Illinois Gov. Rod Blagojevich has suspended a controversial program intended to stop predatory lending in 10 Chicago-area ZIP codes after a study found housing sales in the predominantly minority neighborhoods dropped by nearly half after the program went into effect.

Legislators who sponsored the legislation that created the program said it was working and questioned the governor’s authority to suspend it.

The Illinois Predatory Lending Database Pilot Program, created by the passage of House Bill 4050, took effect Sept. 1. The program, which does not apply to federally chartered banks, required residents who fall short of certain credit and income thresholds to seek financial counseling.

The 10 ZIP codes where the four-year pilot program was implemented (60620, 60621, 60623, 60628, 60629, 60632, 60636, 60638, 60643 and 60652) were chosen because of above-average foreclosure rates and a high proportion of predatory loans, proponents said. But critics say the program chilled housing sales in the mostly minority neighborhoods.

Soon after the program went into effect, the Illinois Association of Mortgage Brokers circulated a list of about two dozen lenders the group claimed had curtailed business in the affected ZIP codes.

In announcing the suspension of the program Friday, Blagojevich cited a report by the University of Illinois Urbana-Champaign, which found housing sales in the 10 affected ZIP codes dropped by nearly half during the fall of 2006. Although sales also declined in comparable ZIP codes because of the slowdown in the housing market, the drop was less pronounced — 20 percent. The report found the predatory lending program did not offer borrowers additional consumer protections, Blagojevich said.

When the controversy first developed, a spokesman for Illinois Speaker of the House Mike Madigan, an author of HB 4050, told Inman News that the bill was originally intended to apply to the entire state, but was scaled down to just 10 ZIP codes as a political compromise.

The spokesman, Steve Brown, told the Chicago Tribune Friday that Blagojevich’s suspension of the program was “regrettable” because predatory lenders had been “skulking their way out of Chicago and Cook County” and the program “seemed to be having a good effect.”

Sen. Martin Sandoval, who sponsored the bill in the Illinois Senate, called Blagojevich’s action “unilateral” and said he would seek an opinion from Illinois Attorney General Lisa Madigan — the speaker’s daughter — on the governor’s legal authority to suspend the program, the Tribune reported.

Show Comments Hide Comments

Comments

Sign up for Inman’s Morning Headlines
What you need to know to start your day with all the latest industry developments
By submitting your email address, you agree to receive marketing emails from Inman.
Success!
Thank you for subscribing to Morning Headlines.
Back to top
Will you attend ICLV virtually or in-person? The agenda is packed with stellar speakers and sessions.Learn More×
Limited time: Get 30 days of Inman Select for $5.SUBSCRIBE×
Log in
If you created your account with Google or Facebook
Don't have an account?
Forgot your password?
No Problem

Simply enter the email address you used to create your account and click "Reset Password". You will receive additional instructions via email.

Forgot your username? If so please contact customer support at (510) 658-9252

Password Reset Confirmation

Password Reset Instructions have been sent to

Subscribe to The Weekender
Get the week's leading headlines delivered straight to your inbox.
Top headlines from around the real estate industry. Breaking news as it happens.
15 stories covering tech, special reports, video and opinion.
Unique features from hacker profiles to portal watch and video interviews.
Unique features from hacker profiles to portal watch and video interviews.
It looks like you’re already a Select Member!
To subscribe to exclusive newsletters, visit your email preferences in the account settings.
Up-to-the-minute news and interviews in your inbox, ticket discounts for Inman events and more
1-Step CheckoutPay with a credit card
By continuing, you agree to Inman’s Terms of Use and Privacy Policy.

You will be charged . Your subscription will automatically renew for on . For more details on our payment terms and how to cancel, click here.

Interested in a group subscription?
Finish setting up your subscription