In November, the Mongtomery County, Maryland council passed a law aimed at combating so-called discriminatory lending.
The law, which the Montgomery County Council approved 7-2 in November, prevents lenders from marketing “high-cost home loans with exorbitant and unnecessary fees” to families on the basis of race, national origin, sex or religion. It increases the maximum fine for discriminatory lending from $5,000 to $500,000.
At the time the law was passed, mortgage lenders objected that the law was too broad and would have a negative impact on several otherwise acceptable mortgage lenders, which would, in the end, hurt consumers. Well, now that the law has gone into effect, its true impact is being felt:
More than 30 mortgage lenders have limited or stopped loan activities in Montgomery County, Md., because of a discriminatory lending law scheduled to go into effect Wednesday.
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They’ve chased us out of the county,” said Ric Edelman, president and chief executive officer of Edelman Financial Services, which has stopped lending in the county. “If they don’t change this rule, consumers will not be able to get mortgages; people are going to lose their jobs. The county economic scenario will deteriorate rapidly if the real estate industry grinds to a halt over this poorly worded legislation.”
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As a result of lenders leaving the county, mortgage companies say the law could hurt those it was designed to protect.
“Economics 101 would dictate that less competition means costlier loans to the client,” said Eric Gates, president of Apex Home Loans Inc. in Bethesda.
In addition, Mr. Gates said, the law may wreak havoc on homeowners or buyers who have secured or are in the process of securing loans with companies pulling out of the county after the law takes effect.
Yea, that helps consumers alot doesn’t it ?
Update 3/3/05: And here’s a story about the human cost of this increasinly stupid law.
With his daughter heading off to college, Alan Robinson, 49, decided two weeks ago to refinance his Silver Spring condominium to get some extra cash. He made a few quick inquiries and was told it would be no problem. But Robinson, an economic research consultant, put his loan application off until this week.
Bad timing. When he initiated the paperwork, two lenders he had contacted in February said they no longer make mortgage loans in Montgomery County. They are among more than two dozen lenders, including subsidiaries of Lehman Brothers Co. and National City Mortgage Co., that have said they will stop making loans in the county because of a new human rights ordinance that bans discriminatory lending, including practices that many critics consider predatory lending. The lenders say the ordinance will add too many complications and uncertainties to their business.
So much for government helping people.
Update 3/7/05: Well, there is some good news; it appears that the legal challenges to this assinine law have had some initial success.
Montgomery County’s effort to curb discrimination in mortgage lending through harsh penalties against alleged predators ran into two major obstacles yesterday. A state judge issued a temporary injunction to halt the law’s enforcement for four months, and the Bush administration said the measure usurps federal authority.
Good deal. Hopefully, this law will find its way into the dustbin of history quickly.
