A survey of 22 cities that showed Baltimore to be the second-worst urban area when it comes to excessively high default rates for government-backed loans is being disputed not only by the Department of Housing and Urban Development, but also by some of the lenders listed as poor performers.
The survey released yesterday showed the citywide default rate for Federal Housing Administration loans in Baltimore at 17.8 percent of the loans made between 1996 and 2000. Only Miami had a higher rate at 20.9 percent.
The rate for the District of Columbia was 13.6 percent, according to the study by the National Training and Information Center, a Chicago grass-roots organization whose mission is to fight unscrupulous lending practices and be a watchdog over HUD.
Other cities found by the survey to have high default rates were Newark, N.J., at 16 percent, Los Angeles at 13.7 percent, Birmingham, Ala., at 13.4 percent and Atlanta at 11.3 percent.
"What I think is happening in Baltimore is that you have this major push for homeownership and any Tom, Dick or Harry lender out there is making these FHA loans," said Cathy Klump, the study's author.
"And maybe they shouldn't be making all of these FHA loans. First, not everyone can afford to buy a home - and two, they are selling homes ... that are in disrepair. So people try to make repairs to their homes and they fall behind in their mortgage."
The center, using data from HUD on its FHA loans made during a five-year period, reported a national default rate of 6.4 percent. The default rate is defined as a loan that was at least 90 days delinquent as of April 1, 2001.
"We know that defaults lead to foreclosures, which lead to abandoned buildings, which leads to neighborhood decline. It is a clear line of fire," Klump said.
She said the study supports the center's claim that HUD is reluctant to sever relationships with lenders with high default rates.
But in a written response, John C. Weicher, the HUD assistant secretary who also is federal housing commissioner, said the agency "recognizes the concerns raised in the report" but "disagrees with the conclusions."
Weicher said HUD's national claim rate - lenders who make a claim for reimbursement after foreclosure - had dropped to its lowest level in 10 years at the end of fiscal year 2001. He credited the decline to HUD's increased efforts to help financially distressed homeowners.
He also noted that HUD's national inventory of homes acquired through foreclosure had dropped from 45,000 in 2000 to 29,000 in 2002.
"FHA exists to encourage homeownership among first-time and minority homebuyers, and is assuming reasonable risks in doing so," Weicher said.
He also noted that HUD's "credit watch" monitoring system had barred 100 lenders with high-default rates from making further FHA loans.
HUD released statistics that showed a yearly default rate in Baltimore, ranging from 5.02 percent in 1996 to 8.58 percent in 2000.
According to the study, the three lenders with the worst default rates in Baltimore - Capitol Mortgage Bankers Inc. at 35.4 percent, Harbor Financial Mortgage Corp. at 27.3 percent and American Skycorp Inc. at 26.9 percent - have already been terminated by HUD.
"The fact is there are lots of lenders throughout this study, who do exactly the same thing, do not have default rates like this," said Klump. "You don't have to have high default rates to make loans in these neighborhoods.
"I don't think Baltimore is so drastically different from Chicago, [where lenders] don't see anywhere near the default rates that Baltimore sees."
The study found Chicago's default rate to be 8.4 percent.
3 other local lenders
Three other Baltimore lenders on the list - First Horizon Home Loan Corp., Wells Fargo Home Mortgage Inc. and AccuBanc Mortgage Corp. - challenged the accuracy of the numbers compiled by the National Training and Information Center.
The center reported that First Horizon made 1,281 FHA loans in the five-year period with a 15.8 percent default rate, Wells Fargo made 955 with a 13.7 percent default rate and AccuBanc originated 619 FHA loans with a default rate of 10.5 percent.
"I don't think that number is right," Theodore E. "Chip" Reichhart, regional president of First Horizon Home Loans, said.
"I know that we have a lot more [FHA] loans in the city, and I would venture to say it is five times that amount," adding that he believed the 90-day default rate in the city for his company is "maybe 3.5 [percent] to 4 percent."
Reichhart said his company through April 2002 had done 474 government loans, of "which three-fourths were FHA."
Gene M. Lugat, president of AccuBanc, also said "the survey sample seems to be low." He, too, could not produce specific numbers but said that if the center's default percentage is accurate, then at least his company is doing "better than what the market performed."
Low default rate
Jon Ferchen, a spokesman for Wells Fargo, did not have Baltimore numbers for that time period but said its 90-day delinquency rate for the region runs at 3.86 percent.
Vincent P. Quayle, director of the St. Ambrose Housing Aid Center, believed the numbers used by the center were fairly accurate, according to statistics his organization keeps.
"The big question is, have things improved? Nobody knows that answer," said Quayle, who routinely calls Baltimore the "foreclosure capital of the world."
"Before '96, people lost their homes because they lost their jobs, they got sick or their marriage failed. Since 1996, most of the people we see here at St. Ambrose should have never bought that house in the first place."