Curran to widen housing inquiry

Md. attorney general using tobacco funds in probe of quick resales

`Flipping is a priority'

October 22, 1999|By John B. O'Donnell | John B. O'Donnell,SUN STAFF

Maryland Attorney General J. Joseph Curran Jr. plans to use funds from the settlement of a national tobacco lawsuit to investigate fraudulent real estate practices in Baltimore that involve the quick resale of dilapidated houses for huge profits.

Curran said he is earmarking more than $3 million from the tobacco companies for his criminal investigations, consumer protection division and the office's Medicaid fraud unit.

Curran has about five lawyers looking into the quick resales, known as "flipping," and said "that's simply not enough." He said he plans to "beef up" the housing investigation "to find out what happened and try to right any wrongs."

"Flipping is a priority," Curran said. "We'll do whatever it takes."

Curran's initiative comes as U.S. Attorney Lynn Battaglia is preparing to gather investigators today to coordinate federal investigations into flipping. FBI agents, postal inspectors, and the inspector general of the Department of Housing and Urban Development are involved in the investigations, she said.

"We're going to take a very aggressive stance on this," said Battaglia. "We're doing this in terms of a task force. This has such a devastating effect on Baltimore City, on the banking industry and on individuals who are affected."

The widening investigations were welcomed by housing advocates who have been dealing with the victims of an epidemic of property flipping, a practice in which houses are bought and quickly resold -- sometimes on the same day -- for large markups. The State Department of Assessments and Taxation says more than 2,000 houses in Baltimore have been sold for more than a 100 percent increase in value in the past three years.

"We're delighted," said Vincent Quayle, who heads the St. Ambrose Housing Aid Center.

"The word has gotten through that we want action on this issue," said Ken Strong, executive director of the Southeast Community Organization, who noted that Curran's office is able to obtain restitution for victims.

Strong spoke at a news conference where a study of so-called sub-prime lenders -- companies that make high-interest loans to people with flawed credit -- was released by the Association of Community Organizations for Reform Now (ACORN).

The ACORN study of lending in 22 cities accused the sub-prime industry -- which finances the property flips in Baltimore and other cities -- of preying on poor blacks.

"A new breed of lenders is aggressively marketing high-cost loans," the study said. "Too often, instead of helping homeowners build equity, these lenders, with high rates and fees, and sometimes outright fraud, are stripping families and communities of the equity they have in their homes."

Among other things, ACORN complained of fees that mortgage brokers receive for steering borrowers into loans at higher interest rates than they they could otherwise get.

The study dealt mainly with home improvement and refinancing loans but included first mortgages used to buy houses. It was based on data that lenders report to the federal government and focused on the top 10 sub-prime lenders in each of the cities.

"A disproportionate number of sub-prime loans are made to minorities, particularly African-Americans, and to lower-income and minority neighborhoods in Baltimore," the study said.

It said the top 10 sub-prime lenders here made nearly 52 percent of their loans in the metropolitan area to low- and moderate-income borrowers last year. For all other lenders, it said, the figure was 20 percent.

Blacks received 26 percent of the loans made by the 10 firms; all other lenders made 10.7 percent of their loans to black borrowers, the study said.

ACORN held its news conference -- and a demonstration -- outside the Light Street offices of the Maryland Association of Mortgage Brokers. The site was picked, said ACORN organizer Mitchell Klein, because the association says on its Web site that "mortgage brokers have pioneered the `sub-prime' credit market, using innovative loan packages to allow low- to moderate-income borrowers with less than perfect credit to start enjoying the benefits of home-ownership."

Tom Shaner, executive director of the brokers association, said the lobbying group has no power to force lenders to change their practices.

"He needs to deal with the commissioner of financial regulation," Shaner said. "We realize people are doing things wrong. We support the licensing of loan officers."

Several borrowers at the news conference complained about their loans.

Cecelia Banks said that when she bought her house on North Curley Street in 1997, "I thought I was realizing my dream, that ev- erybody has a right to be a homeowner. I did not believe that I was going to get swindled."

She said she has a $53,300 loan on a house that an appraiser has told her is worth $35,000.

"I'd like very much to find ways to right the wrongs and help those who have been taken advantage of," Curran said. "If you've got a $30,000 house and a $50,000 mortgage, something is wrong."

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