HUD announces effort to curb predatory lending

Task force to help create bill will include 3 from Baltimore nonprofit groups

March 31, 2000|By John B. O'Donnell | John B. O'Donnell,SUN STAFF

WASHINGTON -- Calling Baltimore "one of the worst manifestations in the country" of "predatory lending," the Clinton Administration's top housing official unveiled a nationwide reform effort yesterday.

Andrew M. Cuomo, secretary of Housing and Urban Development, said a national task force -- which includes Baltimoreans Vincent P. Quayle, head of St. Ambrose Housing Aid Center, and Ken Strong, who heads the South East Community Organization -- would be given eight weeks to examine the problem and produce recommendations that can be turned into legislation.

Cuomo also said a separate group would deal with problems in Baltimore caused by property flipping and mortgage industry practices. Its solutions will be implemented in other cities where they might prove effective, he said.

The HUD chief spoke at a hearing of a Senate Appropriations subcommittee on which Sen. Barbara A. Mikulski of Maryland is the senior Democrat. Mikulski told him that flipping was destroying lives of poor people and ruining neighborhoods and that the Federal Housing Administration, a HUD agency, was contributing to the problem.

Predatory lending is a term applied to mortgages and home equity loans for which borrowers -- usually the working poor -- pay high fees to receive high-interest loans that often include a huge final payment and expensive life insurance. Flipping is the purchase and quick resale of houses at huge markups, using falsified documents and inflated appraisals.

Cuomo said the problem was caused by the subprime lending industry that specializes in loans to people with scarred credit. He said subprime lending, which has financed flipping in Baltimore, grew from $20 billion in 1993 to more than $150 billion in 1998. In Baltimore, only a fraction of these loans have been insured by FHA.

Legislation will be needed, Cuomo said. "You can charge exorbitant fees, and it's not illegal."

Yesterday marked the culmination of a week that began with Mikulski holding a subcommittee hearing on property flipping in Baltimore.

She subsequently told Cuomo that there was a problem he should confront. Cuomo then invited the heads of three city nonprofit organizations to Washington Wednesday to hear their long-standing complaints about the FHA. That meeting prompted his announcement yesterday.

"He leapfrogged over his own bureaucracy" to listen personally to the Baltimoreans' complaints about HUD, Mikulski said after the hearing.

The nonprofit organizations praised Mikulski. "We're very pleased," said Quayle. "Barbara is very serious about this I think she feels in her gut that the poor are really [being victimized] by the money interests."

St. Ambrose and other representatives of nonprofit groups complain that the FHA has contributed to the decline of city neighborhoods by insuring questionable mortgages -- many that financed flips -- that ended up in foreclosure because the borrowers were unable to handle payments. As a result, they say, houses that HUD acquires through foreclosures remain vacant for months, contributing to the decline of neighborhoods.

Cuomo confirmed after yesterday's hearing that he will declare an eight-week moratorium on foreclosures on FHA mortgages in the 7,000-home Northeast Baltimore area called Belair-Edison. Quayle's organization will examine the mortgages targeted for foreclosure to determine whether any lenders committed fraud. If it concludes that they did, it will turn the information over to HUD investigators and ask the FHA not to honor its insurance commitment on the loan.

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