Mortgage lenders cheer injunction

Brokers in Montgomery get a reprieve with freeze on lending law

Friday, March 10, 2006

More than half of the lenders that had threatened to stop writing mortgages in Montgomery County said they are back in business, two days after a judge temporarily stopped the county’s controversial new lending law from taking effect.

Several lenders criticized the county’s law, which was aimed at subprime lenders, as too vague and its fine for discrimination as too high.

The law does not specify the type of loans a company may issue, but does prohibit discrimination on the basis of race, national origin and other characteristics. It also increases the fine for proven incidents of discrimination from $5,000 to $500,000.

The Maryland Association of Mortgage Brokers reported Thursday that 35 of the 46 lenders that had suspended services have filed notice that they plan to continue operating until there is a final resolution in the case. A hearing on a permanent injunction is set for July 6 in Montgomery County Circuit Court, and a repeal effort is under way at the County Council.

On Feb. 24, Germantown homeowner Jonathan Turgel, 40, received a call from his loan broker that the company that was providing the loan for his home refinancing was no longer providing loans in the county.

Just hours after the judge on Tuesday issued the injunction, Turgel’s broker called to say the company was back to writing mortgages in Montgomery.

‘‘The good news is the judge had the common sense that the law in its current form is not good for the county,” Turgel said. ‘‘The premise of the law was based probably on great intentions. But obviously it scared 50 huge lenders. Hopefully, [the County Council] will be able to change some of the language and make everybody happy.”

Meanwhile, federal officials said the County Council exceeded its authority in passing the law.

A national trade association requested an opinion on the county’s legislation from the Treasury Department’s Office of Thrift Supervision. The opinion followed Tuesday’s injunction by about five hours.

The OTS — which regulates savings and loans — said the county’s law would infringe on the federal laws already in place on mortgage lending activities of federal savings associations. The agency’s chief counsel, John Bowman, also said Montgomery County’s law could significantly affect county lenders and reduce opportunities for borrowers.

Bowman’s opinion applies only to federal savings associations regulated by the OTS. National banks, state institutions or mortgage brokers are not regulated by federal rules.

‘‘We were satisfied with the OTS opinion,” said Robert Schmermund, a spokesman for America’s Community Bankers in Washington, D.C., which represents more than 1,000 banks across the country. The organization and several of its members sent letters to OTS requesting an opinion.

‘‘The biggest concern by our members was the vagueness of the ordinance which would leave a great deal of uncertainty in the marketplace about what could and could not be done,” Schmermund said. ‘‘The critical element in the process was to have the OTS make some sort of public ruling prior to the [hearing date].”

OTS said it is left to the discretion of a judge whether to use its opinion in future court proceedings.

In granting the injunction, Montgomery County Circuit Judge Michael D. Mason said Tuesday that he was convinced of the potential harm to the mortgage industry if the law went into effect and was overturned later.

Mason noted that borrowers who believe they are victims of discrimination still would be able to file complaints with state or federal authorities during the injunction.

County Councilman Thomas E. Perez (D-Dist. 5) of Takoma Park, the lead sponsor of the law, called the injunction a disappointment.

‘‘You have to respect the judicial process. I think this is the first of a number of chapters on this issue,” Perez said. ‘‘[While the injunction is in effect,] I intend to educate all of the stakeholders surrounding this issue to clear up some of the misinformation that exists out there now. Still, if you’re not discriminating, you don’t have to be worried.”

However, several County Council members are considering repealing the law.

Council President George L. Leventhal (D-At large) of Takoma Park said he plans to introduce a bill next week to repeal the law. Councilmen Michael J. Knapp (D-Dist. 2) of Germantown and Howard A. Denis (R-Dist. 1) of Chevy Chase, the only two members who voted against the original legislation last year, are expected to co-sponsor the repeal.

Opponents have repeatedly questioned the need for the new law, as state and federal laws already prohibit predatory lending.

‘‘Maryland’s law is clear that only the state has the power to enact regulations governing mortgage lending,” said Lynne Strang, a spokeswoman for American Financial Services Association, the trade group representing the plaintiffs in the case.

‘‘It’s worth noting that courts, including the California State Supreme Court, have consistently ruled that regulatory authority for mortgage lending lies at the state level,” she said.

The county’s law has also garnered attention from a national housing agency. Last week, John Taylor, president of the National Community Reinvestment Coalition, sent a letter to the U.S. Department of Housing and Urban Development asking for an investigation of lender reaction to the Montgomery law.

‘‘It is unfortunate that lenders are taking a heavy-handed approach to this legislation,” said David Berenbaum, an NCRC executive vice president. ‘‘There is nothing back door about this policy. I agree with Perez that if a company is not discriminating, they have nothing to worry about.”

Berenbaum said the coalition is prepared to file an amicus brief with the court if necessary.

Lenders return

The following lenders will resume writing mortgages in Montgomery County until July 6, when a request for a permanent injunction of the county’s lending law will be heard. The list is current as of March 9.

Acacia, FSB

ACTMortgage Capital

Accredited Home Lenders

Aegis Funding

American Bank

American Mortgage Network

Argent Mortgage

Aurora Loan

Bank United

Bear Stearns

Bear⁄EMC

BNC

Cardinal Financial

Credit Suisse

Decision One

First Franklin

First Magnus

First NLC

Franklin American Mortgage

GN Mortgage

Greenpoint Mortgage

Homecoming Financial

HSBC

Long Beach Mortgage

Molton Allen & Williams

Morgan Stanley

Mortgage IT

National City Home Equity

Nations One

National Wholesale Funding

New Century

Saxon Mortgage

Tri-Star Lending

Washington Mutual

Wilmington Finance

Source: Maryland Associationof Mortgage Brokers

What thelaw does

The law is aimed at subprime lenders, firms that secure loans for people with poor or no credit, oftentimes African Americans and Latinos.

It does not specify the type of loans a company may issue, but does prohibit discrimination on the basis of race, national origin and other characteristics.

It increases the fines from $5,000 to $500,000 for proven incidents of discrimination.