- The Washington Times - Wednesday, February 27, 2008

ANNAPOLIS — Gov. Martin O’Malley has made himself the consumer’s champion in the home-foreclosure crisis by publicly questioning mortgage lenders about their practices, but has less publicly been lobbying for a bill to allow Maryland-chartered banks to charge borrowers pre-payment “penalties.”

The bill emerged in the General Assembly while a class-action suit is pending against Provident Bank after the bank charged customer Andrew Bednar a $681 penalty for refinancing a $17,000 loan.

Yesterday, Mr. O’Malley summoned the mortgage lenders to the State House to discuss ways to stop the growing number of foreclosures in Maryland and vowed to crack down on those who would not cooperate.

But critics of the proposal say it is disingenuous for Mr. O’Malley to also support a measure that would hit homeowners with penalty fees for paying off a loan early.

The proposal also has revived a political battle between Mr. O’Malley, a Democrat, and attorney Peter Angelos, whose firm in 2005 filed Mr. Bednar’s original lawsuit and is actively lobbying against the proposal.

Mr. Angelos was a frequent critic of Mr. O’Malley when he was mayor of Baltimore and supported Gov. Robert L. Ehrlich Jr., a Republican, in his re-election bid against Mr. O’Malley.

The class-action suit proceeded because the Maryland Court of Appeals overturned a lower court’s decision in favor of the bank.

M. Albert Figinski, an Angelos representative, told members of the Senate Finance Committee last week that state banks are trying to accomplish by legislation what they could not in court.

Mr. O’Malley has attempted to build a public image as a crusader for consumer rights, though he failed last year to stop a 72 percent rate increase for Baltimore Gas and Electric customers.

He also has attempted to take a national lead on environmental legislation, which is being perceived as groundwork for seeking a national office.

The penalty is common among many national banks, but Maryland and some other states prohibit the penalty by state-chartered banks. The Maryland Bankers Association has asked some of the most powerful lawmakers in the Democrat-controlled Assembly to quietly change the law this session.

Banks and other lenders that already have permission can waive a loan’s closing cost during signing if the borrower agrees to keep open the loan over a specific period of time.

If borrowers pay off the loans early, then they have to pay the closing costs, as Mr. Bednar did.

The “closing cost recapture” programs are more commonly used to keep borrowers from refinancing a loan with another bank or lender.

The Maryland Court of Appeals ruled in December that the penalty violates state consumer protection laws, which led state banks to propose the change.

“Because of a recent decision in the Court of Appeals, these institutions, unlike the federally chartered institutions that do business in our state, are no longer able to prepay closing costs on behalf of mortgage borrowers and recoup that money at a later date if the loan is prepaid,” Mr. O’Malley wrote in a letter to lawmakers obtained by The Washington Times. “The result is that Maryland citizens will end up paying thousands of dollars in additional closing costs or interest.”

However, it is not clear whether borrowers would pay more in closing costs if the existing law is changed, as Mr. O’Malley has requested, because they would no longer be able to avoid closing costs by paying off their loan early.

Maryland banks also say they are losing business to nationally chartered banks by not being able to compete.

The proposal has strong support from the state’s banking industry and the leaders of the legislative committees that oversee state banks.

Sen. Thomas M. Middleton, chairman of the Senate Finance Committee, questioned Mr. Angelos’ motives, given the bill also would block borrowers from collecting damages against state banks that charge the recapture fee.

“That’s the interest for Mr. Angelos,” he said. “It’s a big pot of money right there; it’s hundreds of millions of dollars that they’re going after.

Mr. Middleton, Charles County Democrat, said he introduced the bill this year with Sen. John C. Astle, Anne Arundel Democrat and vice chairman of the Finance Committee, because Maryland banks are losing ground to national banks.

But not every Democratic leader is firmly behind the proposal.

Senate President Thomas V. Mike Miller Jr., said he is not familiar with the details of the bill but is concerned about consumer and banking interests.

“There needs to be a balance recognizing consumer’s rights and recognizing that if there’s a cost of doing business the banks should also be entitled to reimbursement.” said Mr. Miller, Southern Maryland Democrat.

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