1	Predatory Lending Solutions Project
2	"Presented to" Presented to Pima County, AZ Community Organizations Tucson, Arizona Thursday, February 16, 2006 By Judy Mott Montgomery County, OH Community Development Beth Deutscher HomeOwnership Center of Greater Dayton Jim McCarthy Miami Valley Fair Housing Center, Inc.
3	Predatory Lending Solutions Project (PLS) Montgomery County, OH
4	Scope of the Problem “Predatory lending” is any unfair credit practice that harms the borrower or supports a credit system that promotes inequality and poverty. Although predatory lending has become shorthand term for a variety of practices that include car title lending, payday lending and check cashing businesses, this project is focused on residential real-estate transactions that involve financing a home or refinancing home-equity. Predatory mortgage lending and its subsequent foreclosures result in a myriad of devastating and extremely costly consequences to our cities. Vacant, boarded-up homes lead to neighborhood destabilization, increased criminal activity, urban sprawl, declining property values and thus an eroding tax base. This dynamic diminishes the local government’s capacity to provide basic services, such as education and police and fire protection, to its citizens.
5	Scope of the Problem (continued) Data consistently shows that the Dayton, OH area ranks in the top echelon in the nation for loans made by subprime lenders, with over 20 percent of all refinances going to subprime lenders. Subprime lenders dominated neighborhoods with over a 30 percent minority population with 50 to 89 percent share of the market. Consequently, foreclosure research has revealed that in West Dayton, which is a historically hyper-segregated, African American community, there are four zip codes (45406, 45407 & 45416, 45417), where there are at least 25 foreclosures filed per existing 100 households. Ohio ranks first in the nation for the most number of mortgage foreclosure filings, per capita. Montgomery County (Dayton) leads the State of Ohio with the most mortgage foreclosure filings, per capita, in the state.
6	History of the Project In 1999, COUNTY CORP, a non-profit housing and economic development agency for Montgomery County, noticed a high number of refinancing of their low-interest rate loans. Concurrently, Consumer Credit Counseling Service, a HUD-approved mortgage default counselor for VA/FHA mortgages, noted that within two years, mortgage default counseling increased over 500 percent, from one to four cases per week to four to five cases per day. In addition, the Miami Valley Fair Housing Center and the Legal Aid Society noted an increase in calls regarding mortgage default and discrimination. As a result, the Committee Addressing Predatory Lending (CAPL) was formed to study the issue and identify a program for addressing predatory lending. The development of the Predatory Lending Solutions program took approximately two years and implementation began in January 2001.
7	History of the Project (continued) When the issue of predatory mortgage lending was presented to the Montgomery County Board of County Commissioners, they determined that a substantial effort was needed to address predatory lending and pledged $350,000 of funding per year, over a three-year period to begin the project. The Commissioners recognized the long-term need to preserve the County’s neighborhoods, damaged as a result of these practices. In addition, using Temporary Assistance to Needy Families (TANF) funds, the County Commissioners committed an additional $440,000.00 over a two year period for the development and marketing of a massive, community outreach & education media campaign.
8	History of the Project (continued) Funding for the project has come from a variety of sources, but the core funding for the project has been realized primarily by local funds within our county. The Board of County Commissioners of Montgomery County have taken the extraordinary steps of providing funding for the project from the County General Fund utilizing revenue generated by housing bonds. In addition, the Montgomery County Recorder, has contributed funds to the project through revenue generated by recordation fees. Montgomery County also has a local affordable housing trust which is funded by a special sales tax, and the affordable housing trust, through COUNTY CORP, has been a consistent funding source for the project. After the initial launch of the project, we were also successful in receiving Fair Housing Initiative Program (FHIP) funds from the U.S. Department of Housing & Urban Development (HUD) to support the project.
9	Project Design The Predatory Lending Solutions Project was designed to offer prevention and intervention services to Miami Valley families who are current or potential victims of predatory lending practices. From the inception, the project has been a collaborative effort by multiple different community organizations. To date, participating organizations have included: Consumer Credit Counseling Service (CCCS) (a division of Lutheran Social Services of Mid-America), Legal Aid Society of Dayton, the HomeOwnership Center of Greater Dayton and the Miami Valley Fair Housing Center. The Fair Housing Center has been the lead organization, coordinating inter-agency relations.
10	Project Design The PLS Project’s design includes the following four components: Community Education & Outreach; Intervention & Rescue Services; Community Impact Research; and Legislative Support
11	Education & Outreach Component
12	Freddie Mac’s “Don’t Borrow Trouble” Campaign A campaign designed to educate and empower consumers Began in Boston; has now been launched in over 40 cities across the country Participating organizations have access to seed funding, media tool kit, marketing consultant services, and on-site training by the National Consumer Law Center Campaign website: www.dontborrowtrouble.com
13	Neighborhood Walks Targeted to zip codes/neighborhoods showing a high incidence of predatory lending and foreclosure Volunteers walk the neighborhood distributing consumer awareness materials Bright t-shirts & rented bus trolley bring attention and safety to the group
14	PLS Neighborhood Walks
15	PLS Neighborhood Walks
16	PLS Neighborhood Walks
17	Outreach Through Existing Programs and Partnerships Homebuyer classes Fair Housing educational programs Community presentations In-service training opportunities
18	Community Festivals & Events Established “Predatory Lending Education Day” with press conference & table displays at Courthouse Square Black Cultural Festival Neighborhood events Home improvement & other housing related conventions/shows
19	Montgomery County, Ohio Local Media Campaign Established Predatory Lending Solutions Hotline Developed brochures, posters, radio, television, billboard and bus advertising Utilized local advertising company to design campaign theme and materials Certain marketing initiatives included the PLS Hotline phone number; others were intended solely as public awareness
20	Billboards
21	Billboards
22	Billboards
23	RTA Bus Externals
24	RTA Bus Placards
25	Newspaper Ads
26
27	Newspaper Ads
28	Brochure
29
30
31	Poster
32	National Fair Housing Alliance’s Media Campaign Worked with the Ad Council to develop theme and materials Television & Radio Commercials Written materials
33	Intervention Component
34	Assessment & Evaluation The essential nexus of this system is the PLS hotline. Two predatory lending specialists at the Fair Housing Center staff the hotline and make an assessment based upon information obtained from that initial contact with the client. If the caller describes characteristics of a predatory loan, the specialist will make an appointment with the caller, conduct an interview and review the loan documents. If the predatory lending complaint is found to be meritorious, the complaint is accepted and an investigation is opened. Throughout this entire process, the predatory lending specialists work to identify local resources to provide appropriate assistance to the client. The predatory lending specialists have also sought and obtained private attorneys for those clients who have been victims of predatory loans. Further, the specialists have provided vital research and analysis for attorneys representing the PLS project’s clients, thus facilitating private legal representation for moderate-to-low income homeowners who would otherwise be forced to struggle through the web of collection and foreclosure un-represented.
35	Negotiation with Offending Lenders This is a shared responsibility between the PLS Specialists and the staff attorney. When possible, negotiations are handled by the specialists to try and arrive at terms that benefit the client while at the same time are agreeable to the lender. When the specialists are unable to successfully negotiate a resolution, then negotiations are elevated to the staff attorney or referred out to a cooperating attorney for additional negotiation and/or litigation.
36	Utilization of IOLTA Accounts One of the key components of our success has been the requirement that clients utilize the project’s IOLTA account. When the PLS project accepts a client for intervention services, and if the client is able to rescind their loan because of a violation of HOEPA or TILA, we require the client to make their mortgage payment to the Center’s IOLTA account, where their money is held in escrow until the matter is resolved. The money saved in escrow can be used by the client for downpayment or closing costs on a new refinance that gets them out of the predatory loan. In this way we are able to demonstrate to lenders that our clients are good credit risks and are willing and able to perform in a loan, which facilitates obtaining a better loan for the client at the end of negotiation/litigation with the offending lender.
37	Settlements & Conciliation On Behalf of Clients Both the staff attorney and private, referral attorneys work together with PLS staff to realize settlements and/or conciliations on behalf of clients. The majority of the cases that we have brought have been resolved through settlement and/or conciliation. This is a lengthy process, often lasting 18 – 30 months.
38	Litigation On Behalf of Clients The PLS staff attorney and private cooperating attorneys both pursue meritorious cases up to and including litigation on behalf of clients, when necessary in order to obtain relief. The project currently has more than 87 active cases, 15 of which are currently being litigated by the PLS staff attorney, and an additional 27 which are being handled by private cooperating attorneys.
39	Other Legal Services Many of the clients who present to the PLS project have multiple legal issues that are either part of or resulting from their predatory loan. For example, they may need a bankruptcy attorney to pursue a bankruptcy on their behalf. While the PLS staff attorney does not handle the bankruptcy, we do work in partnership with the bankruptcy attorney to ensure that the client to ensure that the client gets the maximum benefit from both the private bankruptcy attorney and the project itself.
40	Financial Literacy Training One of our key goals is to encourage long-term financial success for our clients! Financial Fitness Classes 10 hours of training Mix of lecture and group discussion Hands-on exercises Focus on improving money management skills, stability, credit, savings and goal planning
41	Homeownership & Credit Counseling Cash flow analysis: income/expenses Credit report review (tri-merge with scores) Evaluation of mortgage affordability Development of Action Plan to address presenting issues
42	Preparing Clients for Refinance Assessment of current qualifications Analysis of qualifying criteria for PLS Refinance Program requirements Feedback and coordination of application timing with legal staff
43	PLS Refinance Program Pilot program with Fannie Mae and participating lenders: Fifth Third Bank, Huntington Bank, National City Bank & COUNTY CORP Mortgage Offers an opportunity to refinance at up to 97% LTV, at market rate or slightly above Allows more flexible underwriting guidelines, acknowledging that PLS clients have experienced credit & financial hardship resulting from the predatory loan. Even with the more flexible guidelines, we must work with clients extensively to meet the program requirements.
44	Facilitating the Mortgage Application Process: Link to Loans Once the client is ready for the mortgage application process, we provide them with information regarding at least three loan options. The client voluntarily chooses one, and we send a preview of the client’s profile to underwriting & then schedule the loan application to occur at our office. We provide the lender with standard information such as income documentation and bank statements, as well as a copy of their training certificate and information documenting the predatory nature of the loan. We stay involved throughout the process, and then hold the closing at our office.
45	Local Impact Research & Data Maintenance Data that needs to be researched include foreclosure rates, sub-prime lending activity, and indicators of predatory lending Data that is readily available includes limited recorder system data, real estate tax information, and HMDA (but not closing documents, for example) On-line access to public information and cooperation with database sharing (i.e. recorder, clerk of courts, etc.) can be extremely helpful
46	"Local Impact Research – Montgomery..." Local Impact Research – Montgomery County A study funded by the Dayton Foundation through the project and conducted by the Center for Business and Economic Research (CBER) was released by the PLS project in October 2001, revealed the role of predatory lending in Montgomery County. Entitled Predation in the Subprime Lending Market, the report concluded that mortgage foreclosure filings in the County increased from 1,022 to 2,451 over the period from 1994 to 2000. In addition, as the volume of loan foreclosure filings increased throughout the County, the relative share of filings in suburban jurisdictions increased.
47	"Local Impact Research – Montgomery..." Local Impact Research – Montgomery County, OH The study examined a random sample of mortgages associated with foreclosure filings and found that a significant minority of subprime loans involved in the study exhibited interest rates or other features that are predatory in nature. In addition, telephone interviews with over 200 respondents, involved with loans determined to be predatory in nature, concluded that many of the tactics used by predatory lenders at the national level are occurring in the subprime market in Montgomery County. The study also included an analysis of the data to identify the occurrence of subprime lending with predatory characteristics within neighborhoods throughout the County. The data was geo-coded by census tract.
48	"Local Impact Research – Montgomery..." Local Impact Research – Montgomery County, OH The study found that foreclosures in Montgomery County increased by a factor of two and one half times between 1994 and 2000, and that subprime lenders were responsible for a disproportionately high share of that increase. A substantial number of the subprime foreclosures sampled showed signs of predatory lending, including high interest rates, pre-payment penalties and balloon payments. Telephone surveys also revealed that many of the tactics associated with predatory lending at the national level are occurring in the subprime market in Montgomery County. These tactics include new fees and different loan terms revealed at only loan closing, encouragement to borrow more money, steering prime borrowers into inappropriate subprime loans, and inflated appraisals.
49	"Local Impact Research – Montgomery..." Local Impact Research – Montgomery County, OH The study indicated that most of the subprime lenders are doing three to four as many loans with African American borrowers, and two to five as many loans with borrowers whose household income is 50 percent or less of the median household income, when compared with the overall market. Mapping of the mortgage foreclosures between 1994 and 2000 illustrates the rapid spread across every jurisdiction of Montgomery County. While the City of Dayton has the largest percentage, suburban communities have experienced an increase in their share of foreclosures as well as those associated with subprime loans. The complete study is available online in downloadable format on the Fair Housing Center’s website at www.mvfairhousing.com.
50	"Legislative Education & Advocacy" Legislative Education & Advocacy Unfortunately, Ohio’s basic consumer protection law exempts mortgage lenders thereby creating a legal vacuum, that led a former attorney with the National Consumer Law Center to describe Ohio as “ground zero” for predatory lending and has consequently resulted in one of the highest foreclosure rates in the country. The project is currently an active member of the Ohio Coalition for Responsible Lending, which advocates statewide comprehensive legislation to address the epidemic problem of predatory lending.
51	"Legislative Education & Advocacy" Legislative Education & Advocacy Because Ohio is one of only two states in the country to offer lenders a “safe harbor” exemption from the most basic consumer protection law, the Consumer Sales Practices Act, abusive lenders have been able to ply their trade to extraodinary levels throughout the state. The PLS project felt that the legislature needed to answer their constituents about why this exemption existed. We developed a “sound bite” to use with the media -- “Ohioans have more protection when they purchase a toaster, than they do when they purchase or refinance their home.”
52	"Legislative Education & Advocacy" Legislative Education & Advocacy When we took this issue to the Ohio statehouse, the industry was well-prepared, and unfortunately, the Ohio legislature adopted a ridiculous law that essentially codified existing federal law into state law. In addition, the legislature created a “Predatory Lending Study Committee” to study the issue and make recommendations for additional legislation and/or regulations. So when the state-wide Predatory Lending Study Committee came to town for their hearing, the PLS project coordinated a community response, ensuring that victims and consumer advocates were in attendance at the public hearing to provide testimony and insight into the problem in the Dayton area.
53	Project Results to Date By Component Legislative Education & Advocacy
54	Project Results to Date By Component Legislative Education & Advocacy
55	Coalition Building The PLS staff continues to make referrals for new and existing clients as the project progresses; and we continue to establish relationships and coalitions with other agencies involved in the fight against predatory lending and evolve existing relationships with: Local government officials & agencies — Montgomery Co. Recorder, Auditor, County Prosecutor’s Office, City of Kettering, COUNTY CORP, City Wide, Habitat for Humanity, and the Better Business Bureau Individual Realtors® and loan officers State organizations — The Ohio Coalition for Responsible Lending
56	Coalition Building State government agencies — the Dept. of Commerce – Consumer Protection Division and the Division of Financial Institutions State politicians — provide information to our elected officials and candidates for Ohio offices up for re-election National agencies — the National Consumer Law Center (NCLC), AARP, the National Fair Housing Alliance (NFHA), National Community Reinvestment Coalition (NCRC), and the National Association of Consumer Advocates (NACA)
57	Key Findings & Outcomes Key Finding: Predatory Lending & Fair Housing The Violations of the Fair Housing Act and ECOA may include: 1) Targeting African-American, Hispanic or elderly households for marketing of higher priced and unequal loan products; 2) Treating minorities differently than comparably credit worthy whites in the loan application process and/or in the terms of the loan. For example, a subprime lender’s mortgage brokers disproportionately steer African-American women to higher-rate loans in order to receive kickbacks in the form of a yield-spread premium; 3) Establishing, implementing, or maintaining policies and practices that may appear neutral on their face but have a disparate impact on protected classes.
58	Key Findings & Outcomes Key Finding: Predatory Lending & Fair Housing The PLS project feels that predatory lending and more broadly, the unfair and unequal access to credit and capital, particularly as it relates to housing financing, is perhaps the most important civil rights issue in an increasingly market-based and global society.
59	Challenges Lack of capacity to handle need – staffing, resources, time Lack of knowledge, need for training of all staff Lack of knowledge, need for training for any new-hire staff Lack of adequate remedies, either legal or administrative to effectively and systemically address the problem Lack of sufficient alternate financing options for victims
60	Challenges Lack of sustainable funding for a problem that is clearly epidemic in size and expected to be significant for at least the next 5 – 10 years Lack of adequate legislation to address the problem Financial industry resistance to additional regulation Aged client population, risk of death before resolution of case Victims for whom intervention is not successful often end up homeless
61	"For additional information" For additional information: www.dontriskyourhome.com
62	Thank You