Mortgage fraud threatens Indiana homeowners

INDIANAPOLIS -- Faced with the unexpected loss of her sales job last winter, Judy Helminger sought a second home mortgage. She has kept her house so far, but the mortgage's undisclosed rates and fees might cause her to lose it in the end.\n"It was a desperation move to save the house," said Helminger, who has been making ends meet with unemployment checks and part-time work. "I should have known better, so in a way it was my fault. But there are other people out there who don't know better."\nHelminger, 48, was threatened with foreclosure on her $155,000 Indianapolis home a couple weeks ago by a lender she says was no up front with her about its mortgage terms.\nShe wants lawmakers to crack down on so-called predatory lending in Indiana, which leads the nation in the percentage of home loans in foreclosure.\nPredatory lending "is a significant factor that contributes to the high rate," said state Rep. Bill Crawford, D-Indianapolis, co-author of a bill pending in the Legislature that would limit such practices.\nThere are no statistics on the prevalence of predatory lending in Indiana. The practice occurs when lenders pressure homeowners into refinancing mortgages or taking out home equity or repair loans they might not be able to repay.\nBut the Indiana Mortgage Bankers Association discounts the impact such lending has on the state's foreclosure rate.\nThe group, instead, wants to attack the foreclosure problem by targeting mortgage fraud, in which professionals conspire to cheat lenders by inflating appraisals or faking paperwork.\nThe association backs establishing a mortgage fraud unit in the state attorney general's office, a step proposed in Crawford's bill along with caps on rates and fees. Two other bills would create the mortgage fraud unit, but without addressing rates and fees.\nThe unit would follow federal prosecutors' creation in June of a mortgage fraud task force that has indicted about two dozen people in central and southern Indiana.\nThose homebuyers often qualify only for so-called subprime loans carrying high-interest rates -- loans that are becoming increasingly common at a time of low mortgage rates, easy credit and growth in personal bankruptcies.\nThe predatory lending bill "would basically eliminate subprime and other lending to the disadvantage of the very people who have benefited," said Tom Dinwiddie, a mortgage bankers association spokesman. "Study after study has shown that subprime lending has been very, very helpful to a large number of people."\nCrawford and Pond say the state mortgage bankers group is ignoring predatory lending's role in foreclosures.\n"I think they're comfortable with the situation the way it is," said Pond, who contends out-of-state lenders are responsible for the vast majority of Indiana's predatory lending.\nAs of Sept. 30, 2.38 percent of Indiana's home mortgages were in foreclosure, compared with 2.31 percent in Ohio, which had the nation's second-highest rate, the Mortgage Bankers Association of America said. The national rate was 1.15 percent.\nIn a January report, the state mortgage bankers association concluded predatory lending is relatively uncommon in Indiana.\nLess than one-half of 1 percent of all Indiana loans last year were subprime loans, which account for most predatory loans, the association's report said.\nBut the association also cites Indiana's high proportion of home loans in which buyers receive down-payment assistance or other government backing. \n"One consequence of this practice is a higher rate of mortgage foreclosures, but a significant benefit is a higher rate of home ownership," the association said.