The popular notion that Buffalo weathered the mortgage meltdown better than most cities is

attracting the attention of federal prosecutors who don't buy it.

The government, convinced that the fraud and foreclosure problem here is worse than

expected, has formed a Mortgage Fraud Task Force to uncover civil and criminal wrongdoing

among brokers, lenders and buyers.

"It's a much larger problem than first forecast," U.S. Attorney Kathleen M. Mehltretter

said of mortgage foreclosures here.

The multiagency task force, led by the local U.S. attorney's office, has been compared to

the telemarketing task force that led to dozens of convictions in the 1990s.

Mehltretter thinks the mortgage task force can have the same positive impact on the

community. She referred to a recent study that found a large number of high-risk loans being

made in the same low-income neighborhoods.

"I don't think that happens by chance," she said. "We're concerned about companies offering

something that sounds too good to be true."

High on the list of potential targets are mortgage brokers, many now out of business, who

lured unsuspecting consumers into high-interest mortgages. The fraud in those cases often

involves inflated appraisals.

The task force, one of about 20 being formed by U.S. attorneys across the country, will

include two federal prosecutors — one civil, one criminal — as well as members of

the FBI, Secret Service and the Department of Housing and Urban Development. The effort is

part of a national mortgage fraud crackdown that President Obama began last year.

"This is important for cities like Buffalo that have been preyed upon," said Kathleen

Lynch, a lawyer with the Western New York Law Center.

It was the Law Center's 2009 study on foreclosures that helped convince the federal

government that the foreclosure problem here has gone largely underestimated and unreported.

The study revealed a significant problem with subprime loans and foreclosures, even though

the area never experienced the rapid increase in housing prices of California, Arizona and

Florida.

Lynch said the number of Erie County mortgages entering foreclosure — between 2,000

and 3,000 a year since 2006 — may seem small when compared with other areas of the

country, but not when you compare it with the smaller population here.

No one suggests the number of foreclosures here is as large as in other areas of the

country. In fact, the Erie County clerk's office reported last year that foreclosures fell to

their lowest level in at least five years.

The problem, Lynch says, is that many of the region's foreclosures are concentrated in

certain neighborhoods, many of them poor.

"This was a targeted community," she said. "And there are still people out there engaging

in these practices."

Lynch said her office just recently intervened on behalf of an elderly woman who was being

lured into a loan she couldn't afford, an indication subprime brokers and lenders are still

doing business in Erie County.

One of the neighborhoods hardest hit by subprime-fueled foreclosures is the

Kensington-Bailey area.

A separate 2008 study by the Empire Justice Center found a large number of subprime loans

in distress in that neighborhood, one of Buffalo's strongest African-American communities.

To understand the subprime market's impact on Buffalo's neighborhoods, the center isolated

a single street, Stockbridge Avenue. The four-block street was home to 16 foreclosure filings.

"There's a high, high amount of predatory lending going on in that neighborhood," said

University Council Member Bonnie Russell. "That whole area needs a crackdown."

Map: Stockbridge Avenue

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Experts say the Kensington-Bailey neighborhood was vulnerable because its population

consists largely of first-time home buyers.

Mehltretter referred to neighborhoods such as Kensington-Bailey in explaining why she

thinks the fraud and foreclosure problem here is worse than first believed.

"If you think about the number of foreclosures in terms of what our population is, if you

look at it on a per capita basis, that's when you see the impact on the community," she said.

This is not the U.S. attorney's first foray into mortgage fraud. Her prosecutors have won a

number of convictions, most notably two Rochester brothers who oversaw what the government

called the largest mortgage fraud scheme ever in Western New York.

Robert and Richard Amico built houses in suburban Rochester and were found guilty of

obtaining home mortgages far above the true value of their houses. They went to jail on

federal charges stemming from a nearly $60 million mortgage scheme.

Mehltretter thinks there are plenty of mortgage fraud cases left to be tackled. Some of

them may involve fraud dating back years, while others may be more current.

She referred to recent reports of possible fraud in the same federal recovery program that

was supposed to help fraud and foreclosure victims.

Even more important, perhaps, is the task force's ability to address mortgage fraud outside

the region.

The task force has the authority to investigate and prosecute fraud involving any loan that

originated at a loan processing center here. At least two major banks operate those types of

centers here.

"We have big plans," Mehltretter said of the task force, "and I anticipate we'll be

successful."