Mortgage industry loses bill House of Delegates rejects deregulation of brokers, lenders

'Big victory' for buyers

Loss was unexpected

fiduciary duty to borrowers was issue

Housing

March 18, 1997|By William F. Zorzi Jr. | William F. Zorzi Jr.,SUN STAFF

The House of Delegates yesterday rejected a controversial bill that would have deregulated Maryland's mortgage industry, legislation that opponents said would have removed protections for borrowers from state law.

On a vote of 66-66, the House failed to reach the majority of 71 needed to pass the bill, which would have changed a host of laws governing the regulation of second-mortgage brokers, lenders and bankers.

House leaders said last night that there may be an attempt to reconsider the vote later this week.

During about a half-hour of debate yesterday, Del. Gerald J. Curran defended the legislation, which he introduced on behalf of H. Robert Hergenroeder Jr., a former banker and House member who is now the state commissioner of financial regulation.

Curran, the Northeast Baltimore Democrat who chairs the House Commerce and Government Matters Committee, said the bill struck a balance between the business community and consumers. But a series of delegates took to the floor to assail the legislation as a decidedly anti-consumer measure.

The bill, argued Del. M. Elizabeth Bobo, would cause "significant monetary harm to our constituents from every jurisdiction across the state."

Bobo, a Howard County Democrat, had led the charge against the legislation in committee, taking the side of consumer proponents and housing advocates for the poor. She was joined on the floor yesterday by Del. Cornell N. Dypski, Del. Nathaniel T. Oaks, both Democrats from Baltimore, and Del. Michael R. Gordon, a Montgomery County Democrat.

Patricia Anne Faulkner, a Montgomery County Republican who co-sponsored the measure, conceded that "it's not a perfect bill," but urged its passage, as did Del. John S. Morgan, a Howard County Republican.

The bill had been heavily lobbied by some of the biggest names in Annapolis, representing the banking and mortgage industries, and was expected to pass in the House. In fact, an amendment that would have eviscerated the bill was easily defeated last week.

The action yesterday surprised consumer advocates who had all but given up on defeating it.

"The average Marylander's probably not aware of it, but they just had a big victory," said James A. Mayhew, a lawyer for St. Ambrose Housing Aid Center, a Baltimore advocacy group that lobbied against the measure. "I'm relieved. To be honest, I thought it would go through."

Other opponents of the legislation included Attorney General J. Joseph Curran Jr., the Consumer Council of Maryland, and the Maryland Public Interest Research Group.

A variety of compromise amendments were worked out in committee. But the question of fiduciary duty between mortgage brokers and borrowers remained, and ended up leading to the House vote yesterday.

As introduced, the bill explicitly stated that a mortgage broker -- the "middleman" between a borrower and the lenders who might issue a second mortgage -- had no fiduciary duty to act in the best interest of the borrower. It also required disclosure of that to borrowers.

The brokers maintained that provision merely clarified existing law by explicitly stating they have no such duty to the borrower. And they said the language was necessary to protect brokers from lawsuits by borrowers who believe they did not get the best mortgage deals.

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

The bill also would have: raised to five points, or 5 percent, the current two-point ceiling on the amount a lender can charge a borrower as a loan origination fee; eliminated licensing and regulation by Hergenroeder's agency of 103 mortgage-lending subsidiaries of banks that have branches in Maryland; established a 17-member task force to examine the business of mortgage lending and report its findings to the legislature; and increased penalties against and surety bonding for lenders.

Pub Date: 3/18/97

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