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About a dozen East Side Buffalo residents demonstrated outside the U.S. Department of Housing Urban Development's office at 465 Main St. this week to protest policies that they say disproportionately hurt prospective homeowners in their neighborhoods.

Specifically, members of the Fillmore Councilmatic District Block Club Coalition demanded changes in HUD's Federal Housing Administration mortgage insurance program. The program is supposed to guarantee loans to low-income people who might not be able to obtain a conventional loan to buy a house.

A year ago, an audit by the HUD inspector general's office showed the federal efforts to aid home buyers in the inner city were actually hurting some neighborhoods and leaving individuals vulnerable to unscrupulous real estate dealers.

The audit found 23 percent of the houses sold by Parlato Real Estate, one of Buffalo's main inner-city developers, were in default, an unusually high rate even for a low-income community where people are assumed to be a higher credit risk.

HUD later determined that they had purchased the properties at inflated prices or had to make expensive repairs on them after purchase. The government later suspended the Parlato firm from using government-insured mortgages for one year.

But Michael Kuzma, a legislative aide to Erie County Legislator Gregory B. Olma, said the local office of Countrywide Home Loans, a California-based lending agency, is equally culpable for processing the loans.

"The HUD audit found that the staff at Countrywide engaged in imprudent lending practices by making loans to people who could not afford these houses that were sold at highly inflated prices," Kuzma said.

"Since Countrywide is complicit, the government should take away the HUD/FHA insurance on these mortgages so if there's a foreclosure, HUD wouldn't have to pay off the mortgages," he added.

An audit of Countrywide last year resulted in the indemnification of five FHA-backed mortgages the firm had approved, which means HUD will not insure those mortgages.

Protesters additionally called for mandatory home inspections to become part of the appraisal process.

Fillmore Common Council Member David A. Franczyk said appraisers should be chosen by HUD and not by the brokers who process the HUD-backed loans. Franczyk also has requested that HUD sponsor homeownership training workshops for first-time home buyers in the FHA program.

Meanwhile, Michele Bernier, acting senior community builder in HUD's Buffalo office, said HUD officials are attempting to put together an aid package for local families that have defaulted on their FHA mortgages or are in various states of delinquency.

"We're working with our Philadelphia and Oklahoma lending offices to arrange for relief for some families," Ms. Bernier said. "We've contacted all the lenders and requested that they hold up on all (foreclosure) action . . . "

HUD will be negotiating for a better rate for those who already have defaulted on their mortgages.

Those in danger of defaulting will be allowed to pursue a streamlined refinancing of their mortgages so that they might take advantage of the lowest possible interest rate available, she said.

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