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Montgomery county pending predatory lending law
07/2006- Circuit Judge Michael D. Mason said he needs more time and has maintained an injunction barring the law from taking effect for now.

03/07/06- A judge has ruled that the below law cannot go into effect until "notice of the court" is given after the entire suit is heard. A court date of July 6 has been set. Montgomery County is trying to pass a new law which was supposed to take effect on March 8th, 2006. This law would greatly affect Mortgage Brokers. Following is 1) Bill #36-04, 2) a list of lenders who have indicated they would pull out of Montgomery County, 3) Mike Knapp calls for repeal, 4) MAMB comments, and 5) an opinion letter.

11/30/06- MAMB has been advised that the judge in the law suit, filed on behalf of several mortgage brokers and lenders and the American Financial Services Association, seeking to strike down the Montgomery County "anti-mortgage lending" ordinance passed in late 2005, has ruled the county ordinance is unconstitutional.  Montgomery County is now permanently enjoined from enforcing the ordinance, which was never allowed to go into affect pending the outcome of the case. As soon as we can obtain a copy of the judge's ruling, we will provide greater detail on the MAMB web site. Congratulations to the brokers who joined together to challenge the onerous law. The ruling is a victory not only for the lending community but for all home buyers and home owners in Montgomery County.

Choice Finance. is a lender, and YES, we will still be able to help you with your Montgomery County purchase, refinance, or home equity loan or line of credit.

1) Council President George Leventhal, position on Bill 36-04
Thank you for your letter expressing your concerns with Bill 36-04, Commission on Human Rights-Discrimination in Housing-Amendments. Your message was made available to all Councilmembers at the time it was received.

On March 7, Judge Mason issued a preliminary injunction to prevent the enforcement of Bill 36-04 pending a Circuit Court hearing on July 6, 2006. In response to this injunction and the economic impact on access to credit for County residents, Councilmembers Knapp and Denis introduced Bill 4-06 to repeal provisions of County law which identify lending activities that constitute discriminatory housing practices; increase the limit on compensatory damages for humiliation and embarrassment for all forms of discrimination; apply the housing discrimination law to brokers; mandate reporting requirements; and establish guidelines for the Office of Consumer Protection to process certain claims.

While I voted for Bill 36-04, I am deeply troubled by the unintended consequences of the law. The intent of Bill 36-04 was to hold lenders accountable for discriminatory lending practices not to adversely affect an individual's ability to acquire a mortgage for a new home, refinance an existing home, or borrow against the equity of a home.

As Council President, I am committed to working with all the stakeholders involved in this issue to make sure that the Council strikes the right balance with Bill 4-06. I will work with constituents and industry representatives to develop effective strategies for dealing with mortgage lenders and brokers who target individuals for higher fees and interest rates based on gender, race, or age, while at the same time not impacting the lending activities of legitimate lenders and brokers who do not base the terms of their loans on suspect classifications.

I appreciate hearing your concerns. Your views are important to Councilmembers and help us in our deliberations on matters that affect the residents of Montgomery County. Sincerely, George L. Leventhal Council President

2) If the law goes into effect, these are some of the the lenders who have indicated they are pulling out of Montgomery County, Maryland. *provided by the Maryland Association of Mortgage Brokers

  • Accredited Home Lenders
  • Molton Allen & Williams
  • Aegis Funding (no more Alt-A)
  • Morgan Stanley
  • American Bank
  • Mortgage IT
  • National City Home Equity wholesale division for brokers
  • Argent
  • National City Mortgage wholesale division for brokers
  • Aurora Loan/Lehman Brothers
  • National City Wholesale
  • Bear Stearns
  • Nations One
  • Bear / EMC
  • National Wholesale Funding
  • BNC
  • New Century Mortgage Corporation
  • Cardinal Financial
  • Nomura
  • Credit Suisse
  • Novastar
  • Crescent Mortgage
  • Option One
  • Decision One
  • RMC Funding
  • Edelman Financial Services
  • The Mortgage Store
  • Emigrant Mortgage
  • Tri-Star Lending
  • First Franklin
  • UBS Investment Bank
  • First Horizon (sub prime only)
  • US Bank Home Mortgage
  • First Magnus
  • VirtualBank
  • Fremont
  • Webster Bank
  • GN Mortgage
  • Wilmington Finance
  • Greenpoint Mortgage
  • Windstar
  • Harbourton Mortgage Investment

3) Councilmember Mike Knapp calls for repeal of Predatory Lending Law
1. I opposed Bill 36-04, but it was my hope that the more unclear provisions of the bill could eventually be deployed in a manner that would not discourage conscientious lenders from doing business in our county. Regrettably, however, many lenders have already decided that Bill 36-04 presents them with unquantifiable risks, and therefore is so potentially onerous, that they have chosen not to provide loans to persons residing in Montgomery County.

2. Montgomery County cannot and will not tolerate discrimination in our community. To that end, both Maryland and Montgomery County have been proactive in implementing policies to protect vulnerable populations from unscrupulous lenders. At the time we were considering the bill, the Council was advised by the Montgomery County Office of Human Rights that the county already had at its disposal all the appropriate federal, state and local laws and regulations needed to combat discrimination in lending.

3. With the refusal of these lenders to do business in our county, there is a very real risk that this legislation will now limit the opportunity for some of our neediest residents to secure a loan an unintended, but very real consequence that was raised during debate on the legislation, and the precise predicament this bill was enacted to prevent. I have heard from numerous frustrated residents who were in the process of securing loans and while they would have had no problems in doing so last week, this week they can t. We must respond to these issues.

4. * The bill that passed the council was a theoretical exercise; the practical effect is that real people of all backgrounds who live in our community are now finding it even more difficult to purchase or re-finance their home that s just not right. I urge my colleagues to join with me and repeal this legislation as quickly as possible.

4) -From MAMB-
The Maryland Association of Mortgage Brokers is closely monitoring the events in the County and has been in touch with several County Council members to keep them abreast of developments. MAMB is also supporting a law suit that has been filed to stop the implementation of the law which was sponsored and shoved through the Council, without regard to input from the banking and mortgage industries, by then Council President Tom Perez. Seven MAMB members are participating as plaintiffs in the suit.

Like all mortgage professional organizations, MAMB is a proponent for fair housing and the ethical and lawful conduct of business of those who are in the housing and mortgage industry. Numerous state and federal laws are already in place to address these issues. Councilman Perez alleges that the new county law is nothing more than a localized version of these laws; he couldn't be more incorrect. As the aforementioned suit addresses, the law should first be pre-empted by state law and secondly, is so vague that it seems to greatly increase the exposure of all those involved in the mortgage process.

MAMB was involved heavily in lobbying against the passage of County Council Bill 36-04, but as noted, Councilman Perez did not seem to want to hear from banking professionals. We continue to work with other Council members in an effort to have this legislation reversed. MAMB has also set up a special briefing on the law suit and the ramifications of the implementation of the new law. This briefing will take place this Friday (March 3) at noon during the Association's Convention and Exposition at the Baltimore Convention Center. It will be conducted by Steve Lovejoy, the local lead council in the law suit. All those who are registered to attend the Convention are welcome to attend this session.

What You Can Do: ...In the meantime, for all of you doing business in Montgomery County -- and particularly those of you who live there -- you should contact County Council members and let them know how dissatisfied you are with their passage of 36-04 and in so doing advise them how the new law will adversely affect your ability to help the homeowners of the county acquire a mortgage for a new home, refinance an existing home, or borrow against the equity of the home for such activities as home improvements or college tuition. Let your customers know, too, and have them call their Council members.
-End MAMB-

5) MONTGOMERY COUNTY COUNCIL BILL 36-04 Commission on Human Rights - Discrimination in Housing - Amendments
Council Bill 36-04 amends Montgomery County's statutes dealing with discrimination in real estate. The stated purpose of the Bill is to "prevent predatory lending practices" which are directed at households because of race, color, religious creed, ancestry, national origin, sex, marital status, disability, presence of children, source of income, sexual orientation, or age. The Bill identifies specific practices as predatory. The Bill also removes the $5,000 cap on damages which may be awarded by the Montgomery County Commission on Human Rights and amends the existing provisions dealing with discrimination by lending institutions by making them applicable to not just a lending institution, but any person, thus including brokers.
The specific lending practices which would violate the Bill are:

  1. Steering, which means restricting or attempting to restrict a person's choices because of factors other than a person's income and credit level in connection with seeking, negotiating, buying, or renting a dwelling, including seeking a mortgage loan for a dwelling. Steering includes: (1) discouraging a person from a particular mortgage loan with more favorable terms; (2) directing a person to or away from a housing or mortgage loan product, program, or service with more favorable terms; (3) offering more limited mortgage loan opportunities or less favorable mortgage loan terms; or (4) delaying a mortgage loan application or approval;
  2. Originating a predatory mortgage loan, as determined by evaluating one or more of the following factors: if the loan product is suitable for the borrower based on income and credit levels; if the loan product includes the financing of single premium credit insurance, excessive points, fees, prepayment penalties or a mandatory arbitration clause; or if the mortgage does not provide a tangible net benefit to the borrower; or
  3. Engaging in any practice described above by adopting, applying, or using a policy or practice that operates to discriminate without a compelling business justification and without establishing that there is no less discriminatory way to advance the business justification with a less discriminatory effect.

Under this legislation, every aspect of the mortgage loan process will be subject to attack before the Human Rights Commission. The prohibition against "steering" would subject each and every mortgage to an after-the-fact judgment as to whether a borrower's choices were somehow restricted by the lender, whether the borrower was discouraged in some way from seeking a particular loan, whether there were more favorable loans available, or whether there was some delay. Would lenders have no choice but to have a borrower apply for every type of
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loan the lender offers in order to avoid being accused of steering? Would lenders, in order to avoid liability, refuse to give any advice or any direction to a potential borrower as to what loan product might be best suited to the borrower or what rate and fee package might the borrower qualify for? Will lenders be deemed to have discriminated because there was a delay in the application or approval process? How would a lender judge what terms are deemed more or less favorable for a particular borrower?
Equally troubling is the determination of what constitutes a predatory mortgage loan. Will the Human Rights Commission now be in a position of judging whether particular loan products are "suitable" for borrowers? State law already prohibits the financing of single premium credit insurance for what it defines as "high cost loans." Under this Bill, no borrower in Montgomery County, regardless of desire, sophistication or financial wherewithal will be permitted to finance single premium credit insurance. Who will determine what constitutes "excessive points." What fees will be permissible? Who will judge, and under what standards, whether a mortgage loan provides a "tangible net benefit to the borrower." What process would a lender have to go through in order to be assured it has not violated Section 27-12(c)(3)?
Section 27-12 already prohibits, in the broadest possible terms, a lending institution from engaging in discrimination. Because discrimination in lending is already prohibited, what then will be the impact of this Bill? The impact will be that legitimate mortgage lenders will have no choice but to either cease or dramatically curtail their activities in Montgomery County. On the other hand, if there are lenders who are presently discriminating in the making of mortgage loans, they will continue to do so. Those lenders ignore the prohibitions in current law, and there is no reason to believe they will not ignore the prohibitions in the new statute.
Why would a legitimate lender choose to loan in Montgomery County and risk running afoul of this Bill when it can make loans in Howard County, Prince George's County, or any other part of the State and not be subject to the vague standards in this law. Imagine a lender with money available to make mortgage loans. One property is in Clarksville in Howard County and the other property is in Silver Spring in Montgomery County. The borrower's income is the same, the property appraises for the same value and each borrower's credit history is the same. With the risk that this Bill imposes, which borrower is likely to get the loan?
Lenders make loans at rates and with charges that are commensurate with the risk taken. If they are not able to do so, they cannot and simply will not make the loans. If because of legislation like Montgomery County Council Bill 36-04, in addition to the economic risks of making a loan, lenders will risk unlimited fines, unlimited attorneys' fees, etc., based on vague standards that they cannot understand or control, they simply will not make the loans. National and Statewide lenders will avoid making loans in Montgomery County because they will have to comply with a law in Montgomery County that is different from the law in the rest of the State.
Background information supporting the Bill includes a study entitled Overview of Home Lending Patters in Montgomery County - 1999 - 2000 prepared by Calvin Bradford in February 2004. The study is based on Home Mortgage Disclosure Act (HMDA) data that is four to six years old and that does not reflect current mortgage lending patterns in Montgomery County which indicate that FHA loans have dramatically declined even as total loans have significantly
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increased. The study asserts that FHA loans are inherently bad and inaccurately classifies them in the same category as sub-prime loans. FHA loans are offered through HUD at very competitive interest rates and with little or no down payment requirements which makes them particularly helpful for first-time home buyers. Additionally, HMDA only tracks income data for loan applicants and none of the other factors that lenders consider when extending credit to a potential borrower, e.g. ability to repay, debt to income ratio, credit history, etc. The lending industry takes exception to conclusions that widespread predatory lending exists based on this study.
The State of Maryland has already enacted legislation to curtail abuses associated with high cost loans. For these high cost loans, financing of single premium credit insurance is prohibited, the loans cannot be made without a reasonable expectation of repayment and loan applicants must be informed of the availability of homebuyer/mortgage lending counseling. This law became effective on October 1, 2002.
The banking industry supports strict enforcement of existing laws and increased opportunities for the education of consumers to help them spot predatory practices. The Maryland General Assembly continues to enact new laws on mortgage lending practices and has given the State Commissioner of Financial Regulation vastly broader powers to deal with lenders that violate the law. All federal agencies involved in mortgage lending are taking significant actions to curtail predatory practices. We need to give those laws and programs a chance to work. Montgomery County needs to be part of a Statewide and federal solution to this problem. Establishing Montgomery County as an island where legitimate lenders are at unreasonable risk will only result in credit not being available to Montgomery County citizens.
27730-1 , 11/12/2004
- Unknown Source-