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New Orleans Fair Housing Action Center
Using numbers and strong partnerships to take on predatory lending

Mr. Jeffrey P. May tells how he and his team gathered data, best practice research, and collaborative partners to construct an unbeatable program. Learn how they put it all together.

Feb. 14, 2003 | The primary way in which families preserve and build wealth in the United States is through home ownership. Across this country, prime lenders – lenders that offer loans primarily to people with good to excellent credit histories – have failed to serve low to moderate income inner city communities. Instead, sub-prime lenders – lenders that extend credit to people who do not qualify for, or who believe they cannot obtain, prime loans – flourish by filling the void in these financially neglected communities.

Predatory lending is when lenders use abusive and exploitative practices to extract equity out of people’s homes. They prey on homeowners in financial need who may need money for bill consolidation or home repairs and improvements. Instead of offering a fair loan, predatory lenders coerce people into taking out loans with high interests rates, outrageous fees, and unaffordable terms of payment. Furthermore, some of these lenders foreclose on properties causing homeowners to lose their homes, their financial security, or both.

All sub-prime lenders are not predatory, but the worst predatory lending is in the sub-prime lending market. Not surprisingly, as the sub-prime market has grown, so has predatory lending. Although there aren't precise numbers on predatory loans, it is known that in the five years between 1994 and 1999, sub-prime loan originations increased from $35 billion to $160 billion (1).

What can we do about predatory lending?

At present, a national anti-predatory lending law does not exist. Instead, a patchwork of federal laws provides inadequate protection and relief for predatory lending victims. Across the country, the most successful challenges to predatory lending activity have been through local and state initiatives and legislation.

At the Greater New Orleans Fair Housing Action Center, we’re working to eradicate housing discrimination in the greater New Orleans area. And, recently, we have begun to expand our services to address predatory lending throughout New Orleans.

To build a solid foundation for our attack on predatory lending, we started with a great deal of basic footwork to gather data about the local need for our intervention. We studied information about similar projects, and designed our local program based on successful results in other cities.

Data about the local need...

To develop an effective and sound approach for addressing predatory lending, it is important to understand its impact on the community. Sub-prime loans are five times more likely in Black neighborhoods than in White neighborhoods (2) and, according to U. S. 2000 Census, 47 of New Orleans’ 73 neighborhoods have African American populations greater than 60% (3).

Data from the Home Mortgage Disclosure Act (HMDA) shows that more that half of the refinance loans (52%) received by African American borrowers in metro New Orleans were from sub-prime lenders, while this percentage was only (15%) for Whites (4).

Although we don't have data on all incidents of predatory lending, the local data we do have indicates that there's a racial disparity in the market for predatory lending, and that there is a strong need for programs to stamp out predatory lending.

Best practices research...

Our investigation into the impact of predatory lending allowed us to move toward our main objective: to develop the best approach to addressing this problem. We had our own ideas of what might work here in New Orleans, but were also aware of successful initiatives undertaken by other fair housing groups around the country. We spoke and corresponded with experts, advocates and government officials in North Carolina, Atlanta, New York and Washington, DC to secure information about their local anti-predatory lending initiatives and legislation.

Success guides our local program design...

During this process, we observed that successful initiatives typically have several features.

1. A single agency with a strong referral network is designated as the community’s point of contact for the initiative.
2. That strong referral network includes agencies with a full range of services (pre-loan application counseling, loss mitigation, legal services and an alternative financing product).
3. Widespread marketing campaigns warn communities of predatory lending and inform victims about the initiative.
4. Effective advocacy and educational activities target stakeholders and policy makers to create anti-predatory lending legislation at the state level.

Learning from the successes and mistakes in other cities made designing our program so much more staightforward!

Our predatory lending initiative...

After completing the preparatory work, we were able to design a program that has a great chance of success. We followed the national best practices listed above, and customized our approach for the local situation (informed by local data).

In order to maximize our impact, we joined forces with other local and national groups working to prevent and remediate predatory lending. Our collaborators include: Fannie Mae, Hibernia National Bank, Neighborhood Housing Services, New Orleans Legal Assistance Corporation, New Orleans Finance Authority, Neighborhood Development Foundation, and several private attorneys in the New Orleans area.

With solid data that documents the problem of predatory lending practices in New Orleans, a results-based design for our local initiative, and the right people working on our side, the Greater New Orleans Fair Housing Action Center is leveraging all possible resources to help families keep their homes.

Citations

(1) HUD-Treasury National Predatory Lending Task Force Report (2000)

(2) "Unequal Burden: Income and Racial Disparities in Sub-prime Lending in America" U. S. Department of Housing and Urban Development (2000)

(3) U.S. Census Bureau. Census 2000 Full-count Characteristics (SF1). From a compilation by the GNO Community Data Center. <http://www.gnocdc.org>

(4) Federal Financial Institution Examination Council, 2001 HMDA data: Sub-prime refinance origination, compiled by Greater New Orleans Fair Housing Action Center

(5) Federal Financial Institution Examination Council, 1999 HMDA data; and HUD,1999 List of Sub-prime and manufactured Lenders, created by Essential Information.

(6) “Risk or Race? Racial Disparity and the Sub-prime Refinance Market” a report from the Center for Community Change: Calvin Bradford, Ph. D (2002)

(7) “Residential Mortgage Foreclosure and Neighborhood Change,” Housing Policy Debate (2000)

The author, Jeffrey Paul May is the Executive Director of the Greater New Orleans Fair Housing Action Center (GNOFHAC), a private non-profit organization established to address and eradicate housing discrimination throughout the greater New Orleans area. He holds a B.A. in Sociology and a Master’s in Urban and Regional Planning. He is a member of the Fannie Mae Housing Impact Advisory Council, the National Fair Housing Alliance’s Board of Directors, metro New Orleans, the state of Louisiana and national American Planning Associations.

This series of articles is a collaboration between the Greater New Orleans Community Data Center and the Jim Dunn Center for Anti-Racist Community Organizing at The People's Institute for Survival and Beyond in New Orleans.

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