Combating foreclosures and predatory lenders, city officials are launching several programs to assist homeowners facing the loss of their homes.
Mayor Daley said last week that Chicago’s mushrooming foreclosure rate is fanned by subprime lenders, those extending unfavorable mortgage terms at high interest rates to homeowners with real or perceived credit problems.
One form of assistance comes in a pilot Neighborhood Ownership Recovery Mortgage Assistance Loan (NORMAL). Its $1.2 million in city money and $2 million from a consortium of lenders is to be used this year, though it will help only a small pocket of predatory-lending victims to hang onto their homes. But the program aims to create a $10 million pool in future years, based on the success of this year’s pilot program.
NORMAL will be run through Neighborhood Housing Service (NHS), a non-profit lender and homeownership consulting group with experience in combating the problem of foreclosures in the city’s neighborhoods. Loans up to $100,000 will be available to homeowners threatened with foreclosure who live in any of 10 neighborhoods where NHS maintains a local office, mostly on the South and West Sides, according to NHS director Bruce Gotschall. He expects the program to be up and running by mid-spring.
Participating homeowners will go through a screening process to determine that their situation is bad enough to warrant intervention. If the homeowner can be better served with a conventional loan, he or she will be directed to the program best suited to his or her need. But those homeowners found to be in real need of refinancing will benefit by intervention of NHS or the Legal Assistance Foundation. Representatives from one of those two agencies will renegotiate the loan with the lender and buy the loan. Meanwhile, NHS will refinance the mortgage.
Gotschall expects renegotiations with predatory lenders to generally yield favorable results: “Our experience with this kind of thing is that we usually can find something in the documentation that was not done properly, or there might be public relations issues that generally will get the lenders to accept a reasonable alternative.”
Foreclosure assistance is also available to Chicago homeowners through the city-funded Housing Emergency Loan Program (HELP II), also being administered by NHS and in its third year.
This year’s HELP II pool is funded with $300,000 in city money.
“It is a repayable loan carrying a 3 percent interest (rate) and lends up to $10,000 to homeowners at risk of foreclosure,” said Stacie Young, coordinating planner at the Chicago Department of Housing. She described HELP II as a program of last resort for homeowners temporarily in troubled situations such as job loss or illness.
“Qualifications include that the home has been owner-occupied for the previous 12 months, for single-family homes and two-flats. When appropriate, (homeowners will) receive counseling to prevent further delinquencies, and they need to earn incomes at or below 80 percent of area median income,” or $50,200 for a family of four. Young estimates this pool will help about 50 families. Homeowners interested in participating in either NHS-administered program should call NHS’s Southwest Lending Resource Center at 773-579-1214.
Statewide assistance is also being sought in a bill introduced before the General Assembly by State Rep. Julie Hamos (D-Evanston). It seeks state funding for homeowners faced with temporary hardships that put them at risk of foreclosure.
That bill is modeled on a Pennsylvania program that, after 18 years, has become self-sufficient, needing no state funding to support its lending pool.
Meanwhile, Young points out that a market of borrowers with subpar credit histories does exist and that those markets need subprime lenders. Responsible subprime lenders are characterized in several ways, according to Young.
“They do not target markets based on race or seek out vulnerable markets with excessive credit card or medical debt. Their sales literature does not misrepresent their product and tries to educate borrowers about secured versus unsecured loans. Points and fees among responsible subprime lenders represent 1 to 2 percent of the total loan cost, while less responsible lenders charge as much as 7 to 20 percent.
“Responsible lenders allow other charges related to the mortgage, such as insurance, to be paid separately. Some subprime lenders generate unnecessary interest over the life of the loan by financing insurance into the loan.”
“Irresponsible lenders set payments in terms that do not cover interest, so that the principal amount increases, despite payments, while owner equity decreases,” Young said.
