St. Ambrose Outreach Center

For 30 years St. Ambrose Outreach Center has been developing housing and providing counseling services to low-income homebuyers and renters in Baltimore City. Their mortgage default counseling program has helped hundreds of homeowners at risk of losing their homes. Two years ago counselors in the program noticed a growing number of families needing counseling to prevent foreclosure, not for the traditional reasons of unemployment, illness, or divorce, but because the families should never have been approved for mortgage loans in the first place. Under one scenario, speculators encouraged rapid resale of substandard houses, often with fraudulent agreements for mortgage financing and improvements. Homebuyers, eager to purchase renovated housing, paid higher than market price for houses to which only cosmetic repairs were made. The homeowners were then saddled with a house that was worth far less than the purchase price but which still required major repairs. Homeowners who could not afford the mortgage for the inflated value of the house, much less the repairs, stopped making mortgage payments.

With a grant of $37,500 from The Abell Foundation, St. Ambrose began studying mortgage foreclosure data city-wide, and found that the number of petitions to foreclosure increased 250 percent in four years, from 2,000 in 1996 to 5,000 in 1999. The consequences of foreclosure were proving devastating, not only financially to the individual borrowers, but to whole neighborhoods which were being destroyed by the high number of foreclosures and resulting vacancies. A number of these transactions involved lenders, appraisers, and title attorneys guilty of shoddy and illegal practices, and many of the foreclosures, it turned out, were made with loans insured by the Federal Housing Administration (FHA). St. Ambrose documented loans that had been approved by FHA involving poor underwriting, inflated appraisals, and outright fraud.

Through its research, St. Ambrose helped bring public attention to an alarming increase in the number of foreclosures city-wide and the FHA practices that were contributing to the problem. By the end of 1999, Baltimore had the highest per capita number of FHA-foreclosed houses in the country. The number and frequency of FHA petitions to foreclose convinced FHA that a crisis was occurring in Baltimore. FHA assigned dozens of investigators from its Philadelphia office to assist St. Ambrose in its review of mortgage documents and house appraisals. FHA agreed to a three-month moratorium on foreclosures in Baltimore City beginning April 2000, which was subsequently extended. Using Baltimore as a laboratory, FHA announced a strategy to provide relief to borrowers who were treated unfairly, including default prevention, refinancing of loans for which faulty appraisals had been used to inflate housing values, and credit repair letters for borrowers whose houses did go into foreclosure. St. Ambrose's research supported efforts by Senators Mikulski and Sarbanes to create greater accountability within FHA and to earmark $5 million in U. S. Department of Housing and Urban Development restitution funds for Baltimore City to help repair the damage done from FHA-backed transactions. Part of the funding is being used to create a clearinghouse for victims of deceptive and fraudulent sales. St. Ambrose has been selected by the Baltimore City Department of Housing and Community Development to manage the clearinghouse.