Is ACORN nuts? That’s what some neighborhood advocates have been asking in the wake of the announcement that the community group will refer low-income clients seeking mortgages to one of the nation’s worst predatory lenders.

The Delta Funding Corporation, a Long Island-based mortgage company plagued by fraud and discrimination lawsuits, has joined forces with ACORN to create a loan counseling and referral program, Borrow Wise, the lender announced in March. Delta says it will pay ACORN a small grant to provide counseling on the basics of home loans to borrowers with shaky credit. ACORN will then forward their financial information to Delta and a few other participating financial companies looking to process the loans.

To be sure, Delta could use some good press: Lawsuits filed by the Federal Trade Commission, the U.S. Justice and state Banking departments, and New York’s Attorney General culminated last year in almost $9 million in fines to be paid to victimized homeowners, as well as a federal monitor. All of which has advocates for better lending practices in low-income neighborhoods questioning ACORN’s new partnership.

“It sounds like a very good program for those specific borrowers,” says Matthew Lee, executive director of Inner City Press, a Bronx-based finance industry watchdog. But “it doesn’t address Delta’s overall practices, which we still consider problematic.”

Delta was accused of charging disproportionately high fees to African-Americans and women. Even ACORN dubbed Delta “the poster child” for predatory lending in an October 1999 City Limits story.

Indeed, such practices have inspired a coalition of advocates, including ACORN, to push for state legislation to give victimized homeowners the mechanism to prevent foreclosure and sue unethical lenders (see “Stop Payment Order,” page 13).

ACORN admits the decision to partner with Delta was not an easy one. But given the slow pace of law making in Albany and the daily reality of sub-prime lending in poor neighborhoods, said ACORN housing director Ismene Speliotis, “until there’s sweeping change in the industry, it might be the best we can do without legislation.”

Yet advocates lobbying for the legislation wonder if ACORN’s move could be counter productive. One bill-backer, speaking on condition of anonymity, suggested that by painting itself as a friend to ACORN, Delta could help the banking industry convince legislators that mortgage brokers have sufficiently reformed and that new laws are unnecessary.

“Delta’s clearly looking for a group to throw money at so they can look good,” said the advocate. “What could ACORN possibly be thinking?”