- The Washington Times - Friday, February 24, 2006

Mortgage lending companies are trying to block a new Montgomery County law that takes effect March 7 with tough penalties for discriminatory lending.

Neither side showed signs of backing down yesterday as mortgage lenders threatened to pull their services out of Montgomery County.

“We’re going to vigorously defend the law that was passed,” said David Weaver, spokesman for Montgomery County Executive Douglas M. Duncan. “We are confident that our law is fair, reasonable, and it will withstand the legal challenge.”

Mortgage lenders led by the American Financial Services Association, a trade group, filed a lawsuit to prevent the county from enforcing the law passed by the Montgomery County Council in November.

Lenders that have reportedly considered curtailing loans in Montgomery County include Aurora Loan Services, National City Mortgage Corp., First Franklin Corp. and Bear, Stearns & Co., according to the Mortgage Bankers Association, a trade group.

The lawsuit challenges the county’s authority, saying Maryland can regulate mortgage lenders, but local governments cannot.

“But the state law says local governments can regulate lenders in terms of protecting individual rights,” said Marc Hansen, deputy county attorney for Montgomery County. “So it contains an exception.”

The law would increase penalties from $5,000 to $500,000 for abusive lending practices. It also broadens the list of violations.

It is designed to protect high-risk borrowers who have no alternative but to seek loans with high interest rates or fees. Many of the borrowers are low-income, minority or disabled persons. It also forbids discrimination based on national origin, sex and religion.

The D.C. Council passed a similar anti-predatory lending law in 2000 but revised it when mortgage lenders said it put a regulatory burden on them that could force them to stop doing business in the District.

“If Montgomery County’s ordinance is allowed to go forward, other counties may follow suit, subjecting lenders to a patchwork of perhaps thousands of potentially conflicting requirements,” said Lynne Strang, spokeswoman for American Financial Services Association.

The association’s lawsuit was filed in Montgomery County Circuit Court. No date has been set for a hearing before the law takes effect March 7.

“We are confident there are many, many lending institutions that want to and will continue to do business in Montgomery County because it’s such a red hot real estate market,” Mr. Weaver said. “The same requirements under federal law are contained in our law, but we increased the penalty for violators.”

Mortgage banking officials disagree, saying the Montgomery County law creates special hazards for them.

“The ordinance is vague and it would be impossible to determine whether a mortgage loan was made in compliance with the ordinance,” said Kerrie Cohen, spokeswoman for Lehman Brothers, the parent company of Aurora Loan Services.

The Mortgage Bankers Association predicted consumers would suffer more than the lenders.

“The net effect for consumers is ultimately fewer options, less competition, higher prices,” said Kurt Pfotenhauer, the association’s senior vice president for government affairs. “These kinds of misguided local laws can really do a lot to clog up the access of their citizens to the national capital markets. This looks like a potential trial lawyer’s dream.”

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