Hide your valuables -- there's a predator on the loose in Cleveland. According to the latest data compiled by the Metropolitan Strategy group, Cleveland ranks #1 in the nation for predatory loan applications in minority neighborhoods. It's a form of sub-prime lending which, 10 years ago, opened the door for people with less than perfect credit to qualify for a mortgage or re-financing. These loans have been blamed for creating large debts for homeowners and dramatically decreasing property values. But the laws that were put in place to monitor this form of lending have loopholes that allow some mortgage brokers to manipulate consumers. 90.3's Tarice Sims reports on how this recent problem has grown and what state and local government plans to do about it.
Tarice Sims- Here's the scenario: you receive notice that your roof needs some work and it's not going to be cheap. After a couple of slow pays your credit portfolio doesn't look healthy enough for a prime loan. So you review your limited options, then a local mortgage broker comes to your home with a pitch that sounds too good to be true. Glossing over the fine print you are talked into re-financing your home with this broker. A few weeks later you find you're paying an $80,000 mortgage on your $40,000 home. This way of doing business is called predatory lending, a form of sub-prime lending. Charles Bromley is Executive Director of the Metropolitan Strategy Group, a non-profit organization that tracks fair housing issues.
Charles Bromley- All they're doing in this process is mining the equity out of somebody's home. Somebody who is usually on a fixed income, SSI, some kind of assistance program a pension, whatever who never has an opportunity to pay these loans back. And what they're doing is taking these homes away from people and that's the real tragedy here and that's what's going on in greater numbers throughout Greater Cleveland.
TS- Banks grade people who want to borrow money from their organization, just like in school. The grades range from A to D. Those with less than an A are given a slightly higher rate, referred to as sub-prime. But 25% of sub-prime lending are considered predatory, where extra fees are tacked on that drive up the cost of the loan. People who are given these types of loans face balloon payments that they are unable to repay. Diane Citrino is an attorney with the Housing Advocates, a not for profit fair housing organization. She says the overall business of sub-prime lending has gotten out of control.
Diane Citrino- Most of the time somebody who's getting a sub-prime loan, over 60% of the time people would qualify for a prime loan product, so people are really being marketed what we call these toxic loans and they don't have to be in this bad loan products.
TS- Citrino says part of the reason this problem has grown within minority neighborhoods is because prime lending banks did not traditionally cater to those areas. Some communities were even red-lined, where banks literally drew a red line on a map to show were loans would not be made. In recent years larger banks like Huntington have made strides to reach out to minority neighborhoods. Dan Klimas is president of the Northern Ohio Region of Huntington Bank.
Dan Klimas- As an organization we have tried to go out in the communities to provide education primarily through churches, to be able educate people on just credit overall to help them understand the signs of predatory lending, to help them understand what is legitimate and what is predatory. And, help them understand the role that a bank can play in helping them to meet their financial needs.
TS- Huntington Bank has aligned with churches like Mount Sinai Church on Woodland Avenue in Cleveland, and Senior Pastor C. Jay Matthews says there are many people benefiting from the partnership but...
C. Jay Matthews- I don't want to let the larger systems off the hook. Correct measures only last a long time but inequities have occurred for generations and so we're really challenged to say wait a minute have we participated in our corrective measures long enough to have real impact and penetration. And the very fact that would be vulnerable to these types of programs without the education necessary to participate suggests that we haven't.
TS- Matthews says education isn't the only answer, there's also been an outcry to civic leaders about how to monitor these predators. There are laws on the books relative to interest rates and what can and cannot be charged within a loan, but the loopholes have allowed predatory loans to tarnish the sub-prime lending business. State Representative Peter Lawson Jones says the government needs to step up.
Peter Lawson Jones- Every now and then you find those who know how to circumvent the spirit and intent of the law, so you have to make sure you have new regulations in place to address them, but also we have to enforce those laws that currently exist.
TS- Lawson Jones is co-sponsoring a bill that is intended to do that. The legislation which was introduced by Representative Sam Britton of Cincinnati would prohibit high cost mortgage fees and limit certain pre-payment penalty fees. In Cleveland, City Council and Mayor Michael White's administration agreed to set up a Consumer Affairs department for the first time since the early 90's. The department's aim is to help enforce consumer laws already on the books against issues like consumer fraud, including predatory lending. In Cleveland, Tarice Sims 90.3 WCPN.