Baltimore, which has some of the nation's highest foreclosure rates, has become a laboratory for predatory lending reform.

This year the Department of Housing and Urban Development flagged Baltimore, New York, Atlanta, Los Angeles, and Chicago as cities with predatory lending "hot zones" - low-income neighborhoods where the agency has seen higher-than-normal foreclosure rates. All five cities reported high foreclosure and default rates in a substantial number of ZIP codes that, according to the U.S. Census, contain low-income neighborhoods. Moreover, in Baltimore, community and nonprofit organizations, city agencies, state and federal elected officials, and the Department of Housing and Urban Development have joined forces to draw attention to abusive lending practices.

Assistant HUD Secretary William Apgar said 50% of the foreclosures in Baltimore in the past two years were the result of fraudulent loans, many of which involved questionable appraisals.

"In Baltimore, the scam du jour is property flipping," he said.

A review of foreclosures in the city showed nearly half the defaulted FHA loans in the last two years had been appraised by just four companies, Mr. Apgar said. The findings "clearly" indicate a pattern of appraisers working in conjunction with brokers to set up borrowers for failure by getting them into overvalued situations, he said.

Efforts to redress problems like this have surfaced on several fronts. Next February, Baltimore City Councilman Keiffer Mitchell plans to introduce an ordinance modeled after North Carolina's anti-predatory-lending law.

Several other initiatives were begun this year.

In March, as a result of a hearing held by Sen. Barbara Mikulski, D-Md., and supported by HUD Secretary Andrew Cuomo, a task force of mortgage bankers, city officials, and consumer advocates was created to crack down on predatory lenders targeting minority and low-income families.

HUD has also adopted initiatives to protect the victims of scams. One such initiative, 90-day moratoriums on FHA-insured loans in the "hot zone" cities, was used to prevent foreclosures, buy time for HUD to identify fraudulent behavior, conduct foreclosure avoidance counseling, and help victims retain their homes. (The moratorium was begun in April in Baltimore and in August in the other cities.)

Another program, Credit Watch, has made one of the biggest advances in fighting defaults and foreclosures in the hot zones. The program looks at recent default rates of individual lenders, and if a lender's rate is three times higher than HUD determines it should be in that area, the lender's FHA lending privileges are suspended.

Since Credit Watch was launched in June 1999, HUD has suspended 80 lenders.

The Baltimore task force also identified fraudulent appraisals as a key contributor to defaults and foreclosures, and HUD says it plans to begin a similar watch of appraisers.

For Eller Guyton, a 53-year-old African-American woman in Baltimore, trouble began three years ago when Chase Realty of Baltimore offered to sell her the ill-conditioned house she had been renting for $320 a month. Elder Appraisal Service of Baltimore had estimated the home's value at $35,400, and the house was offered to her at that price, but the Association of Community Organizations for Reform Now, or Acorn, contends that the property was worth only $15,000.

Norma Washington, president of Acorn's Maryland chapter, said that by overvaluing the house - less than a year later Elder Appraisal Service valued it at $40,964 - the company opened the door for Bankers First Mortgage Co. of Owings Mills, Md., to offer Ms. Guyton a loan of $26,250, for which she was charged a 13% interest rate with a balloon payment after 15 years of $23,239.

At that time her monthly mortgage payment was $358, or 46% of her monthly income and 9% more than she had been paying in rent.

Ms. Guyton said that after making the payments for the first two months, she was laid off from her job and could no longer pay. She went back to work in February 1998, and Bankers First refinanced her loan in September. Though the interest rate was reduced to 12.5%, the monthly payment rose to $433, 35% more than her rent had been.

The refinanced loan also included a balloon payment after 15 years of $30,680. Ms. Guyton finally stopped paying in October 1999. Last September, Advanta Corp. of Spring House, Pa., which had ultimately ended up holding Ms. Guyton's loan, foreclosed.

Though subprime lending is not synonymous with predatory lending, it is disproportionately found in lower-income communities, where abusive lending is prevalent as well. A recent study by Acorn illustrated the difficulty inner-city minority borrowers can have getting access to conventional credit.

The study, which analyzed the lending activities of more than 7,800 institutions covered by the Home Mortgage Disclosure Act, showed that in Baltimore subprime lenders accounted for more than half the refinancings last year. Of the refinancings received by low-income African-Americans, 58% were subprime, versus 48.2% of the refinancings for moderate-income black people, 24.5% for low-income white people, 17% for moderate-income whites, and only 5.7% for upper-income whites.

"Some mortgage companies think it's a free-for-all and they can just rip off poor people just to make money," Ms. Washington said. "It's not happening to everyone. It's very targeted toward disregarded folks: the minority, elderly, uneducated, and those on welfare."

Activists say that educational efforts may be the most effective way to battle predatory lending. Many first-time homebuyers are oblivious of the ins and outs of getting a mortgage and are often grateful just to get the credit, the activists say.

"Targeted victims don't know who to turn to for help," Ms. Washington said. "Some are hit and don't say anything, and others turn to the wrong people for help."

Maryland Attorney General Joseph Curran Jr. held a press conference in September to increase public awareness of the issue. Hotlines and informational programs have been introduced to help people who want to buy a house and to supply advice and help to victims of predatory lending.

"There's a segment of the population that we have to safeguard if we are going to allow mortgage companies to issue them loans," Ms. Washington said.

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