More mortgage lenders are pulling out of Montgomery County

Companies cite vagueness of anti-predatory law

Friday, March 3, 2006

by Janel Davis

Staff Writer

More than 20 mortgage lending companies have suspended doing business in Montgomery County because of the county’s new lending discrimination law, which they criticize as vague and unnecessary.

The law, which is to take effect March 8, is aimed at so-called subprime lenders, firms that secure loans for people with poor or no credit. It increases the fine for predatory lending from $5,000 to $500,000, and expands the activities that constitute discriminatory practices.

‘‘It’d be impossible to determine if a mortgage loan is in compliance. You can’t expose yourself to all that liability when you’re not sure what you’re exposing yourself to,” said Bob C. Kennight, president of Crescent Mortgage of Atlanta, a wholly owned subsidiary of Carolina Financial Corp. of Charleston, S.C.

In addition to the pullout, seven companies have filed suit against the county in Circuit Court seeking a preliminary injunction to stop implementation of the county law. None of the companies involved in the lawsuit have suspended their county services.

County Councilman Thomas A. Perez challenged the complaints of the lending industry and repeatedly referred to the actions by the lenders as scare tactics.

‘‘There are so many other companies that are doing cartwheels right now because this is such an opportunity,” said Perez (D-Dist. 5) of Takoma Park, who championed the bill. ‘‘I see a bright future in the county for this industry, and this will continue to be a competitive market.”

The companies pulling out represent about 30 percent of the county’s lending business, estimated Thomas Shaner, executive director of the Maryland Association of Mortgage Brokers. Although his organization has not encouraged companies to suspend business in the county, it is concerned about the law.

‘‘We never understood the purpose of the legislation. We believe it is pre-empted by state legislation,” Shaner said. ‘‘It’s interesting the county has wrapped this in terms of fair housing, and when all is said and done, it’s all about mortgages, which state and federal laws already cover.”

Shaner said most of the companies involved in the pullout are working with clients to resolve loans already in process, but some borrowers could face problems after the law takes effect.

‘‘This law will really affect borrowers who meet some prime loan qualifications, but for some minor reason are bumped to a subprime loan,” said George H. Johnson, mortgage broker and owner of Century 21 Associates and Johnson. ‘‘Self-employed people who have decent credit but can’t always provide adequate documentation of their income will really be hurt by this.”

Melissa L. Foster, president of the Boyds Civic Association and a real estate agent, said home sellers will also be hurt.

‘‘If lenders will only be left to make loans to borrowers who qualify for traditional loans, there will be a lot of home sellers whose homes are stuck on the market waiting for a buyer to qualify,” Foster said. ‘‘If people cannot sell their homes and see some sort of return on their investment, they will question whether or not to live here.”

She has begun a letter-writing campaign petitioning assistance from state delegates to stop the county law.

Defenders of the law point to a recent study by the Center for Responsible Lending in Washington, which found that borrowers living in states with predatory lending laws are better off then those in states with no such laws.

‘‘One of the important distinctions here is that the Montgomery County ordinance is a fair housing law, and there are hundreds of those in jurisdictions throughout the county, so lenders pulling out there is highly unusual,” said Eric Halprin, senior policy counsel for the center.

He said the lenders’ allegations of ‘‘vague” language are unfounded.

‘‘That strikes me as a bit of a red herring. The federal statutes also use broad language, and Montgomery’s ordinance in fact clarifies some of that,” Halprin said. ‘‘If a lender feels they are having trouble complying, I think it would say something about their lending practices.”

Councilman Steven A. Silverman (D-At large) of Silver Spring said some companies seem most concerned about the size of the fine.

‘‘The increase is a considerable deterrent in some of the practices, and if that’s what they’re concerned about, I don’t see us going back to the $5,000 level,” he said.

Council President George L. Leventhal (D-At large) of Takoma Park said the county is awaiting the outcome of the lawsuit.

‘‘I had concerns about this bill from the beginning. This debate was rare in that the basic facts could not be agreed upon,” he said. ‘‘The only thing that could potentially change the legislative and political climate would be input from individual borrowers and to date we haven’t heard from them.”

On Monday, rumors were circulating that Fannie Mae and Freddie Mac, the federally chartered firms that underwrite many mortgages, were also discontinuing their service within the county.

Representatives for both the companies denied the talk, and said they require partnering companies to comply by all jurisdictional anti-discriminatory lending rules.

‘‘We’ve made it known that we don’t do business with any companies that are involved in predatory lending,” said Alfred King, director of public affairs for Fannie Mae.

Staff Writer C. Benjamin Ford contributed to this report.

have a mortgage pending?

Most lenders will notify customers if they are suspending mortgage services.

Call your mortgage company first; a list of companies is available at www.gazette.net⁄stories⁄030106⁄montcou152003_31949.shtml

Or call the county’sConsumer Protection Office at 240-777-3636 or the Office of Human Rights at 240-777-8450.