A law enforcement crackdown and media-generated awareness has cooled the former mortgage-fraud hotbed of Baltimore.
More than 100 defendants were sentenced last year as part of a concerted effort by federal prosecutors to stifle property flipping and appraisal scams that had been rampant in entire neighborhoods.
“We still have some open investigations,” Joyce McDonald, who handles mortgage fraud for the U.S. attorney’s office in Maryland, told MortgageDaily.com. “But the volume is going down. We hope we’re one of the reasons” for the decline.
Jim Croft, founder of the Mortgage Asset Research Institute of Reston, Va., or MARI, said that he used to call “Baltimore the flipping capital of the galaxy.”
“It was so rampant there,” Croft said in an interview with MortgageDaily.com. “The crackdown by authorities has been important. And there has been tremendous coverage in the press.
“And I don’t always take my hat off to the press,” said Croft, whose organization tracks and analyzes mortgage data and trends.
McDonald said property flippers and mortgage scam artists were attracted by neighborhoods left vulnerable by the migration of homeowners to the city’s surrounding suburbs.
“Any time you have neighborhoods of board ups … and crack houses they are ripe to be taken advantage of by flippers,” she said. “We’re an older city. The population is dwindling and that left properties to be snapped up by flippers.”
At one point, a dilapidated row house in Baltimore could be had for as little as $15,000. Appraisers complicit in fraud schemes would value such as house at $60,000. The borrower, or fraudster, would get an 80 percent mortgage loan for $48,000, and then pocket the money, leaving the house empty.
Diane Cipollone, director of research and policy at the Community Law Center, said the phony appraisals enabled a lot of scammers to operate in the city.
The center has researched Baltimore’s fraud problem and is preparing a report on the situation.
“The mortgage fraud that hit us was primarily because of the false appraisals,” Cipollone told MortgageDaily.com. “It was happening at a time when property values were not appreciating. When we reviewed the sales transactions for the city, you just look at the data and determine some of the fraud.
“They stick out like a sore thumb,” she said.
Croft said many of the victims of fraud are unsophisticated buyers — immigrants, first-time homebuyers, minorities — unwittingly duped into participating in the schemes.
“There’s where the press has come in,” he said. “They’ve alerted the general public of the need to be wary. That has helped reduce the fraud in Maryland.”
Buyers are also attracted by what she called “risky mortgage products” that can get unsophisticated and undisciplined buyers into trouble. She cited multiple refinancings, home equity loans and interest only payments.
Also, she said some lenders “steer” buyers who qualify for prime loans into higher interest subprime loans.
“The consumer has some responsibility to know what they can afford,” Cipollone said. “It’s not against the law for someone to sell” those products.
“But I do think it’s predatory when they try to sell (the products) to the most vulnerable population,” she said. “Federal agencies are finally taking note.”
Cipollone said she is always worried heavy instances of fraud could easily reappear, so vigilance and constant scrutiny of real estate transactions are keys to preventing the problem for reoccurring.
“Appraisers in general are still under pressure to come up with numbers … for the purchase price,” she said. “Some say we are in a housing bubble, but believe me. Baltimore property values have risen astronomically … and people are in situations where houses are way over-appraised.”
