When Does Protection From Predatory Lenders Become Redlining?

MayorBob.

Posted to Politics on Sun Nov 19, 2006 at 06:07:56 PM EST (promoted by port1080). RSS.

Predatory mortgage lending practices constitute a "hidden tax" on America's poorest peoples.  Fail to score high enough on your credit report and you can expect to end up being serviced by a sub prime lender which will cost you extra money.  Some states take the view of "consumer beware": pay your bills, know your limits, improve your credit rating, and know who you're dealing with.  Approximately 25 states, like Illinois, have taken direct action to fend off predatory lenders.  Yet, when a law designed to protect poor people from being preyed upon ends up causing poor people to not be able to afford to buy property, you can expect them to take action the old-fashioned way - sue the state for discrimination.

Last year Illinois passed a piece of legislation which amended Public Act 094-0208.  The amended law, called the "Predatory Lending Database Pilot Program Act," designated 10 zip codes in the worst parts of Chicago.  Beginning in September, lending institutions in those zip codes were required to report applications from certain people to the state.  Those people would be people who fail to score high enough on their credit reports or who fail to meet certain financial requirements.  The state then mandates that these applicants must take financial counseling from a federally approved counseling agency before any mortgages get approved.  The kicker is that the applicants must pay the cost of the counseling - between (US)$300 and $600.  In the complaint (12 pg pdf doc) filed in federal court, plaintiffs charged the law amounts to state-sanctioned redlining as the net effect is to deny mortgages to minority applicants.

According to Yaodi Hu, one of the plaintiffs, a residual effect of the law is depress home sales altogether in the affected zip codes.  According to Susan Hofer, a spokesperson for the Illinois Department of Financial and Professional Regulation (defendant in the suit), home sales are as brisk as they ever were.  According to one blog which has tracked the issue for some time, that's not true (scroll down to comparisons).  Compared to September 2005, the sales in the ten zip codes have dropped off from 17 percent to as high as 70 percent this September.  According to Hu, Hispanic buyers have additional concerns - that the information will be turned over to the federal Immigration and Customs Enforcement folks which will result in their deportation.  Hofer dismisses that claim by saying "we're not Homeland Security."