Home Hassles

The pro-industry GOP is leaving it to grassroots groups and nonprofits to help victims of mortgage fraud

When Georgia's first GOP-dominated Legislature in 130 years gutted what was considered one of the strongest anti-predatory lending laws in the country two years ago, the lawmakers' logic went like this: Since mortgage companies are supposedly leaving the state due to Georgia's punitive law, that portion of the state's economy is suffering. So let's ditch the consumers and start courting the industry.

Now, after a pro-business, anti-consumer version of the Georgia Fair Lending Act has replaced the original, it appears the state needs the original law's protections more than ever:

In 2003, the year the act was overhauled, the number of foreclosures in Georgia nearly doubled from the year before, from 8,416 to 14,043, according to www.foreclosure.com.

Also in 2003, a potential loss of $15.4 million in mortgage fraud damages hit the state, according to the FBI. A year later, the estimated damages jumped nearly threefold, to a whopping $44.2 million.

In 2004, Fulton and DeKalb counties became the first and third counties in the nation, respectively, with the highest rate of mortgage fraud, according to the Mortgage Asset Research Institute. Proponents of the original act say that, had the legislation stood, the above stats would eventually begin to subside - or at the very least, there would be a stronger mechanism for punishing those behind the abusive practices that often lead to foreclosure.

And with just 10 examiners on hand at the state Department of Banking and Finance, the agency responsible for regulating the state's 5,550 mortgage brokers and lenders, Georgians can't count on the government's regulatory arm to pick up the slack left by lawmakers.

Mortgage fraud and predatory lending are two of the most widespread white-collar abuses in the country. Common mortgage fraud tactics involve brokers cooking home sale prices and pocketing the difference, and financiers approving homebuyers unqualified for a loan because of low income or credit scores. In predatory lending, lenders often target unsophisticated clients and falsify their applications so that they are approved for a higher mortgage.

As a result of the widening trend in lending abuses - and the shrinking role of the state in preventing it - nonprofits such as the Atlanta Legal Aid Society, which represents indigent clients in civil cases against the government and big business, have been swamped with cases of lenders taking advantage of homeowners. Atlanta Legal Aid estimates that 80 percent of its caseload involves manipulative brokers and lenders who purposefully offer mortgages to those who can't afford the mortgage payments.

"Agents and mortgage companies are lining up to put every Tom, Dick and Harry into a home that they know certain people aren't qualified to own," says Bill Brennan, an attorney at Atlanta Legal Aid.

Seventeen years ago, Brennan set up Atlanta Legal Aid's home defense program, aimed at protecting unsophisticated homebuyers. A wiry man with a thin mustache and grandfatherly tone, Brennan has practiced law for more than 35 years. At his age, he could've been a partner at a big, private firm. Instead, he helps keep Atlanta's poor and elderly from losing their homes. His mantra: If your monthly mortgage payment is more than three times your monthly net income, you aren't eligible for the loan, no matter what a lender might tell you.

In the early 1990s, Brennan negotiated settlements for 4,000 clients preyed upon by banking giant Fleet Finance Co. His unprecedented class-action case led to an investigation by the state attorney general's office that ended with Fleet paying a behemoth settlement of $115 million. His Saturday morning show, "Buyer Beware," on local public access station People TV, offers tips to homebuyers on how to avoid being ripped off by lenders. On the show (which is on hiatus but will return later this year), Brennan cites examples such as the fraud that befell Shawntell Law-North. Last summer, Brennan helped Law-North, a single mother living in Lithonia, avoid foreclosure and save her job by proving that Law-North's loan application had been falsified not by her but by her lender.

"I would've lost my home and my job if Mr. Brennan didn't help me," North tells


Like Atlanta Legal Aid, grassroots organizations such as Ann Fulmer's Georgia Real Estate Fraud Prevention and Awareness Coalition are working to bring the power to the people. Fulmer, a concerned Stone Mountain homeowner, did a bit of investigating after she noticed her property taxes soaring. She discovered mortgage fraud was infiltrating her subdivision. Through a process called "flipping," homes were repeatedly sold to dummy buyers at increasingly exaggerated prices, with the broker pocketing the "profits."

Fulmer made it her mission to stop as many fraudsters as possible. The coalition she founded in 2001 serves as a watchdog to homeowners and homebuyers who suspect mortgage fraud.

"There's still a perception that it's a victimless white-collar crime," Fulmer says. "Until people really recognize there are tens of thousands of people in Atlanta who've been hurt by this stuff, there's not going to be more effective prosecution."

With grassroots groups and nonprofits leading the charge against mortgage fraud, are lawmakers making any attempt to resurrect the skeletal remains of the original, short-lived Fair Lending Act?

Some Democratic lawmakers are still bitter about the 6-month lifespan of the original law, which was gutted two months after the GOP took over the state Senate. "You can't look to the government for help," says Sen. Vincent Fort, D-Atlanta, who authored the bill after months of investigating the misery mortgage fraud can inflict. "[The government] isn't consumer friendly."

Fort says the current political climate - with Republicans now dominating both houses of the Legislature and occupying the governor's office - breeds anti-consumer legislation across the board. This past session saw a slew of pro-business bills signed into law, including tort-reform legislation that caps pain and suffering damages in medical malpractice cases at $350,000.

If those laws are any indication of what's to come, getting more protections for homebuyers seems unlikely to Fort: "It's getting worse. What we've seen over the last two years is just the beginning."

Politics aside, there are systemic issues, too. Rob Braswell, a deputy commissioner at the state Department of Banking and Finance, says the understaffed agency is doing "the best we can."

"We can't get to [every case] as quickly as we'd like to, because we have to prioritize," he says. "We have limited resources and only so many examiners."

But not all hope is lost. On May 5, Gov. Sonny Perdue signed into law the Residential Mortgage Fraud Act, which makes it easier for district attorneys to prosecute fraudulent brokers and lenders. Under the law, prosecutors can bring a case in any county where a transaction in the homebuying process occurred. Before, prosecution could only occur in the county where the closing of the loan occurred. The act also introduced specific punishments for mortgage fraudsters.

Meanwhile, Camilla Moore, director of the Fulton County Office of Housing, is lobbying for a bill requiring brokers and lenders to be government-certified. Moore argues that such a law would cut down brokers or lenders who've had a license revoked being able to set up a new shop the next day, under a new corporation title.

Says Moore: "The laws in Georgia are going to have to be modified before the situation improves."