HUD bans action by FHA

90-day moratorium on ciy foreclosures hinders filing of suits

'Everything on hold'

April 11, 2000|By John B. O'Donnell | John B. O'Donnell,SUN STAFF

After accusations that the practice contributes to illegal property flipping and the deterioration of neighborhoods in Baltimore, the Department of Housing and Urban Development has declared a 90-day moratorium on FHA mortgage foreclosures in the city.

The moratorium applies to mortgages insured by the Federal Housing Administration, an agency of HUD. It suspends action on foreclosure lawsuits that have been filed and prevents the filing of new suits. Vacant and abandoned houses are not included.

The moratorium is broader than one announced nearly two weeks ago by Andrew M: Cuomo, secreting/of Housing and Urban Development, who suspended foreclosures in Belair Edison, a section of Northeast Baltimore.

A HUD spokesman, Lemar Wooley, said in Washington yesterday that "this action is being taken to put everything on hold so we can look into all 'of the concerns that were raised by the community" at a recent hearing chaired by Sen. Barbara A. Mikulski, a Baltimore Democrat "and do that without the pressure of foreclosures being a factor."

In a letter to lenders Thursday, a HUD official, Michael B. O'Donnell, said the moratorium is "part of the secretary's effort to review predatory lending practices as they relate to loan originations.''

Cuomo has appointed a national task force to examine predatory lending -- the practice of issuing high-interest, high-fee loans -- and has targeted Baltimore for special attention. The task force holds its first meeting tomorrow in Washington.

Baltimore "has recently seen a significant increase in predatory lending abuses," said Cuomo's announcement of the task force.

Foreclosures were begun against more than 300 FHA borrowers in Baltimore during the first three months of the year. Nonprofit housing organizations believe many of the borrowers were victims of such loans.

Representatives of non-profit housing organizations welcomed the moratorium.

"Wonderful," said Vincent P. Quayle, who heads the St. Ambrose Housing Aid Center.

"That's a major step forward," added Ken Strong, who heads the South East Community Organization.

Both men hope the moratorium will give them time to identify loans that contained elements of fraud -- including inflated appraisals and falsification of documents by lenders and mortgage brokers -- and to plead with the FHA to deny insurance coverage to the lenders.

And, said Strong, "it gives us a chance to help families who have been victimized by mortgage scams"

HUD has told lenders to make sure during the moratorium that defaulting borrowers are offered FHA alternatives to foreclosure, including refinancing and mortgage modification, among others.

FHA insurance guarantees the 'lender that the government will make the loan good in the event of default. In such cases, HUD takes title to the houses. Critics complain that the houses usually sit vacant for months and that many end up in the hands of speculators who flip them to unsuspecting homebuyers for an increase that often exceeds 100 percent.

In a review of more than 400 property flips, The Sun found last year that HUD supplied more houses to flippers than any other seller.

Cuomo has announced several efforts to ban suspect lenders and appraisers and to reduce the time that HUD holds title to vacant homes across the country, including deep discounts to teachers and police officers who buy HUD homes. The agency offers to donate houses to the local government if they can't be sold in six months.

The moratorium follows complaints that HUD has failed to sufficiently control lenders, allowing them to issue questionable FHA loans to first-time homebuyers --often single mothers-- who are un-able to keep up with payments.

Frequently, the result is foreclosure that leaves the buyer with scarred credit and a neighborhood saddled for months with a vacant and deteriorating house.

The complaints drew support on March 30 from HUD's inspector general, who said in a report that there are "serious problems" with the FHA program. Among other things, auditors concluded that HUD was failing to identify fraudulent mortgages; was not targeting "many of the worst performing lenders with the greatest risk of improper loan originations"; was allowing "inappropriate loan practices to continue"; and was exercising inadequate control over appraisers.

Quayle told a Senate subcommittee hearing chaired by Mikulski two weeks ago that, percapita, Baltimore leads the nation in FHA foreclosures.

He said yesterday that his staff has examined 1,100 of the 1,700 foreclosures filed against Baltimore homeowners in the first three months of this year and that 327 involved FHA loans. Many of the mortgages were issued in the past two years.

Quayle has given the figures to FHA officials.

"I think they're really shocked," he said.

Wooley, the HUD spokesman, said the agency didn't have figures on Baltimore foreclosures available.

Lenders said they expect the 90-day moratorium to have little impact on them.

The important thing, said Al Ingraham, vice president of MNC Mortgage Corp., is that the "powers that be recognize that we've got an acute problem with regard to fraudulent loan practices in the Baltimore area."

He credited Mikulski and Sen. Paul S. Sarbanes of Maryland with "getting HUD Secretary Cuomo to recognize that this is a huge issue and that if they don't do something it's going to very negatively impact the marketplace long-term."

Quayle said that William C. Apgar, the FHA commissioner, toured Belair Edison with him Saturday and "expressed real concern for the victims, the people who are being foreclosed on."

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