Fraud Worsens Foreclosure Crisis

Illustration by: Matt Mahurin

ACCOKEEK, Md. – At The Barber’s Chair, in the small, quiet community of Accokeek at the far end of Prince George’s County, Md., the talk often turns to the foreclosure crisis — for good reason. Here, in the nation’s most affluent majority black jurisdiction, a remarkable example of the growing wealth of the new black middle class, foreclosures are growing at one of the fastest rates in the country, and foreclosure fraud is increasing right along with it.

With locals constantly in and out, Leo Harrington, the owner, hears it all. How people who bought homes once valued at $800,000 down the the road at upscale subdivisions like The Preserves or at the one- and two-acre homesites of St. James have friends and relatives living in their basements to help pay the mortgage.

Illustration by: Matt Mahurin

How lenders pushed deceptive and high-cost loans on first-generation homeowners, without disclosing the consequences, assuring them that home values only go up. How people bought expensive cars, timeshare vacations and boats — and put their homes at risk. How lenders continue to target the community and push loans. And how homeowners, with years of mistrust in mainstream lenders, wait too long to get help when they fall behind on their loans, wary of trying for a short sale or a loan workout, and so fall prey to foreclosure scams.

“A lot of people moved out here from the District because they wanted to be in the ‘burbs and raise their kids here,” said Harrington, 49, who also is an associate minister at a nearby church. “You find you can get a bigger house that’s in pretty close, and a yard. But there were all these predatory loans. That’s all it was. They didn’t realize how the loans worked because when folks are lying to you, you don’t know any better. Then, when they find out they are in trouble, they start to panic, and they end up losing their homes.”

Harrington’s views are one explanation of many for the unexpected rise in foreclosures in Prince George’s County and in other Washington-area communities, which had, until recently, been largely immune to the housing crisis. Overall, foreclosures in Prince George’s and in the Washington area remain lower than in national hot spots, like Florida or California, but the area experienced a six-fold increase in foreclosures from February 2007 to last spring — a jump that has local officials worried and perplexed. Why here, and why now?

All told, Prince George’s and Prince William counties, in suburban Virginia, outpaced the rest of the area in foreclosures. And in Prince George’s, Accokeek, of all places, has been hit the hardest, said John McClain, deputy director of the George Mason University Center for Regional Analysis, who wrote a report detailing the foreclosure rise. It has so puzzled the Federal Reserve Bank of Richmond that its members and economists drove around Prince George’s and Prince William, home to a large immigrant population, to see the crisis for themselves.

They found no easy answers. Foreclosures here are spread across all income levels, from $150,000 houses to $750,000 McMansions, from newly built townhouses to refinancings of long-time residences.

To make it worse, foreclosures aren’t even the biggest problem right now. As more people lose their homes, foreclosure fraud scams have spiked, with Prince George’s recording the most cases of fraud in Maryland, said state mortgage fraud investigator Stephen Prozeralik.

Most scams involve a “helpful” buyer who promises to save a troubled homeowner’s property, by purchasing it from him to stave off foreclosure. The buyer usually collects rent up front and promises to sell the house back to the homeowner eventually, but instead strips any equity and fails to pay the mortgage, victimizing the owner once again. “We were surprised,” Prozeralik said. “We figured most of our cases would come from Baltimore. But the majority of the cases were are investigating are in Prince George’s County. PG County is at the top of our list.”

That Prince George’s should wind up at the top for foreclosures, and the resulting scams, is particularly troubling to many. At the start of the housing crisis, subprime loans were seen as a problem largely for low-income and minority communities. But as the crisis continues, there’s increasing evidence that for minorities, the higher up the income ladder, the worse it gets — with racial differences in lending more pronounced as income increases. New research by the National Community Reinvestment Coalition found blacks in upper- to middle-income neighborhoods were more than twice as likely than whites in similar neighborhoods to have high-cost subprime mortgages.

In Prince George’s, housing counselors began complaining as early as 2005 about a proliferation of subprime loans. Roughly 43 percent of the county’s homeowners who refinanced three years ago wound up with a high-cost subprime loan, compared to 24 percent of homeowners nationwide, The Washington Post reported last year — using an analysis of Federal Reserve data. About 43 percent of new homeowners also took out the higher-cost subprime loans, compared to 20 percent of buyers nationwide. Yet credit scores in Prince George’s rank higher than the state and national averages.

While it hasn’t received much attention during the housing crisis, places like Prince George’s County were targeted aggressively by lenders,. These lenders heavily advertised loans on black radio stations and other minority media outlets and used unconventional methods like selling these loans door-to-door, housing advocates and residents said. This marketing continues unabated, despite the downturn.

Florence Thomas, a single mother from Upper Marlboro, Md., who had to turn in July to the Neighborhood Assistance Corp. of America, a housing-advocacy group, for help in saving her home, said she tells lenders she’s unemployed and they still want to sell her loans and foreclosure help. “They call three for four times a day, and they leave something in my mailbox almost every day,” she said. “Sometimes I end up talking to them, because they say, ‘Florence, how are you?’ and I answer before I realize who they are. They’ve called on my cell phone. It just doesn’t stop.”

This kind of marketing goes far beyond the selling of loans and foreclosure assistance in upscale white neighborhoods, said Gregory Squires, a George Washington University sociology professor who has studied redlining. “This is clearly disproportionately a minority problem,” he said. “And it’s striking that despite all the news about this problem, we still see people going out and using these high-pressure and predatory tactics.”

A sign on the side of the road saying “I pay cash for houses” might be the extent of the foreclosure advertising in a white community. In Prince George’s, by contrast, at the same moment housing counselors at a recent meeting were warning worried homeowners of the dangers of foreclosure scams, the people perpetuating the fraud plastered the windshields of cars in the parking lot outside with fliers for their services. A counselor taking a break for fresh air noticed the fliers and rushed to remove them before the meeting ended.

“We do have our share of foreclosure fraud in white neighborhoods, but it doesn’t seem to be the same frenzy we have in Prince George’s County,” said Prozeralik, the state fraud investigator.

The second in this series will run the afternoon of Aug. 21, 2008.