A mortgage-lending bill passed unanimously by state delegates last week and expected to come before the Senate today is being decried by fair-lending advocates, who fear homeowners would be hurt by the proposed increase in fees that brokers could charge for certain refinancing loans.
Mortgage brokers, who link customers with lenders, account for nearly 70 percent of the home-loan business. They charge finder's fees that are a percentage of a loan's value, up to a state maximum of 8 percent.
State law further limits the fee a broker can charge in the refinancing of a loan within two years of handling the last mortgage on the same property. Rather than charging a percentage of the entire refinanced value, the broker is entitled to fees only on the difference between the new value and the original one.
The bill would allow brokers to base the refinancing fee on the full value. Industry leaders say it's not much of a change because brokers and mortgage lenders who didn't handle the first loan can already charge the full fee. But the national Center for Responsible Lending calls the bill a weakening of consumer protections. Ardie Hollifield, the group's legislative associate, thinks it's a bizarre move at a time when foreclosures are rising and legislators elsewhere are scrambling to pass more restrictive lending laws.
With higher fees allowed, "All the economic incentive is to place the person in an inappropriate loan, multiple times, until they lose the house," said Phillip R. Robinson, an attorney who is executive director of Civil Justice Inc., a Baltimore nonprofit that specializes in legal help for low- and moderate-income residents. "Meanwhile, the broker makes a lot of money."
A homeowner going back to the same broker within two years to refinance into a $120,000 loan from a $100,000 loan could be charged a maximum of $1,600 in broker fees currently, he said. If the law is changed, the maximum would rise to $9,600.
Thomas C. Shaner, executive director of the Maryland Association of Mortgage Brokers, which sought the change, argues that the bill simply lets consumers return to the brokers with whom they've established rapport if they want to refinance within two years.
He said there's no economic incentive for a broker to take that business now, particularly if there's little new equity. Most brokers are charging fees that are much lower than the 8 percent maximum, he said.
He contends that the current law is more likely to cause problems than the proposed change.
"All you're doing is creating a place where another broker who the consumer has no trust in can come and be over-aggressive, and the consumer is not checking back with his or her original broker to see if this is the right decision," said Shaner.
State Del. Brian J. Feldman, a Montgomery County Democrat who was the lead sponsor of the bill, said he ran it past the attorney general's office, which did not oppose it. He sees it as a "level playing field" sort of change because he was told that lenders - the institutions putting up the money - don't have similar restrictions on refinancing fees.
"I'm not sure there's any policy reason why [the state should] treat the licensed lenders any differently than licensed mortgage brokers in a refi transaction," he said.
Robinson, of Civil Justice, said the state does restrict how often lenders can refinance the same loan.
He also believes that a stipulation in the bill meant to protect homeowners in trouble is toothless.
The proposal says that brokers can't charge the "same borrower" fees on the entire value of the refinanced loan if that borrower is behind in payments on the original mortgage, but brokers could get around that whenever they're dealing with couples, he said.
One name could go on the first loan, both names on the second, and so forth, he said. The current law refers to the "same property."
Raquel Guillory, a spokeswoman for the Maryland attorney general, said the office took no position on the bill because Attorney General Douglas F. Gansler intends to take a "comprehensive look at the entire industry."
"Predatory lending ... is becoming a bigger problem," she said.