Senators Denounce Mortgage Abuses

Thursday, June 29th 2000, 12:00 am

By: News On 6

WASHINGTON (AP) â€” Senators of both parties complained Thursday that the government had failed to adequately monitor lenders in the federally-insured mortgage business, and that the unchecked abuses left some homebuyers with crumbling houses and unaffordable payments.

At a hearing Thursday, several senators denounced the practice of property flipping â€” buying homes, often in distressed urban neighborhoods, making cosmetic repairs and quickly selling them at sharply higher prices.

The Department of Housing and Urban Development has contributed to the problem with lax oversight of lenders, they said.

HUD officials, for their part, maintain that instances are isolated of property flipping involving government-backed mortgages.

Sen. Barbara Mikulski, D-Md., said HUD Secretary Andrew Cuomo ``responded immediately'' after she complained to him that the agency had become ``an accomplice to the flippers'' in Baltimore because of insufficient oversight.

``This hearing is about government letting people down,'' Sen. Richard Durbin, D-Ill., said after the Senate Governmental Affairs investigative subcommittee heard testimony from three homebuyers who were duped by unscrupulous lenders, real estate agents and lawyers.

HUD has been ``failing to keep an eye on these lenders,'' Durbin said.

Sen. Susan Collins, R-Maine, who heads the panel, said property flipping ``increasingly plagues our nation's cities and victimizes first-time homebuyers.''

She said HUD ``has been slow to act to curtail this fraud. ... Surely, HUD has a duty to protect the unsophisticated homebuyers who are the targets of these fraudulent sales and lending practices.''

Subcommittee investigators found frequent instances of fraud, such as inflated property appraisals and falsified documents attesting that homes have been renovated, in their nine-month inquiry into property flipping.

While flipping is legal in and of itself, fraudulent practices often are used to lure buyers into investing more money in houses than they are worth. Unsuspecting buyers can be left with dilapidated houses with only minor cosmetic repairs made to jack up prices, as well as high mortgage payments, tarnished credit records and possibly foreclosure.

The investigation turned up problems in Baltimore, Chicago, Los Angeles, New York City and South Florida.

Collins and Durbin cited a new report by the General Accounting Office, Congress' investigative arm, that found HUD has not done enough to hold banks and other mortgage lenders accountable for poor performance and violations.

But William Apgar, HUD Assistant Secretary for Housing, maintains that instances of flipping involving government-insured mortgages are ``isolated.''

``We see isolated examples of fraud and we take strong action against it,'' he said Wednesday in an interview. ``One flipped loan is too many.''

By contrast, Apgar said, most flipping is occurring in the growing high-rate mortgage market for people with poor credit, which does not involve federal insurance.

He also rejected the GAO report's criticism of monitoring by his agency, saying it didn't fairly evaluate HUD's oversight programs. HUD has banned 52 lenders from doing government-insured mortgage business in recent years and has established a program to review home appraisers, he noted.

HUD's Federal Housing Administration insures billions of dollars in home mortgage loans made by private lenders for low- and moderate-income people. Many of the loans involved in flipping are insured by the FHA, according to Collins.

The General Accounting Office report concluded that HUD needs to ``significantly improve'' its process for approving lenders seeking to make FHA-insured loans.

``HUD has not taken sufficient steps to hold lenders accountable for poor performance and (FHA) program violations,'' said the report, which was requested by Collins and Rep. Rick Lazio, R-N.Y., chairman of the House Banking subcommittee on housing.