loura Gilbert

A St. Louis group is working to help victims of predatory lenders reduce their debt and regain good credit ratings. The group is also developing a media campaign to alert the community to predatory lending practices.

The project is the work of the St. Louis Coalition to Promote Reputable Lending, which is an organization of bankers, nonprofit counseling agencies, governments and others interested in combating predatory lending.

A focal point of the project will be the Loan Rescue Fund, which will be used to assist victims of predatory lenders. The coalition plans to set up a hot line and to offer referral services and counseling for homeowners whose debt is out of control.

After the homeowner undergoes counseling, there will be a legal review of the loan and an attempt to persuade the lender to reduce the balance. The coalition will then seek a conventional, market-rate loan to replace the predatory loan. If a conventional loan cannot be found, the Loan Rescue Fund managers will consider making a direct loan to the homeowner. The loan eventually will be sold to a conventional lender.

Beyond Housing/Neighborhood Housing Services, a local nonprofit housing organization, hopes to initially raise $1 million for the Loan Rescue Fund through its Community Lending Corp. (CLC). The funds would be secured by 15-, 20- and 30-year fixed-rate first mortgages. Lenders would earn a market rate, and borrowers would pay a slight premium to cover program costs. The CLC will service the loans for up to two years with a goal of selling performing loans to participating lenders. The coalition is proposing that governments in the targeted counties (St. Louis and St. Charles counties in Missouri and Madison and St. Clair counties in Illinois) and the city of St. Louis participate by providing loan loss reserves to minimize risk for lenders.

Although details need to be finalized, the pilot program is designed to help those who had good credit prior to the predatory situation or who would have significant value in their properties after the predatory loan is eliminated. The elderly and victims of home improvement contractor schemes will also be accommodated.

The project is an outgrowth of work by Gateway to Financial Fitness, a collaboration of Beyond Housing/Neighborhood Housing Services, the Catholic Commission on Housing and the University of Missouri Extension Service. All these organizations have offered home buyers training for a number of years and have identified the need for basic financial education as a precursor to the home-buying process.

Interested banks should contact Kate Reese at Beyond Housing/NHS (314) 533-0600.

Bridges is a regular review of regional community and economic development issues. Views expressed are not necessarily those of the St. Louis Fed or Federal Reserve System.

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