A University report was cited by Gov. Rod Blagojevich when he suspended a pilot program aimed at combating lenders who take advantage of unsuspecting home buyers in Cook County.

Under the Illinois Predatory Lending Database Pilot Program, known as House Bill 4050, borrowers with low credit scores were required to undergo one-hour counseling sessions offered by counselors certified by the Department of Housing and Urban Development. The law has been labeled burdensome for lenders and borrowers, according to the report.

Blagojevich moved to suspend the pilot program asserting that, despite good intentions, it was negatively affecting the communities it was designed to protect. Part of his assessment was based on a report released by Lisa Bates, assistant professor of urban and regional planning.

Bates, who has been studying ten zip code areas involved in the program, found housing sales were cut in half after implementation of the program. Bates compared this to housing sales in zip codes sharing similar socio-demographic and borrowing characteristics. In this control group, housing sales fell by only 20 percent over the same time period, according to the report.

“It shifts the whole regulatory attention to the borrower who has a low credit score, whether or not they are making good decisions or they know what they are doing,” Bates said. “They still have to go through this process.”

Shannon Van Zandt, co-author of the report and professor of landscape architecture and urban planning at Texas A&M; University, said this regulatory shift was very unusual.

“It hassles individual borrowers (rather) than saying there is a problem with a loan,” Van Zandt said.

House Speaker Michael J. Madigan, who sponsored HB4050, is now looking for ways to reintroduce it. Meanwhile, State Attorney General Lisa Madigan is looking into the legality of Blagojevich’s decision to suspend the program.

Steve Brown, spokesman for Michael Madigan, told the Chicago Tribune that the pilot program was in fact working and edging out predatory lenders from Cook County.

Livia Villarreal, director of counseling services for the Greater Southwest Development Corp,, said suspending the program so early left little time to determine its worth. Villarreal’s agency was one of the certified counselors.

“It’s too short of a time to determine how the law has impacted this area on real estate values,” she said.

Villarreal said that housing sales should not be the only factor when determining the value of the pilot program. Housing sales could have gone down because borrowers decided to wait to purchase a home after the counseling session, she said.

“If (the counseling) only takes them an hour, we see a huge benefit,” Villarreal said. “We were swamped. We were doing counseling on Saturdays. We even went to a hospital to do a counseling session. We never had anyone say ‘we can’t close because we had to do this counseling session.'”

Villarreal added that her agency did 222 counseling sessions between the initiation of the program and its suspension.

A showdown now appears likely between Michael Madigan and Blagojevich who have a history of tense relations.

Illinois legislators are continuing to look for ways to undermine predatory lenders while not upsetting markets that depend on sub-prime lenders. These lenders offer loans to people with poor credit ratings that are considered high-risk by mainstream lenders.

“We need sub-prime lending,” Bates said. “We need people who will lend to someone who has less than perfect credit. You want to get at that (predatory lending) without stopping all lending to someone who has blemished credit history.”