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Atlanta, Ga. — Some days it seems like the phone at Annie Ruth Bennett’s house won’t ever stop ringing. The callers want to sell her storm windows, debt-consolidation loans, burial plots. But Bennett knows it’s all a scheme: They want to steal a piece of her home by getting her to take out a loan against its value.

Ruth and her husband Frank learned about such scams the hard way. The couple is already struggling to come up with nearly $500 a month to pay off a loan from Fleet Finance, a giant national mortgage company based in Atlanta. The Bennetts say they took out the loan after a home-repair contractor knocked on their door and offered to fix up their small frame house. He arranged a second mortgage at 18.5 percent interest. Then he took nearly $10,000 to pay himself for work that an appraiser later valued at $1,245.

A sheet of plastic in the living room now covers a gaping hole where the drop-ceiling installed by the contractor fell in. What’s worse, the Bennetts owe more than $28,000 to Fleet, plus $7,000 remaining on their original house note. After 33 years of making payments on their home, most of the value in their property now belongs to someone else.

The Bennetts have already fallen behind on the payments. His Social Security check and her wages as a cafeteria worker for Delta Airlines aren’t enough to keep up, and the couple has had to pay delinquency charges to Fleet, a subsidiary of the largest bank in New England. “It’s just tight, I’m telling you,” says Ruth.

The Bennetts are not alone. Although “tin men” have been peddling shady home-repair loans for decades, the old scam has been given new life by mainstream banks hungry for profits. Interviews with state officials, private attorneys, and advocates for the poor across the nation show that respectable banks and savings and loans are using home repair contractors and second-mortgage companies as front operations to prey on the poor.

Those familiar with second-mortgage abuses estimate that hundreds of thousands of low-income homeowners — most of them older black families like the Bennetts — have been victimized in the past decade. Many have lost their homes outright. Others have had the equity stolen out of their property.

In Atlanta, attorneys for the Bennetts and other homeowners are suing Fleet Finance and Home Equity Centers, accusing the two lenders of “theft by deception.” According to the lawsuit, Home Equity arranged questionable “home-repair” loans for the Bennetts and others, and Fleet in turn profited from the deals by buying the loans from the mortgage company. Since 1985, court records show, Fleet has purchased more than 90 percent of the loans made by Home Equity Centers in and around Atlanta.

William Brennan Jr., a legal aid attorney for the Bennetts, says scam artists see older black homeowners as easy marks because they are usually less educated and more likely to be financially strapped. They have also spent decades paying their house notes and often have large chunks of equity built up in their homes. That equity, says Brennan, makes a tantalizing target for loan brokers, tin men, second-mortgage companies, and banks.

“It’s like finding a ten-dollar bill in the street and saying: This is mine, I’m gonna take it,” he says. “Their attitude is: It’s there for the taking.”

Credit Starved

Thanks to lax regulation by state and federal governments and the free-wheeling brand of capitalism unleashed during. the Reagan era, home-equity ripoffs have become big business over the past decade. Today the scams are well-organized, demographically targeted, and nationally franchised. Across the nation, contractors and mortgage brokers prowl minority neighborhoods and offer poor, working-class, or elderly homeowners loans to pay off hospital bills, avoid foreclosure, or repair sagging front porches. Interest rates often run as high as 20 percent a year; sometimes they surpass 30 percent. Tacked-on service and insurance fees raise the price of borrowing even higher.

The banking industry makes this sort of lending possible by starving low-income and minority neighborhoods of mainstream credit. Borrowers in poor neighborhoods have nowhere to turn except to high-interest mortgage companies. Banks and S&Ls then profit from the questionable practices of the second-mortgage companies by quietly lending them money to make loans — and then purchasing individual loan contracts after they’re sealed.

The need to confront second-mortgage fraud in minority neighborhoods — and the way the banking industry supports these crimes — has taken on an added urgency in the aftermath of the urban uprisings in Atlanta, Los Angeles, and other cities last spring. After years of neglect, media and government are slowly being forced to turn their attention to the economic exploitation of poor neighborhoods.

Activists and lawyers familiar with second-mortgage fraud say that the South may have been hit harder by home-equity scams than any other region in the country. Part of the reason, they say, is that many Southern states have weak consumer-protection laws — and do little to enforce those that they have.

Court records and interviews with officials and attorneys reveal a trail of ripoffs across the region:

In Virginia, two mortgage companies called Landbank Equity Corp. and Freedlander Inc. operated giant fraud schemes — stealing from borrowers and investors alike — until the firms collapsed and their top executives were put in prison. Landbank made 10,000 loans in five states. Freedlander, once the fourth largest mortgage company in the nation, expanded into 33 states and made 37,000 loans totaling $675 million.

William Runnells, an ex-Bible salesman who got a 40-year prison sentence for masterminding the Landbank scheme, said making money off down-on-their-luck borrowers was easy. “When you’re broke, you’ll borrow money at any price,” he explained. “It’s like buying tomatoes. Everything’s got a price.”

In rural Alabama, three juries slapped Union Mortgage of Dallas with more than $57 million in fraud verdicts last year. In one case, five families won $45 million after being taken by a home contractor that the company had recruited — despite a record of 14 lawsuits, liens, and court judgments against him. Attorneys for the victims say Union made 40,000 predatory loans across the United States.

A former Union branch manager in Alabama testified that the industry has a catch phrase to describe how borrowers can be hoodwinked with fast talk and confusing paperwork. “Cash out the deal,” the saying goes, “before the customer comes out from under the ether.”

In Atlanta, second-mortgage scams are so bad that DeKalb County has funded a Home Defense Office to protect low-income homeowners. The program is headed by William Brennan, the lawyer representing Ruth and Frank Bennett.

Brennan started defending poor people as a legal aid lawyer in Atlanta in 1968. Back then, his biggest worry was making sure his clients weren’t unfairly denied public housing or welfare. Sure, he says, there were comer grocers who price gouged in poor neighborhoods, slippery door-to-door salesmen and, of course, tin men. The poor have always paid more for goods and services.

But Brennan contends businesses that preyed on the poor simply weren’t as organized and vicious as they are today. Trade schools, easy-credit used-car dealers, rent-to-own stores, check cashing outlets, pawn shops, tin men, and second-mortgage companies all make lots of money by targeting people with low incomes.

“What we’re seeing today is an active, organized, overt effort to oppress and abuse poor people in their neighborhoods,” he says. “These people are now going into their neighborhoods in a big way to take advantage of them and take their money.”

Brennan says Fleet Finance lures elderly homeowners into taking out high-interest loans — and is quick to foreclose when they cannot make the payments. Deed records show that Fleet took the homes of nearly 13 percent of the Atlanta-area residents it lent money to last year, a foreclosure rate at least 10 times higher than the national average.

In their defense, Fleet and other banks say that the home-repair and second-mortgage dealers they do business with are completely separate companies. There may have been abuses in a few cases, bankers say, but they had no way of knowing.

“These people may be poor and illiterate, but no one puts a gun to their head and tells them to sign,” Fleet Financial Group vice president Robert Lougee told the Boston Globe. “This idea that Fleet should regulate the world is preposterous.”

Hairdressers and Loan Sharks

Whether or not big banks like Fleet are knowingly preying on the poor, it is clear that they are the biggest winners — and homeowners are the biggest losers — in what has become one of America’s biggest growth industries.

According to the credit rating company of Duff and Phelps, home-equity lending has soared from $1 billion in 1982 to $100 billion in 1988. Much of that money has been borrowed by middle-class and wealthy property owners eager to convert their home equity into cash for cars, boats, and vacations. By last year, second-mortgage debt totaled $357 billion. Thanks to such heavy borrowing, homeowners now control only 55 percent of the equity in their houses — down from 70 percent in 1983.

Much of that equity has been sold on the “secondary market,” where banks like Fleet buy second mortgages from other lenders. Landbank, the Virginia-based mortgage company, was among the first to cash in on the secondary market, selling tens of millions in bad loans to banks and other financial institutions in the early 1980s.

Since then, second-mortgage speculation has continued to skyrocket. Surveys by the Consumer Bankers Association show that nearly 21 percent of big banks bought home-equity loans on the secondary market last year, up from only 12 percent a year earlier. Fleet Finance, for example, had 71,000 mortgages last year — nearly two-thirds of them purchased from other lenders.

Lawmakers set the stage for the second-mortgage scandals by deregulating the industry, much as they sparked the savings and loan scandal by loosening financial safeguards. Since the late 1970s, federal and state lawmakers have struck down almost all limits on second-mortgage interest rates and have created loopholes that make it easy for lenders to skirt usury laws.

Brennan, the Atlanta attorney, traces the genesis of large-scale equity ripoffs in Georgia to 1983. That year, the state legislature wiped out all laws limiting second-mortgage interest rates — except for a 1908 loan-sharking statute that limits interest on loans to 5 percent a month.

Federal officials meanwhile do virtually nothing to regulate second-mortgage companies. That leaves the responsibility for policing the industry with the states, which generally adopt a hands-off approach. In Georgia, for example, citizens must apply for a license to work as a hairdresser—but anyone is free to set up shop as a mortgage broker, no questions asked.

Federal officials have also been half-hearted in enforcing fair-lending laws that require banks to do business in low-income and minority neighborhoods — despite study after study showing that banks are reluctant to make loans to black homeowners. In Atlanta, for example, a 1988 investigation by the Journal and Constitution and the non-profit Southern Finance Project found that whites receive five times as many home loans from mainstream lenders as blacks with similar incomes.

A recent study of 30 banks in 10 cities by the Association of Community Organizations for Reform Now (ACORN) documented similar discrimination. At a neighborhood meeting that the grassroots group convened in New Orleans last August, black residents talked about how hard it is to get credit — or even basic banking services — from mainstream lenders. Some said they had no choice but to go to pawn shops or high-interest finance companies for loans.

“Until banks start lending us money, all we got is each other,” cab driver Dinel Smith told the gathering. “Low-income people have been paying their bills all their lives. If we didn’t pay our bills, we’d be out on the street. Yet they call us high risk. What can be more high risk than the rich bureaucrats who caused the savings and loan fallout? That was people who didn’t pay their bills. We’re gonna pay their bills. We have to suffer.”

Phone Home

Since Ruth and Frank Bennett bought their home on a tree-lined street in south west Atlanta in 1969, they have made several attempts to fix it up. Each time, they’ve fallen a little more in debt to second-mortgage companies. Now Fleet owns 70 percent of their home — and the phone keeps on ringing with calls from tin men and mortgage companies looking for more equity to steal.

Ruth says a man called not long ago trying to sell her storm windows. She told him: “When I get ready, I’ll get in touch with you.” He called again, and she put him off again. Then he had a woman — his wife or secretary, Bennett guessed — call a third time.

“I just tell them I’m sleepy and I don’t feel like talking,” says Bennett. “I’m not signing no papers. I’ve learned my lesson.”

Their attorney, William Brennan, had office visits from three older black women one day not long ago. All three came in for wills and other legal work not related to home-equity loans.

As an experiment, Brennan asked each if they owned their homes. All three did.

Were the houses paid for, or almost paid for? They were.

Were they getting calls from people who wanted to loan them money on their houses? All three gave the same answer:

“I get calls every day of the week, Monday through Friday, two and three times a day.”