Predatory lending. It sounds bad. It is bad. And it’s a growing problem in Milwaukee. Predatory loans can come from lenders, brokers, or home improvement contractors. According to a joint HUD/Treasury report to Congress, in involves lending practices that: • engage in deception or fraud • manipulate the borrower through aggressive sales tactics • take unfair advantage of a borrower’s lack of understanding about loan terms. The good news is, somebody’s doing something about it. Strategies to Overcome Predatory Practices (STOPP) will kick off on June 7. Sponsored by the Metropolitan Milwaukee Fair Housing Council (MMFHC) and some 50 partner organizations, the STOPP initiative is designed to stop predatory lending in Milwaukee County. Freddie Mac’s Don’t Borrow Trouble SM toolkit makes up the outreach and education component of the new project. In addition, four workgroups and an investigation and enforcement group, made up of MMFHC Enforcement staff and a pool of cooperating attorneys, will work together to help current victims of predatory lenders and to prevent future predatory loans. A Don’t Borrow Trouble hotline will offer help and advice. The hotline number is (414) 278-9190. MMFHC and its STOPP partners have seen predatory loans turn the dream of homeownership into a nightmare for unsuspecting borrowers. Predatory lenders prey on unsophisticated consumers with promises of debt consolidation, easy payment plans, and quick, easy application and approvals. Often, predatory lenders wrap the borrower’s existing mortgage into debt consolidation loans, jeopardizing the borrower’s home equity, and even the home itself. Predatory home loans do tremendous damage to individual borrowers and their families, and to entire communities. They rob borrowers of the equity in their homes and of their peace of mind as they struggle to pay unaffordable mortgages. In the worst cases, they can force a sale or foreclosure on a home. The threat is particularly serious if we consider the fact that for most Americans, the equity in their homes represents the majority of their lifetime’s accumulated wealth. Since predatory lenders target lower income borrowers, neighborhoods that are working to become revitalized are instead destabilized. Predatory lending threatens to negate years of work by community organizations and counteract public and private funds intended to breathe new life into older neighborhoods. While predatory loans are almost always sub-prime loans, not all sub-prime loans are predatory. Sub-prime lending addresses a legitimate need, providing loans for individuals with less than perfect credit ratings. The term “sub-prime” refers to the borrower’s credit rating, not to the loan’s interest rate. Sub-prime loans have higher fees and interest rates to compensate for the lender’s higher risk. Sub-prime lenders serve a legitimate need. However, the Fair Housing Council and other groups across the state have found that, overwhelmingly, African Americans, Hispanics, low income persons, and the elderly are being targeted by this market — even when they have very good credit and qualify for loans in the conventional (“prime”) market. MMFHC has partnered with a wide array of organizations to address this issue. Community development corporations and other community-based nonprofits, elected officials, lenders, and staff from governmental agencies are serving on the four workgroups. Work in this arena is supported by grants from Freddie Mac, the Helen Bader Foundation, Inc., and the Forest County Potawatomi Community Foundation.
June 2002