Governor Suspends Anti-Predatory, Illinois Mortgage Lending Program in Face of Slow Sales
Governor Rod Blagojevich has suspended a controversial program intended to stop predatory lending/Illinois mortgage fraud in 10 Chicago-area ZIP codes after a study found housing sales in the predominantly minority neighborhoods dropped by nearly half after the program went into effect.
Legislators who sponsored the legislation that created the program said it wasworking and questioned the governor’s authority to suspend it.
The Illinois Predatory Lending Database Pilot Program, created by the passage of House Bill 4050, took effect Sept. 1. The program, which does not apply to federally chartered banks, required residents who fall short of certain credit and income thresholds to seek counseling on bad credit home loan financing.
The 10 ZIP codes where the four-year pilot program was implemented (60620, 60621, 60623, 60628, 60629, 60632, 60636, 60638, 60643 and 60652) were chosen because of above-average foreclosure rates and a high proportion of predatory loans, proponents said. But critics say the program chilled housing sales in the mostly minority neighborhoods.
Soon after the program went into effect, the Illinois Association of Mortgage Brokers circulated a list of about two dozen mortgage lenders the group claimed had curtailed business in the affected ZIP codes.
In announcing the suspension of the program Friday, Blagojevich cited a report by the University of Illinois Urbana-Champaign, which found housing sales in the 10 affected ZIP codes dropped by nearly half during the fall of 2006.
Although sales also declined in comparable ZIP codes because of the slowdown in the housing market, the drop was less pronounced - 20 percent. The report found the predatory lending program did not offer borrowers additional consumer protections, Blagojevich said.
When the controversy first developed, a spokesman for Illinois Speaker of the House Mike Madigan, an author of HB 4050, told Inman News that the bill was originally intended to apply to the entire state, but was scaled down to just 10 ZIP codes as a political compromise.
The spokesman, Steve Brown, told The Chicago Tribune Friday that Blagojevich’s suspension of the program was “regrettable” because predatory bad credit mortgage loan lenders had been “skulking their way out of Chicago and Cook County” and the program “seemed to be having a good effect.”