Consumer and housing advocates for the poor are raising red flags about a complex and controversial bill that would deregulate Maryland's mortgage industry by removing protections for borrowers from the law.
Their concerns prompted Del. Gerald J. Curran, chairman of the House Commerce and Government Matters Committee, to postpone a vote on the bill Friday. He made that decision after meeting Thursday with a representative of St. Ambrose Housing Aid Center, a Baltimore advocacy group.
Curran, a Baltimore Democrat, said he wanted his financial institutions subcommittee to reconsider House Bill 94, which the panel approved last week.
"When I began to focus on this, there were some unanswered questions that needed to be addressed -- and will be addressed -- before it comes out of committee," Curran said.
The subcommittee is expected to meet early this week, and Curran said he intends to be there. A full hearing on Senate Bill 441, the companion to the House bill, is scheduled for tomorrow in the Senate Finance Committee.
The House bill -- a potpourri of proposed changes in laws governing the regulation of second mortgage brokers and lenders -- was introduced by Curran on behalf of H. Robert Hergenroeder Jr., a former banker and House member who is the state's commissioner of financial regulation.
Hergenroeder said the purpose of the legislation was "to enhance the consumer protection provision of Maryland's current mortgage-lending law, while enacting new pro-business initiatives and increasing regulatory powers."
But housing activists maintain the legislation is tilted far more toward the mortgage-lending and banking industries than toward the borrower.
"I wouldn't say there was nothing in the bill that was pro-consumer, but the bill is decidedly anti-consumer," said Kimberley A. Propeack, a St. Ambrose lawyer.
As the commissioner of financial regulation -- a post created after the positions of state banking commissioner and commissioner of consumer credit were merged last year -- Hergenroeder worked through the summer with mortgage-lending and banking industry representatives to propose an overhaul of the law.
Consumer input delayed
Hergenroeder acknowledges that he did not invite consumer advocates to join the discussion until December, when the resulting bill had already been filed. Their earlier exclusion raised the ire of Del. Elizabeth Bobo, a Howard County Democrat who was the subcommittee's sole vote against the bill.
"I'm concerned about the role of the commissioner of financial regulation in this bill, that he would support such anti-consumer legislation," Bobo said. "His job is not to draft legislation for the industry."
She said she was heartened by Curran's decision that the panel should reconsider the legislation.
"The chairman's decision to bring it back to the subcommittee tells me he doesn't want it to pass in the form that the subcommittee recommended, and I think that's a good thing for the consumer."
Among other things, the legislation would:
Explicitly state that a mortgage broker -- the "middleman" between a borrower and the lenders who might issue a mortgage -- has no fiduciary duty to act in the best interest of the borrower. The bill also would require that borrowers be informed of this.
The brokers say this merely clarifies existing state law by explicitly stating that they have no such duty to the borrower. And they say the language is necessary to protect brokers from lawsuits by borrowers who believe they did not get the best mortgage deal.
"We're afraid of class-action attorneys who have filed these class-actions in other states," said Alan T. Fell, the state's former commissioner of consumer credit who is a lobbyist for the Maryland Association of Mortgage Brokers.
Housing advocates, however, maintain the broker's duty to the borrower is implicit in current Maryland law. And they say this provision of the bill is terrible for consumers -- especially because Maryland allows brokers to receive a fee from the lender who issues the mortgage.
"If this becomes law, the mortgage brokers -- the person you expect to be helping you -- will actually be able to conspire with the lender against your interests," said Propeack, the St. Ambrose attorney. "For a simple disclosure, they'll be able to shop on the market for the most expensive mortgage to saddle you with."
Eliminate the two-point (2 percent) ceiling on the amount a broker can charge a borrower as a loan-origination fee. The legislation as introduced -- and as it stands in the Senate bill -- would remove the ceiling altogether. The House subcommittee, however, agreed to raise the ceiling to five points.
The industry maintains that removing the ceiling is necessary for Maryland to remain competitive with other states in attracting and keeping mortgage lenders. Housing advocates, however, say a limit is necessary to prevent fly-by-night brokers from taking advantage of homeowners.