Is ACORN nuts? That’s what some anti-predatory lending advocates have been asking in the wake of an announcement that the community group will refer low-income, loan-seeking clients 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 at the state and federal level, is apparently trying to boost its image. Delta and ACORN have joined forces to create a loan counseling and referral program, Borrow Wise, the lender announced last week. 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.”

After years of awarding home loans to people with poor credit histories, Delta was accused of charging disproportionately high fees to African-Americans and women, and of approving high-interest loans without regard to whether borrowers could afford to pay them back. Even ACORN dubbed Delta “the poster child” for predatory lending in an October 1999 City Limits article.

Such practices have inspired a coalition of advocates, including ACORN, to push for state legislation to give victimized homeowners a way to sue unethical lenders and prevent foreclosure.

For its part, ACORN admits the decision to partner with Delta was not an easy one. But given the slow pace of lawmaking 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 counterproductive. 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?”