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To get his mortgage, the buyer would be urged to inflate his own income in his application to the FHA, which is supposed to determine whether a purchaser can really afford the housing. He would sometimes do this by listing a job he did not really hold. The indictments claim that in some cases Dun & Bradstreet would verify this baseless credit rating. FHA would agree to stand behind the mortgage, and Eastern Service would lend the buyer the money. The buyer would then often discover that the house was badly in need of repair, or that the mortgage payments were higher than he expected.
He would fall behind in his payments. Eastern would get its money back either by selling the mortgage to the Government or, on foreclosure, directly from FHA, which would be stuck with the house. Romney has estimated that within a few years more than 240,000 units nationwide could be in default —and that the loss would be "catastrophic." Some are so vandalized that FHA demolishes them; others are repaired and resold by FHA, which figures that it loses an average of $10,000 on each single-family house.
No Faith. In each case, the illegal profits would be spread among the conspirators. The speculator would pick up an immediate profit of $10,000 on the house (buying for $10,000, selling for $20,000). He would pass some of that along to the lending firm, which also charged high service and closing costs. The appraiser, usually an independent operator who gets as little as $35 a house for his part-time FHA work, would get his bribe, as would the FHA inspectors involved in the scheme. The inspectors are full-time civil service employees.
Although HUD is a sprawling agency difficult to control from the top, its local officials should have known their areas well enough to spot the inflated house values. Belatedly, HUD has worked with the Justice Department to initiate investigations. It has tightened regulations to provide better verification of values and buyers' credit.
The evidence for the New York indictments was presented to a grand jury by Anthony Accetta, 28, an Assistant U.S. Attorney who once lived on Manhattan's Lower East Side. He said angrily, "The low-income Italians I grew up with were the same kind of people as the Puerto Ricans and blacks being victimized here—hard-working individuals trying to get ahead. I don't see how anyone who is black or Puerto Rican could have faith in the system after being shaken down like this and then losing his house two months later."