When Washington implemented an anti-predatory lending law in September, it did more than stop fraudulent mortgage lending in the city. It stopped just about all lending outside the prime market.
Mortgage lenders say the law - which was suspended in November and is expected to return in some form this month - put too many burdens on legitimate lenders and further complicated the byzantine mortgage transaction.
Lenders also said they were afraid to lend when they weren't sure what practices and loan products could get them into trouble.
The Washington law "didn't really define what predatory loans were," said Gene Lugat, president of the Maryland Mortgage Bankers Association and vice president for the Baltimore area at AccuBanc Mortgages.
Although well-intended, the rush to enact the law backfired after lenders balked at the expensive paperwork and documentation it called for and the way it narrowed the means for lenders to foreclose.
"Lenders just pulled out of the market," Lugat said.
Predatory lending is as murky as it sounds. It is the underbelly of the sub-prime credit market, related to "flipping" schemes but not as high-profile. Mary Louise Preis, Maryland's commissioner of financial regulation, calls predatory lending "sort of undefinable."
The mortgage industry and consumer advocates agree on this broad definition: Predatory lending is the practice of selling high-interest, high-fee loans to people unlikely to be able to pay them back - the credit-challenged and gullible, who are often minorities, the poor and the elderly. The legacy of this lending is blight, with foreclosure upon foreclosure and entire city blocks boarded up.
Baltimore, the site of federal hearings on predatory lending in 2000, is considering whether to enact legislation of its own. It is not alone.
Dozens of states and cities have debated laws on anti-predatory lending in recent years. Philadelphia passed such a law last year, but it was "pre-empted" (i.e., killed) by the Pennsylvania legislature.
Baltimore City Council President Sheila Dixon said the city has been working with the state to determine whether new lending laws are necessary.
Last month, however, Del. Maggie L. McIntosh introduced a bill in the General Assembly stipulating that banking regulation is conducted by the state, not by localities. Though the bill does not mention predatory lending in Baltimore, its aim is to prevent the city from enacting its own banking and lending laws.
