Feds shouldn't flip on homeowner relief

Housing fraud: Federal agency should fulfill its promise to aid Baltimore's victimized buyers.

March 20, 2001

FOR A WHILE, it seemed the federal government was going to do right by Baltimore homeowners who had been taken in by some of the worst predatory lending arrangements to hit our area since blockbusting.

We cheered when the U.S. Department of Housing and Urban Development promised to help city residents who had bought homes for outrageously inflated prices and were stuck with excessive government-backed mortgages.

The agency's Federal Housing Administration initiative would have forced lenders to reduce inflated FHA mortgages. If the lender refused, the agency would pay off the loan, take title to the property and resell it to the buyers at the actual market value. The agency would recoup its costs from those involved in the fraud.

That was 10 months ago.

Since then, prospects for making bilked homeowners whole have changed for the worse.

HUD has yet to offer relief to a single property owner in Baltimore, which FHA officials have called a "hot zone" for appraiser fraud and property flipping. Victimized homeowners are unfairly forced to carry mortgages that far exceed the value of their homes.

FHA insurance exists to protect lenders. They know the government will make good when buyers default on mortgages. But shouldn't the federal government also protect buyers who acquire loans the FHA has carelessly approved for properties that were sold under fraudulent practices?

The housing authority thought so in May, when it acknowledged its stupidity and promised to bail out residents before they tumbled into bankruptcy -- which increasingly is becoming a credit death sentence.

Housing advocates, who have a good handle on the problem, have directed hundreds of possible flipping cases to HUD and are still waiting for someone to get relief.

It shouldn't take this long.

Worse than the wait is that many have been rejected without a full explanation. Then there's the fear that federal relief will never come to anyone, that HUD will abandon its promise to help naive homebuyers who got burned while pursuing their American dream.

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