Council proposes penalties for `predatory lenders'

Civic group says bill wouldn't protect those hurt most by practice

September 26, 2000|By Gerard Shields | Gerard Shields,SUN STAFF

The City Council introduced a bill yesterday that would prohibit city government from dealing with "predatory lenders" who pressure homeowners into high-interest loans.

A civic group representing lower-income city homeowners criticized the bill as too weak because it would cover refinancing but not loans to first-time homebuyers.

The legislation, proposed by West Baltimore Councilman Keiffer J. Mitchell Jr., would set fines of $1,000 or up to 12 months in prison for violations. Under the bill, "predatory" loans are defined as being at least 6.5 percentage points higher than federal treasury yields. Lenders would run afoul of the proposed law if they were to make 10 or more such loans.

The bill would prohibit the city from depositing, investing or awarding contracts with financial institutions deemed predatory.

"This is a bill that is badly needed," Mitchell said.

This month, the Chicago City Council became the first in the nation to pass a law prohibiting predatory lending, which typically targets poor minorities, senior citizens and low-income residents.

Such loans are called "subprime" because they are set at higher, double-digit interest rates for borrowers with poor credit ratings. During the past five years, the amount of subprime loans in the nation has increased fivefold, to $160 billion.

Federal housing officials have declared Baltimore a national leader in predatory lending and "flipping," in which investors purchase properties and quickly sell them to unsuspecting buyers at profits of 100 percent or more.

In the first three months of this year, lenders foreclosed on 1,600 Baltimore homes. Since 1996, about 2,000 homes have been flipped, studies show.

The 1,200-member Association For Community Organizations for Reform Now, which called for the legislation, criticized it yesterday. Among the group's objections is that the proposed $1,000 penalty is too lenient.

Mitchell Klein, a group organizer, said the bill would not protect 90 percent of the people who fall victim to such loans because it would cover refinancing loans only.

The group objects because the bill would also give offending lenders a six-month grace period to stop predatory practices if they want to do business with the city.

"It's a very, very watered-down version of what we initially proposed," Klein said. "We think this is a good first step, but it needs to go ... further."

Mitchell acknowledged that the absence of first-time home loans in the bill was an oversight.

"It's a start," he said. "We hope to put in some amendments."

In other action:

Southwest Baltimore Councilman Edward L. Reisinger called for the city public works and health directors to appear before the council to explain why city residents weren't notified about sewage spills.

Council President Sheila Dixon introduced a bill on behalf of Mayor Martin O'Malley that would condemn Belvedere Shopping Center off York Road. Fifteen of the 30 shops at the complex are vacant.

Dixon and Northwest Baltimore Councilwoman Helen L. Holton announced a proposal that would give equipment tax credits of up to $8,000 to nonprofit community associations.

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