Investor in Chicago Development Project Accused of Predatory Lending

Inside Subprime: May 10, 2019

By Jessica Easto

One of the two major investors in a high-profile (and controversial) development project in Chicago, Illinois, has been accused of predatory lending, according to reports.

The Dallas, TX-based investor, a $60 billion private equity firm that specializes in acquiring distressed mortgages has been criticized for driving up foreclosures and evictions in lower-income areas.

This firm is part of a group of private equity and hedge fund firms that have purchased “more than 100,000 troubled mortgages at a discount from banks and federal housing agencies,” according to a New York Times investigation. This type of investment is a direct result of the 2008 mortgage crisis, which left banks and other traditional financial institutions wary of dealing with subprime loans. Firms swooped in to purchase them, knowing they could squeeze profits from bundles of subprime mortgages by pushing them into foreclosure and repackaging them for sale to hedge funds and mutual funds.

Housing advocates claim that these firms often fail to negotiate repayment options with borrowers that would help keep them in their homes. Instead, they jump to foreclosure and drive up evictions. The New York Times investigation revealed that the investor had a “pattern of complaints” related to these issues. In fact, a lawsuit brought against the firm by black homeowners in New York City prompted the city’s comptroller to investigate the firm’s lending practices.

According to a report by the Center for Popular Democracy and the ACCE Institute, this type of lending diverges from federal and industry standards, and it does not offer real relief to borrowers. The report found that the loan modifications of a subsidiary of the investor was “less likely to preserve homeownership than loan modifications from many of the other large servicers in the country who follow better standards.”

Distressed mortgages tend to disproportionately affect working-class communities of color, a demographic that is frequently the target of expensive, predatory loan products. These communities have also suffered the greatest loss of home equity following the mortgage crisis.

The investor’s alleged predatory lending practices is just one of several controversies surrounding Chicago’s mega development project, sited on the city’s Near North Side neighborhood. The project is the initiative of Mayor Rahm Emanuel and Alderman Danny Solis, both of whom are on the way out. Critics have also questioned the way the project subsidizes luxury housing without plans to preserve jobs and affordable housing for working-class families.

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