Mortgage bill OK'd by House panel Legislation would deregulate home-loan industry in state

March 07, 1997|By William F. Zorzi Jr. | William F. Zorzi Jr.,SUN STAFF

Over the objections of consumer proponents and housing advocates for the poor, a House committee yesterday narrowly approved a controversial bill that would deregulate Maryland's mortgage industry.

After limited debate, the Commerce and Government Matters Committee voted 12-10 to send to the House floor a bill sponsored by its chairman, Del. Gerald J. Curran, that opponents say would remove protections for borrowers from state law.

"It's a sad day for consumers," said Kimberley A. Propeack, an attorney with the St. Ambrose Housing Aid Center, a Baltimore advocacy group that opposed the bill. "This vote by the committee shows complete disregard for lending abuses committed against Maryland homeowners.

"Legislators voted out of concern for business rather than for their constituents," Propeack said, after being told of the vote.

The bill -- a potpourri of proposed changes in laws governing the regulation of second mortgage brokers and lenders, as well as of bankers -- 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 sold the legislation as a pro-consumer bill, but housing activists maintain that it is tilted far more toward the mortgage-lending and banking industries than toward borrowers.

The original bill became mired in the financial institutions subcommittee and was the subject of six work sessions.

A variety of compromise amendments were worked out, but the lone remaining sticking point was the question of a fiduciary duty between mortgage brokers and borrowers -- which lobbyists for the brokers wanted to explicitly eliminate and St. Ambrose representatives wanted to protect.

As introduced, the bill explicitly stated 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 requires 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 deals.

Housing advocates, however, maintain that the broker's duty to the borrower is implicit in current law and have urged legislators to leave it alone.

Curran shelved the original House bill and finally introduced another bill last Friday that included the compromise amendments, but did not mention the question of fiduciary duty. The chairman floated that amendment yesterday.

"My understanding is that except for a court case a fiduciary relationship has never existed" in Maryland law, said Curran, a Northeast Baltimore Democrat.

Del. Elizabeth Bobo, a Howard County Democrat, led the charge against certain provisions of the bill, including the chairman's amendment.

"The average person thinks when they go in for a second mortgage the broker is acting as their fiduciary," Bobo said.

Del. Cornell N. Dypski, a Baltimore Democrat, also voted against the bill, saying that it would hurt city homeowners.

Pub Date: 3/07/97

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