Funds to aid city victims of flipping

WASHINGTON — WASHINGTON - Baltimore homeowners and neighborhoods victimized by property flipping will receive $6 million in government funds to help repair the damage from years of fraudulent sales.

"This program is the first step toward fighting flippers, protecting homebuyers and rebuilding Baltimore neighborhoods," said Sen. Barbara A. Mikulski, a Baltimore Democrat.


Mikulski and Democratic Sen. Paul S. Sarbanes of Baltimore announced that $5 million will come from the U.S. Department of Housing and Urban Development. The state of Maryland will contribute $1 million.

Mayor Martin O'Malley welcomed the funds.


"This is going to be a great opportunity for Baltimore to show the rest of the country how we can remedy this situation," he said. "This is hitting most of our fragile neighborhoods and hitting them hard."

Steps outlined

The announcement came as the head of the Federal Housing Administration outlined steps his agency is taking in Baltimore to deal with property flips that have been financed with mortgages insured by his agency.

"We need to recognize that hundreds of people have been scammed," said William Apgar, the FHA commissioner. "We need to provide relief to them."

More than 2,000 Baltimore houses have been flipped during the past four years - bought and quickly resold for at least a 100 percent increase in price - with little or no repair.

The FHA financed many of the deals, but most of the flips were financed with conventional mortgages and aren't involved in the FHA effort.

Apgar and members of a Baltimore task force that has been working with the FHA appeared before Mikulski and Sarbanes to report on their efforts.

Mikulski, the senior Democrat on the subcommittee that handles the HUD budget, held a hearing in Baltimore in March.


She is generally credited with awakening HUD to the flipping problem in Baltimore and HUD's role in it. FHA is a HUD agency.

Yesterday's meeting occurred on the eve of a two-day hearing by another Senate panel that has conducted a nine-month investigation of property flipping in Baltimore and other cities.

Mikulski is scheduled to be the lead-off witness at today's hearing before the Permanent Subcommittee on Investigations.

The FHA is expected to take a drubbing at the hearing for its part in financing property flips and for inadequate monitoring of lenders who make FHA loans.

"I find it very troubling that so many citizens in our nation's cities have been victimized by the predatory practices of unscrupulous real estate agencies, appraisers and lenders," Sen. Susan M. Collins, the Maine Republican who heads the subcommittee, said in a statement this week.

"But, what I found most appalling is that the federal government essentially has subsidized much of this fraud. HUD, through FHA, has insured many of the mortgages that finance these fraudulent transactions," said Collins.


Criticism of HUD

The General Accounting Office, the investigative arm of Congress, recently criticized HUD for failing to adequately monitor lenders that pose the highest risk of making bad loans and for failing to use its authority to kick poorly performing lenders out of the program.

HUD has barred some lenders from the FHA program, but federal judges in Baltimore ruled HUD exceeded its authority in sanctioning two local lenders.

Those decisions have been appealed.

Sarbanes and Mikulski introduced legislation yesterday to clarify HUD's authority to remove lenders from the FHA program.

The $6 million effort to help flipping victims and neighborhoods will be run by the city housing department.


Housing commissioner Patricia J. Payne said she hopes to tap mortgage lenders and foundations for additional funds and has asked the mayor to seek an additional $5 million from the state next year.

The mayor remarked "it is safe to say" that he will ask for those funds.

Uses of money

In part, the money will be used to help finance homeownership, spruce up neighborhoods saddled with flipped houses - many of which are vacant after foreclosure - and establish a clearinghouse where homeowners who believe they have been victimized by inflated loans can seek help.

Payne's agency also will target two or three of the most seriously affected neighborhoods for stabilization of vacant houses.

"Stabilizing roofs and other parts of vacant buildings is essential to ensuring their ultimate productive reuse," said the task force report.


Yesterday, Apgar provided an update to both Mikulski and Sarbanes on FHA efforts to help flipping victims in Baltimore who have FHA mortgages that exceed their houses' value.

Demands on lenders

The FHA said it will try to prevent recurrences of the practice, and it will demand that lenders who made inflated loans reduce them to the value of the houses and repair the buyers' credit reports.

If the lenders won't reduce the loans, then the FHA will take them over.

The FHA will start by demanding that lenders reduce a half-dozen mortgages in which the loans exceed the value of the property by 140 percent or more.