Bankers link bill to credit `crisis'

Lenders' group blasts Montgomery bias law that starts tomorrow


Montgomery County residents are facing a "credit crisis" in which they may not be able to obtain home-equity loans or may have trouble buying and selling a home, an industry trade group said, blaming a local fair-housing law that is garnering national attention.

The Mortgage Bankers Association blames a new county ordinance that expands the definition of discriminatory lending practices and increases the maximum penalty to $500,000 per violation.

More than two dozen lenders have said they plan to suspend or curtail lending in the county because of the ordinance, which is set to take effect tomorrow unless it is derailed at the last minute by a court challenge.

Opponents contend the ordinance is overly harsh and ambiguous, while proponents say it was enacted to prevent discrimination, especially in the market for high-cost loans that are disproportionately extended to minorities.

With an exodus of lenders, borrowers may have a harder time obtaining financing. About 560 lenders made $17 billion in loans in the county in 2004, and if the ordinance goes into effect, about $2 billion won't be available from the lenders who are pulling out, according to the bankers group.

"Although intended to protect consumers, the Montgomery County ordinance will do just the opposite as it raises costs for consumers," predicted Erick Gustafson, vice president of government affairs at the association.

Not only have major lenders such as National City Corp. suspended some operations in Montgomery County, but Wall Street firms such as Lehman Brothers Holdings Inc. and Bear Stearns Cos. Inc. have said they would not purchase loans secured by property in the county. By purchasing loans in the secondary market, those firms provide liquidity for the lenders to make more loans.

The county joins other localities and nearly 30 states that have passed predatory-lending legislation.

Other jurisdictions, including the District of Columbia, have repealed or revamped predatory-lending laws after lenders stopped making loans.

The Montgomery County Council staff has received two letters and three phone calls from constituents complaining that their mortgage settlements were put on hold when their lenders ceased processing loans because of the ordinance, according to a memorandum prepared by Sonya E. Healy, a legislative analyst for the county.

County Executive Douglas M. Duncan plans to defend the law in court.

"We're certainly monitoring the situation, but our current focus is on defending the law that was passed," said David S. Weaver, a spokesman for Duncan.

"Our view is that it is fair and reasonable legislation, and those who are not engaged in discrimination have no reason to be concerned," Weaver said.

The Montgomery County ordinance is unique in its approach, according to industry experts, because it bans predatory-lending practices directed at borrowers because of their race, religion, sex and other categories.

Marc Hansen, deputy county attorney, said he plans to argue in court that the ordinance is allowed under state law allowing local regulations that protect civil rights.

The American Financial Services Association, which filed the lawsuit challenging the ordinance along with several lenders, argues that the county misinterpreted state law and that only the state may regulate lend- ing.

The plaintiffs are seeking a preliminary injunction. The case is scheduled to be heard by Montgomery County Circuit Court Judge Michael D. Mason, who may rule as early as today.

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