Pittsburgh Fights Predatory Lending

Over the last several months, the Pittsburgh Community Reinvestment Group (PCRG) – an umbrella organization for 21 community development corporations in the Pittsburgh area – has been hearing an increasing number of stories from predatory lending victims. These stories ranged from collusion between appraisers and developers to overpriced home improvement loans to senior citizens. In response, PCRG has developed a city-wide effort to combat predatory lending. The Anti Predatory Lending Initiative (APLI), officially founded in November 2002, helps the victims of predatory lending and works to prevent additional individuals from falling prey to abusive lending practices.

The PCRG Approach
Many states have passed legislation in an attempt to curb predatory lending practices in their areas. Georgia, for example, recently passed the Georgia Fair Lending Act of 2002 that outlaws exorbitant balloon payments, prepayment penalties, and other fees on high interest loans. Georgia Department of Banking and Finance will enforce the law, and penalties include up to six months in jail and a $1,000 fine per violation. Other states that are currently in the process of passing legislation to combat unfair lending practices include Virginia, Michigan, Kentucky, Tennessee, and Nebraska.

APLI’s approach, however, represents an alternative route to curbing abusive lending practices. The program uses the Pittsburgh Community Reinvestment Group’s broad network of legal, financial, and consumer counseling agencies to educate the public on the dangers of unsound borrowing, while offering referral services to victims of predatory lending. APLI’s founders believe that this collaborative model can have a more meaningful and positive effect than can be achieved by individual organizations working independently. Through APLI, PCRG is holding classes to educate homeowners on lending practices. The organization is also building a database for predatory activity that will track the players and the practices that they use. This information can be used either by the Attorney General's office or by local groups to organize direct action against abusive lending practices.

APLI staff also work with homeowners to take their cases to court and/or to renegotiate the terms of their loans. Most PCRG cases involve an originator-appraiser collaboration that seeks to inflate the appraisal of the house in order to boost the equity and cover the originator's fees. Two examples of pending cases (names have been changed) are included in the sidebar.

While PCRG has not yet been able to quantify results, the organization has found legal counsel for a number of victims, and is working to prevent foreclosure on a several homes. Most of these cases are still pending in court. The organization is also working on repair financing and has commitments from several local banks to participate in a Fannie Mae refinance program. For clients whose credit issues can be directly traced to the predatory loan, PCRG will negotiate reasonable settlements with the lender and provide an appropriately priced mortgage product for that homeowner.

As Greg Simmons, Program Manager for APLI, said, "It is far easier to get into a bad loan than to get out of one. The abusive lenders who are looking to take advantage of a homeowner's financial ignorance have stacked the cards against the average borrower." In a sub-prime market that is becoming increasingly dangerous for borrowers, PCRG is offering an invaluable service.

For more information, contact: Greg Simmons, Program Manager, APLI, gsimmons@pcrg.org, 412-391-6732

Side Bar
Case Study #1

Liz and John Hampton had a loan with several problems from Conseco Finance Corporation. First, the gross monthly income on the application was fraudulently inflated to meet underwriting criteria – the application showed $3,950.00 monthly income for Mr. Hampton who was unemployed at the time. The borrowers claim that the originator told them to "just make something up."

Second, the appraisal appears to have been inflated as well, showing an increase in value of $22,000 over two months. The lender would not provide a copy of the appraisal to the borrower.