FHA begins acting on complaints of `flipping'

U.S. will demand redress for exploited homeowners

May 20, 2000|By John B. O'Donnell | John B. O'Donnell,SUN STAFF

Announcing mortgage relief to Baltimoreans who are stuck with inflated FHA-insured mortgages, the head of the Federal Housing Administration said yesterday that his agency has begun contacting homebuyers who have been victimized by fraudulent property "flipping."

"We're starting with the most egregious cases," owners against whom foreclosures were filed in the first three months of the year, William Apgar, the FHA commissioner, said.

Where owners have inflated loans for more than the value of the house, FHA will demand that the lenders reduce the mortgage to the actual value.

If the lender declines, FHA will pay off the mortgage, and the owner will get a new loan for the lower amount.

"We'll have a loss there," Apgar said, promising to pursue the lender for reimbursement of FHA.

Of the 1,600 foreclosure suits filed in Baltimore from January through March of this year, one-third involved mortgages insured by the FHA, an agency of the U.S. Department of Housing and Urban Development.

HUD declared a moratorium on foreclosure action in Baltimore early last month.

Apgar spoke at a daylong Baltimore hearing of a national task force HUD and the Treasury Department formed to study what is called predatory lending and to recommend legislation. A report will go to Congress next month, said Gary Gensler, a deputy treasury secretary.

HUD also released a study of so-called sub-prime lending in the city -- high-interest loans to people with scarred credit. Focusing on home refinancing, the study said there had been an explosive growth in these loans between 1993 and 1998 and that they are concentrated in poor and African-American neighborhoods.

A second HUD task force, dealing with problems in Baltimore, developed the plan to help buyers of houses where the price was inflated beyond the market value.

If it succeeds in Baltimore, it will be used nationwide.

Other steps HUD is taking include requiring lenders to "repair" the credit report of wronged borrowers and is targeting unscrupulous appraisers and mortgage brokers to bar them from participation in the FHA program.

FHA borrowers not in default or foreclosure will be eligible for debt relief if FHA determines that they paid too much for the house, based on an inflated appraisal. Concerned homeowners should contact a HUD approved housing counseling agency, he said.

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