Los Angeles Neighborhood Housing Services has developed a special “Stop! Predatory Lending Fund” loan product to assist victims of predatory lending throughout the county of Los Angeles, especially in targeted neighborhoods in the city of Los Angeles.

Los Angeles Neighborhood Housing Services was incorporated in 1984 to improve existing residential housing in the city of Los Angeles. It now serves five target areas, including San Pedro/Barton Hill/Hill Wilmington, Crenshaw, Metro, East Los Angeles and Pacoima.
 
Los Angeles NHS offers NeighborWorks Full-Cycle Lending services, including financial-literacy training, pre- and postpurchase counseling, purchase and rehabilitation lending, neighborhood revitalization and real-estate services.
 
The NHS’s “Stop! Predatory Lending Fund” was developed to provide affordable home-loan purchase and refinance opportunities for households with limited economic resources who need help fixing their credit problems and may be victims of predatory-lending practices.

The Loan Product.  “Stop! Predatory Lending Fund” loan product can be used in four different scenarios: to refinance a predatory loan; to refinance a loan, while including home rehabilitation; to refinance an existing subprime loan at a better rate; or to finance an affordable home purchase. NHS uses its revolving loan fund to provide this product in conjunction with lender-partners. The rehab loan and services are available along with the refinance, so not only is the debt scenario remedied, but also the needed repairs are made at affordable cost.
 
Special features include the ability to use up to 10 percent of the loan amount for debt consolidation. In most instances, the interest rate will be lower than the predatory or subprime rate the customer already is paying. If not, NHS will focus on alleviating predatory-like features from the customer’s existing loan. These might include, as illustrations, balloon payments or negatively amortizing adjustable rates. NHS will also provide fixed interest rates, so a borrower will know his or her exact payment on a monthly basis. The closing-cost fees have been lowered to make the deals as affordable as possible.
 
The target audience is customers who do not fit in with conventional lending requirements because of poor credit histories or excessive debt.

Lender Investment.  A major component of this program was convincing lenders to invest in NHS’s revolving loan fund. NHS needed substantial funding to make these loans, and appealed to lenders for help. Most were willing to provide funding for NHS, but also wanted some involvement in the program so they could receive Community Reinvestment Act credit. To receive CRA credit, they needed to make whole loans, and could not do loan participations. That eliminated some lenders from participating.
 
Los Angeles NHS prepared sample packages to show lenders how the loans would work. The lenders reviewed the samples and then decided whether to participate in the program.

Program Framework.  Most often, lenders make the first mortgage, and NHS takes on part of the loan-to-value. NHS also has the option to make the first mortgage itself, or to not be involved at all, and, instead, refer the customer to a lender-partner. When a referral is made, NHS staff still provide counseling to help the borrower repair credit issues and become financially stable.

Program Partners.  Six lenders are participating in this program. In August 2001, the city of Los Angeles joined Freddie Mac in Freddie Mac’s “Don’t Borrow Trouble” campaign to help victims of predatory lending find financial help and legal counseling. The city of Los Angeles and Freddie Mac then partnered with NHS, which was designated as a resource to call for help. “Don’t Borrow Trouble” marketing is conducted by Freddie Mac and the city, and includes public service announcements, billboards and a Web site (www.dontborrowtrouble.com). Other marketing tactics include pamphlets, fliers, key chains and posters. As part of “Don’t Borrow Trouble,” NHS provides credit counseling, financial-management counseling, homebuyer education and legal help, in addition to lending opportunities.

• NHS pieced together $70 million from participating lenders for the “Stop! Predatory Lending Fund.” Most made forward commitments relative to the number of loans they could do. Wells Fargo, however, committed resources through the Home-Equity Loss Protection (HELP) program, in partnership with NeighborWorks America and Freddie Mac. (HELP combines a new, flexible refinance mortgage product, developed by Freddie Mac, with special long-term education and counseling requirements, offered by NeighborWorks affiliates. The mortgage is designed to help homeowners with impaired credit and excessive debt obtain affordable refinancing.) Wells Fargo has also established an alternative credit division as a step between predatory and conventional lending, where an infinite number of loans is available. Wells Fargo is thus able to take in most customers, and requires NHS to provide counseling for each. Prior to HELP, only subprime lenders would touch some of these higher-risk borrowers.
   
• At the start, NHS expected the anti–predatory lending campaign to involve only refinance opportunities and counseling, but in fact the effort has taken on a larger life and transformed itself into a citywide educational campaign.
   
• NHS has received 1,600 calls in the past nine months, even before “Don’t Borrow Trouble” advertising began. Each of these customers heard of NHS’s loan product through word of mouth. Approximately 400 people have been counseled thus far.
   
• NHS has made 35 loans under the program and anticipates the number will increase. Customers are saving $700 to $900 a month, or more, after the refinance loans are made.
   
• NHS has also teamed with the California Reinvestment Committee, a statewide advocacy organization, to work on enacting anti–predatory-lending legislation, completing a predatory-lending study, and negotiating best-practices agreements with major lenders. The group is addressing issues such as payday lending and regulating the number of points charged at origination. This legislation would allow companies to remain in business but not allow lending abuses.
   
• NHS is projecting it will assist 20 clients a month with the anti–predatory-lending fund, and assist 400 families a month with counseling.

• It is important to research the limitations local lenders may have with participating in these kinds of programs, and identify available loan-resale opportunities. Be creative!
   
• NHS believes it would be helpful to conduct ongoing education courses for existing homeowners on this issue. This would be done in conjunction with other affinity-group marketing efforts and partnerships, simultaneously with pre- and postpurchase education classes. This would greatly enhance outreach efforts.
   
• For an organization interested in creating a similar program, NHS recommends setting aside funds for assistance on second-trust deeds, if necessary, and having a postpurchase class to monitor clients after they have received loans.
   
• It is important to recognize the difference between poor credit decisions on the part of the borrower and predatory-lending situations. Some clients have withdrawn cash to purchase cars or consolidate credit cards, then charged the credit card up again, or failed to make the intended improvements. Although predators are indeed out there, at times it is the borrower who needs to learn how to make smart loan decisions and manage his or her finances wisely. However, if a lender has acted in a predatory manner with an unsuspecting homeowner or borrower, there should be aggressive legislation to deal with these individuals or companies.

Agency interview with: Ameer Elahee