Fort Wayne Journal Gazette
April 11, 2006
For almost two years, Nicole Gaunt has been on a mission.
Shes filed complaints. Shes hounded public officials. Shes pushed for investigations, written letters, searched for a lawyer and met with other victims.
All, it appeared, in vain.
In 1998 she bought a house from the Fort Wayne Neighborhood Housing Partnership with a mortgage two-thirds higher than the homes assessed value. She said she was misled about the price of a homebuyer training course and about grants she was told she would not have to repay. She was shown an appraisal that compared the house in a struggling neighborhood to three properties in a vastly different, historic neighborhood more than a mile away.
But there has been no restitution for the thousands of dollars she was overcharged. No reduction of her mortgage. Not even a lawyer who would take her case.
Friday, however, Indiana Attorney General Steve Carter filed a joint petition with Neighborhood Housing Partnership attorney William Swift asking the Allen Superior Court to appoint a receiver to oversee the assets of the partnership and review its records.
Gaunt said the recognition of what happened means more than the dollars lost.
This isnt all financial; theres definitely a human side to what happened, Gaunt said. Thats one of the reasons I kept plugging, because you cant do people this wrong and get away with it.
The petition, which was filed cooperatively between Carters office and the partnership, could put the remaining assets of the agency under court supervision and will allow Carters office to review all of the non-profit agencys files.
Gaunt had put her trust in NHP an agency created in the early 1990s to help low-income families buy houses a business she now believes betrayed her and others.
I dont know whats more frustrating, the initial punch to the gut of being defrauded or the lack of follow-up by my community, especially the people in power, Gaunt said. You go to the people that are supposed to fight for you and they screw you, too.
A Journal Gazette investigation published in September 2004 found that of 99 home sales studied, one in four homes sold by NHP was overpriced, selling for at least 25 percent more than the assessed value. That left the agencys low-income clients owing thousands of dollars more than their houses were worth.
Since the reassessment of 2002, assessed values are required by law to reflect the market price.
The partnership exists on paper but no longer provides housing assistance, and most federal, state and local regulators that have some role in the mortgage industry say they have no authority to intervene.
In the days after The Journal Gazettes findings were published in 2004, numerous investigations were announced. The Indiana Attorney Generals Office encouraged anyone who thought he had been victimized to file a complaint; the citys civil rights enforcer, the Metropolitan Human Relations Commission, announced Fair Housing Act investigations; and the federal department of Housing and Urban Developments office of the Inspector General said the office had reviewed the newspapers report with interest.
But until Carters court filing Friday, no public action had occurred.
Dan Kelker, who was a Neighborhood Housing Partnership board member for nine years and board president until about 2002, said before Carters announcement that the investigations have gone nowhere because the agency did nothing wrong. Kelker is now a vice president at Tower Bank.
Nothing was found. There was no fraud going on; there was nothing going on, Kelker said last week. Unfortunately, that comes after the fact.
No one to turn to
Gaunts house, at 529 E. Rudisill Blvd., cost her $83,000 when she bought it from NHP in 1998. In 2002, it had an assessed value of $49,800.
Partnership officials have criticized The Journal Gazettes use of assessed values to determine a fair price, but a market study of the neighborhoods in which the agency operated showed homes sold an average of 35 percent below their assessed value. That would make the newspapers study generous to the agency in placing a value on the homes.
An additional recent study of 84 partnership home sales and mortgages shows that 43 percent nearly one in two of the home sales studied by the newspaper had sale prices or mortgages 25 percent or more over the homes assessed value. Five of those partnership clients have lost their houses by foreclosure or by surrendering them to the bank to avert foreclosure.
Neighborhood Housing Partnership also argued the prices charged reflect the rehab work done on the homes. But in most cases, that wasnt reflected in the sale price reported to the township assessor and used in the newspapers calculations. Instead, the agency would charge one price for the house, then add on the cost of remodeling, and both would be included in the mortgage.
Gaunt has since bought a new house but cant sell the house on Rudisill because she owes more than its worth. The $558 house payment on the old house will be more than the $550 in rent shes been able to obtain from a tenant, plus shell have to pay taxes and insurance.
Im going to be spending money to keep someone on the property so I dont have to foreclose, Gaunt said.
Kelker said everything the partnership did was aboveboard.
We were trying to take care of people and do the right thing, Kelker said. There are quite a few people living in better housing today thanks to the partnership, and probably with less of a payment than they were paying in rent.
The agency also added thousands of dollars in fees to the mortgages it wrote for its low-income clients, including development fees and holding fees.
The Center for Responsible Lending says that while a competitive loan will have fees equaling about 1 percent of the mortgage, predatory lenders will charge fees of 5 percent or more. Most NHP mortgages examined by The Journal Gazette had fees approaching 20 percent; one mortgage had fees totaling more than 28 percent.
Stanley L. Farr paid $10,379 in fees on his $36,500 mortgage in 1995. He also paid an additional $9,500 for remodeling work on the house at 2937 Bowser Ave., plus $1,500 for appliances, pushing his total mortgage to $57,879 for a house valued in 2002 at $43,700. Thats a 32 percent markup. The agencys own appraisal of the house when it bought it in 1993 said it was worth only $32,000.
I didnt know (the cost of the loan) was going to be that much until I was into it, Farr said. I questioned them about those things, but there wasnt much you could do.
A second investigation by the newspaper in November 2004 showed the appraisals used to justify the prices were flawed, a finding later confirmed by an independent analysis commissioned by the city of Fort Wayne.
The agency may have meant well, but its practices have been used in house-flipping schemes found in other cities, said Geoff Smith, a project director at The Woodstock Institute. The Woodstock Institute is a Chicago non-profit that researches, develops and promotes ways to bring economic resources to lower-income and minority communities.
House-flipping scams occur most often when someone buys a cheap property, does some modest renovations, has an appraiser overstate the value and then sells it to an unsuspecting buyer, Smith said. That leaves the homeowner and the bank holding the bag.
Its unfortunate theres no one the borrowers can turn to for restitution, Smith said. Unfortunately, it seems like the best remedies are strong or rigorously enforced state-level policies.
In the case of Neighborhood Housing Partnership, there were no state-level policies at all.
In the regulatory cracks
Indiana banks are regulated by the federal government and the Indiana Department of Financial Institutions. But even though Neighborhood Housing Partnership wrote about $15 million in mortgages, neither the federal government nor the IDFI regulated the agency because it wasnt a bank.
The Indiana attorney general investigates cases of fraud and malfeasance but only if alleged victims have filed written complaints. Many agency clients had no idea their houses were overpriced until contacted by The Journal Gazette.
Carter said Friday the new action stems from his authority to oversee non-profit organizations in Indiana and rises above any consumer complaints that may have been filed previously.
The Attorney Generals Office received nine NHP-related complaints, including Gaunts. For most of them, the statute of limitations had expired and there was nothing the attorney general could do because it had been too long since the houses in question were purchased. The others were transferred to the division of professional licensing, and it can neither confirm nor deny whether investigations exist.
The Indiana Secretary of States office regulates mortgage brokers but not Neighborhood Housing Partnership; a provision in state law says the office regulates all mortgage brokers except those receiving Indiana Housing Finance Authority money. Because NHP often received authority money, the secretary of state had no oversight.
Moreover, mortgage brokers help clients find loans from banks; in most cases, the partnership lent the money itself, so it wasnt a broker to be regulated.
Wayne Davis, commissioner of securities in the Secretary of States office, acknowledged Indianas approach to regulation is fragmented, possibly leaving consumers vulnerable.
Indiana has an extremely high foreclosure rate; far in excess of what our population would lead you to believe, Davis said. Its something were keeping an eye on.
Davis said that even if the agency had been considered a bank, it might not have given state regulators oversight of its lending practices, because the state would likely be more focused on the solvency of the institution rather than how it treats customers.
Despite what he says is his offices lack of jurisdiction, Davis said the case is troubling.
Usually what we see when somethings going on, someones benefiting somewhere, Davis said. Who benefited?
State law exempts the secretary of state from regulating mortgage brokers who receive Indiana Housing Finance Authority money, but the state housing authority didnt regulate the partnership, either.
The IHFAs authority was over only the money it gave the agency, a state spokeswoman said. If that money was spent appropriately, nothing else the agency did was under IHFAs purview.
The Indiana State Board of Accounts audits the books of some non-profit organizations, but only if they spend more than $300,000 in federal money a year. The last four years of its operational existence, Neighborhood Housing Partnership always reported spending less than $300,000, so the State Board of Accounts never audited it.
Allen Fishbein, director of credit and housing policy for the Consumer Federation of America, said NHPs system where the partnership was the seller of the house, the real estate agent representing both the seller and the buyer, and the lender writing the mortgage and hiring the appraiser and inspector was ripe for abuse.
The home-buying process is premised on checks and balances and the independence of these actors from each other is really critical, said Fishbein, who has testified before Congress on abusive lending. It sounds like you had a perfect storm of issues coming together.
First line of defense failed
Over the years, the partnerhship got at least $3.2 million in grants from the federal department of Housing and Urban Development. But HUD didnt regulate the partnership, either.
Anne Scherrieb, a liaison in HUDs regional office in Chicago, said the city of Fort Wayne was actually the recipient of the federal grants, and Neighborhood Housing Partnership was the sub-recipient. That means the city was responsible for making sure the money was used appropriately. Thats a position HUD has taken for nearly two years.
(The city) would be the first ones to take action, Scherrieb said. Our relationship would be with the recipient of the funds.
But city officials tell another story.
We didnt do anything with the loans to homeowners, said Heather Presley, the citys community development deputy director for housing. we The funds the city provided were rehab dollars for the houses; cannot do anything with mortgage lending.
Presley said the city has contractual agreements with HUD that govern what the city can and cannot do, and those agreements limit the citys oversight to the money it dedicated to partnership rehabilitation projects. The city inspected the projects the HUD money went to, but did not oversee anything else the agency did.
There are a number of agencies looking at what happened, Deputy Mayor Mark Becker said. If there are additional things we can do to help, we want to do that.
The citys Metropolitan Human Relations Commission investigated Neighborhood Housing Partnership for possible violations of the Fair Housing Act but is limited to enforcing bans on discrimination. Executive Director Gerald Foday said the commissions investigation found scores of problems such as possible violations of the Truth in Lending Act and the Fair Housing Act, but the partnership appeared to have committed them against its clients regardless of race or sex.
Metro initially found it didnt have cause to bring a group-discrimination case against the partnership but could have brought individual cases because the law doesnt require victims of discrimination to prove that all members of a minority class were harmed. But victims never came forward to file complaints, Foday said.
Gaunt said thats because Metro never contacted her or other partnership clients she knew.
It never happened, Gaunt said. Every family I talked to said they had never, ever been contacted by Metro to come in.
Some members of the Fort Wayne City Council initially reacted with outrage to The Journal Gazette report.
But then Tom Niezer, president of the partnerships board, met privately with a few City Council members at a time, a move that avoided state laws requiring elected bodies to discuss matters publicly. Suddenly, Gaunt said, the only thing coming from the council was silence.
Councilman Tom Smith, R-1st, said the private meetings with Niezer were only to gather information on a complicated subject few councilmen knew anything about or fully understood.
We willingly went because we wanted information, Smith said. The city attorneys were there and city staff, and they assured us everything was OK, that nothing was wrong or illegal.
Despite those assurances, Smith said he left the meeting with the attitude that something needed to be done.
I, and other council members, raised the point, is there some way the banks can give these people relief? I was told it would be looked into, Smith said. The judgment I walked away with was were going to try to do something.
But after the partnership folded, the banks took the mortgage portfolio and sold many of the loans to other banks and investors, changing nothing for the homeowners except where they mailed their payments.
Councilman Tim Pape, D-5th, said people should be happy councilmen met with Niezer because it let them demand answers. He and others have and will continue to meet with any constituent who wants to discuss an issue, Pape said.
Action was taken; the city did go as far as it could with the authority it had, Pape said. That (clients) are unhappy with their loss is completely understandable.
Nicole Gaunt said she will keep fighting for justice, keep looking for a lawyer, and keep trying to ensure no one forgets what happened.
It would have been much easier for me to board up that house and walk away and file bankruptcy, Gaunt said. But I am keeping hold of that property until Ive turned over every stone.
A lack of oversight
Most of the home-buying process is heavily regulated. But the Fort Wayne Neighborhood Housing Partnership worked under little scrutiny. On Friday, the Indiana Attorney Generals office announced it will review the Partnerships records and asked a court for financial oversight of NHP:
Not a bank
Since the partnership was not a bank, neither the federal government nor the Indiana Department of Financial Institutions oversaw its operations.
Not a mortgage broker
The Indiana Secretary of States office regulates mortgage brokers, but NHP was not a broker, it was a lender. Brokers help clients find loans from lenders; NHP made the loans itself.
Oversight limited to grants
The partnership received grants and loans from the Indiana Housing Finance Authority, but that agency said its only oversight of NHP was on the money it gave the group. As long as it was spent appropriately, the IHFA had no say in operations.
Below audit threshold
The Indiana State Board of Accounts audits non-profit organizations if they spend more than $300,000 in federal money a year, but over the last four years of its existence, NHP always reported spending less than $300,000.
HUD money, city oversight
The federal department of Housing and Urban Development gave the partnership at least $3.2 million in grants over the years, but HUD officials say their grants were to the City of Fort Wayne, not NHP, making the city responsible for regulating the group.
City: Not our purview
City officials say their only role spelled out in a contract with HUD was to make sure the HUD money was spent appropriately on home rehabs. Anything outside of that, such as how NHP handled loans, was outside the citys role, they said.
A Journal Gazette analysis of 84 residential home sales by the Fort Wayne Neighborhood Housing Partnership found 36 sales where the price of the house or the total NHP mortgage was at least 25 percent more than the assessed value, which by law should reflect market value. Heres a sampling:
3115 Reed St.
Buyer: Helen Martin
Bought: April 22, 1998
Difference**: 151 percent
Martin lost the house after refinancing her Neighborhood Housing Partnership mortgage and being unable to afford the payments. That was the second time an NHP client failed in the house the partnership first sold it in 1993 to Georgiana Vaughn for $27,000. After NHP foreclosed on her in 1996, it bought the house back at sheriff sale for $20,177, then sold it to Martin for $53,000.
4009 Weisser Park Ave.
Buyer: Vanessa Hayden
Bought: April 5, 2001
Difference**: 83 percent
Hayden lost the house in February to foreclosure. Before Hayden bought the home it was an NHP rental property.
529 E. Rudisill Blvd.
Buyer: Nicole Gaunt
Bought: Sept. 3, 1998
Difference**: 56 percent
Gaunt is moving out of the house, but will rent it because she cant sell it for what she owes on it. The rent wont quite cover the house payment.
*Mortgages are the price of the house, plus items such as fees, pre-paid taxes and interest, and sometimes an escrow account for rehabilitation work. The values used are the most recent assessed value for the property on file with the Wayne Township Assessors office.
**Difference is mortgage minus the value.
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