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| Partnership Protects Seniors from Predatory Lending in New York Predatory lending remains a national problem and is rampant in New York City, especially within communities of color and aging communities. "Senior citizens have a lot of equity in their homes and have paid off their mortgages, which makes them targets for predatory lenders," states Pamela Sah, staff attorney for South Brooklyn Legal Services (SBLS), a nationally-recognized organization that serves as legal counsel to victims of predatory lending. In a typical case, Ms. Graham (a fictitious name), an African-American senior citizen living on retirement income, was approached by a door-to-door salesman to sign a home improvement contract. Ms. Graham eagerly signed up for a loan to make home improvements, only to later learn that the contract was exorbitantly overpriced. Without Ms. Graham's understanding, the home improvement contract was then parlayed into a $75,000 mortgage debt, which was, in turn, bought out with another high-cost, high-interest loan for $110,000. Having little education and living with a mental disability, Ms. Graham was not aware that the mortgage brokers had also collected more than $20,000 in fees. "Predatory lending is a complex issue and requires a multi-pronged approach," said Sarah Ludwig, Executive Director of the Neighborhood Economic Development Advocacy Project (NEDAP), a nonprofit at the forefront of efforts to combat predatory lending in both New York City and New York State. Victims of predatory lending, said Ludwig, need legal representation, sound financial guidance and assistance, and access to low-cost, affordable loans. Additionally, outreach and education are essential to prevent the continued exploitation of homeowners. In response to this multifaceted problem, three organizations – NEDAP, SBLS, and the Parodneck Foundation – have forged the Community Equity Protection Project, a partnership to comprehensively address predatory lending. NEDAP specializes in reaching out to and educating vulnerable communities, SBLS provides legal assistance and counseling to victims, and the Parodneck Foundation helps victims regain control of their finances. Typically, NEDAP will refer a victim of predatory lending to SBLS, who then initiates legal proceedings against the predatory lender. Legal proceedings often result in a short pay-off; an agreement by the lender to allow the borrower to pay off the loan at a reduced price. The Parodneck Foundation coordinates the pay-off using a combination of New York loan funds, Parodneck Foundation funds, and funds from private lenders. Loan packages from Parodneck dramatically lower the interest rate and turn the unaffordable predatory loans into affordable loans. For example, in Ms. Graham's case, SBLS represented Ms. Graham in litigation and administrative proceedings and negotiated a short pay-off with the foreclosing mortgage lender. The Parodneck Foundation connected Ms. Graham to the financing necessary to pay off the reduced debt and help her find a new loan from a responsible lender. In addition, the Parodneck Foundation offered Ms. Graham a loan to rehabilitate her house; a loan that was then bought by the City of New York. Later, NEDAP obtained permission to publicize her story to raise public awareness of the dangers of predatory lending. According to Howard Banker, Vice President for Programs at the Parodneck Foundation, the Community Equity Protection Project has benefited thousands of people through outreach and has closed loans for 48 families using Parodneck's refinancing program. To coordinate a short pay-off for a borrower, the Parodneck Foundation works with Fannie Mae and a consortium of responsible lenders willing to make new loans to victims of predatory lending. These lenders use flexible underwriting guidelines that overlook the effects of predatory lending on an applicant's credit report. Fannie Mae buys these new loans from consortium members, creating a secondary market that allows consortium members to continue making new loans. "It is essential to have senior underwriters from these companies at the table to review these cases," says Banker. "These are tough loans. Only senior underwriters know which loans Fannie Mae will and will not buy." Efforts to replicate the Community Equity Protection Project are already underway in Chicago, Pittsburgh, and other cities. "This partnership is an example of the primary market at its best. But you've got to have the right partners at the table," says Jacqueline O'Garrow, Fannie Mae's Senior Deputy Director for the New York Partnership Office. "You need committed lenders with strong underwriters. You need a provider of legal services." In addition to helping victims, the partnership is also making headway educating the public about the dangers of predatory lending. "In the last year, NEDAP has spoken to 159 community groups and thousands of individual homeowners," says Ludwig. NEDAP reaches out to minority communities with written materials translated into Chinese, Korean, Spanish, and Haitian Creole. "We're reaching a lot of people." NEDAP, SBLS, and the Parodneck Foundation have been working in tandem for years, but began a formal partnership in 2001. Now, having had a successful start, they continue to reach out to other New York organizations to strengthen local capacity to work toward an end to predatory lending. The partnership's work with other legal service agencies, financial institutions, and advocacy organizations allows these institutions to better serve those who are most vulnerable to predatory lending. "The idea is to get people back on their feet," says Ludwig. "Why should a person lose her home because of a bad loan?" For more information, contact:
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