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LESSONS LEARNED FROM THE BALTIMORE LABORATORY
May 1, 2000 to May 1, 2002
Report prepared by the
Community Law Center,
Inc. coordinator of the
Baltimore City Flipping and Predatory Lending
Task Force
EXECUTIVE SUMMARY
In the first quarter of the year 2000, United
States Senator Barbara Mikulski called the nation=s
attention to a pervasive and venal practice of property flipping
and mortgage fraud that was undermining the stability of
Baltimore=s
neighborhoods. The foreclosure rate in Baltimore had quadrupled
and hundreds of families were losing their homes. In April of
2000, the National Task Force On Predatory Lending and a
parallel task force in Baltimore City were created. The national
task force report in June 2000 designated Baltimore as a
laboratory for the further understanding of property flipping,
mortgage fraud, and predatory lending, for the prevention of
illegal and unethical real estate practices, and for the
creation of recovery plans for victimized families and
neighborhoods. The Baltimore task force has met regularly for
two years with faithful participation from government agencies,
industry associations, and community groups focusing on law
enforcement, regulatory enforcement, consumer education, victims=
assistance, neighborhood stabilization, and legislation. This is
a summary of the accomplishments of the task force, what we=ve
learned, and what remains to be done.
Accomplishments
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Forty-seven (47) individuals have been
indicted, pled guilty or convicted in federal court for
property flipping and mortgage fraud.
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The Baltimore HELP Program, a $3.4 million
partnership of banks, government agencies, Fannie Mae,
and foundations, is now established to prevent
foreclosures and aid families.
Lessons Learned
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The FHA fund is severely limited in its ability to
prevent foreclosures, assist victims of FHA-insured
mortgage fraud, repair and maintain HUD houses, or
participate in neighborhood recovery activities in areas
where HUD houses are concentrated. These shortsighted
limitations need to be lifted. If wisely invested, the
FHA fund could reduce its losses in foreclosures
estimated to be $75 million from 1996 to 2000 in
Baltimore City alone.
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Controls are lacking on the purchasers of HUD
properties. Many investors in HUD properties are part of
the problem in property flipping, mortgage scams,
housing code violations, and unethical real estate
practices. The majority of HUD houses are sold to
investors and efforts to promote the purchase of HUD
houses by owner occupants have been largely ineffective.
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Victims=
assistance efforts were delayed and are not operating
yet on a scale that approaches the need. Many families,
that were not qualified to obtain a mortgage, were
nevertheless sold houses with either FHA-insured
mortgages or subprime loans. Such families cannot easily
be helped through refinancing programs.
What Remains To Be Done
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While maintaining the consistency of federal law
enforcement efforts, we need further action by state and
federal agencies with consumer protection
responsibilities and regulatory enforcement powers (Key
Actors: FTC, MD Attorney General=s
Office, MD Dept. of Licensing and Regulation).
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While implementing the Baltimore HELP Program, we
need to find additional ways for HUD and FHA to aid
victims of mortgage fraud with FHA-insured mortgages
(Key Actors: St. Ambrose, HUD, Congressional authority
to liberalize FHA fund uses).
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We need a HUD property disposition system that truly
encourages home ownership, neighborhood stability,
strong community development corporations, and close
cooperation with Baltimore=s
housing department. This may arise from the
Aaccelerated
claims@ pilot
(or a Baltimore pilot within that program), asset
control areas (with revisions that make that program
more workable), or by some other means. But it must be
done. (Key Actors: HUD, HCD, and community development
corporations)
There are two FHA programs in America. For the
majority of Americans, FHA is a successful mortgage insurance
program promoting home ownership with good results, low levels
of default and foreclosure. Every year the FHA fund is flush
with money and contributes significantly to the federal
treasury. In much of urban America, including Baltimore, the FHA
program has been greatly abused by illegal and unethical real
estate practices. These abuses lead to foreclosure rates as high
as Baltimore=s rate of
17% and cost the FHA fund millions and millions of dollars. More
importantly, the abuses wreak devastation upon families and
neighborhoods. The abuses, and the failures of FHA to prevent
them, have been concentrated in the lowest-income areas,
minority communities, and neighborhoods experiencing racial
change. The persistence of two FHAs in America is unacceptable.
FHA needs an urban strategy for success and it ought to invest
its own largess in that strategy. At this stage in our work, the
broad challenge remains. Against the backdrop of FHA=s
overall financial success, we do not have a federal plan that
ensures that no family, no neighborhood, and no city is left
behind.
One lesson of the task force is that illegal
property flipping and mortgage scams emerge from a general
climate of unethical real estate practices. For too long, many
large property owners have played monopoly with people=s
lives B flaunting the
housing code, evading lead safety requirements, and ignoring the
tenants= right of
first refusal law. In many of Baltimore=s
low-income and African-American neighborhoods, unethical real
estate practices are the norm; mortgage fraud and other
housing-related crimes are short steps over the lines of
legality. We need to broadly raise the ethical standards within
Baltimore=s housing
market through aggressive code enforcement, regulatory
enforcement, consumer protection cases, and progressive
legislation. We also need to maintain vigilant watchdog
functions in the public and private sector, to better identify
housing trends, new scams, new players in the field - and
intervene earlier.
The Baltimore City Flipping and Predatory
Lending Task Force is proud of the accomplishments outlined
above and is pleased to report that there are some signs of
progress. We are equally humbled by the continuing challenges
and by the size and the scope of the problems we have addressed.
Some of our accomplishments are quite recent, particularly the
start of the Baltimore HELP program, and still need our guidance
and support. We have not been very successful in the legislative
arena at any level of government and much more needs to be done
to enact progressive reforms and stronger consumer protections.
We hope the work that we have done, and will do, yields greater
results in the future in all the important areas of work
B law enforcement,
regulatory enforcement, HUD and FHA reforms, consumer education,
prevention, neighborhood stabilization, and victims=
assistance. We sincerely hope that our work has resulted, and
will continue to result, in fewer families needing victims=
assistance.
Lessons Learned the Report
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Last Updated:
September 25, 2006 ©
2006 Community Law Center, Inc. Baltimore, Maryland
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The Community Law Center, Inc.
