By Kirstin Downey
Washington Post Staff Writer
Friday, March 3, 2006

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.

"I'm upset," said Robinson, who worries that his loan will be more costly if there are fewer lenders. "There's no problem with the loan -- everybody says it would be easy, except that I am living in Montgomery County. It's a pain in the rear."

Hundreds of lenders write mortgages in Montgomery County. As many as 40 lending entities, which includes several arms of a single lender, have said they are leaving. It is unclear whether others would also leave a market widely viewed as highly profitable.

The new ordinance, which goes into effect Wednesday, imposes a penalty of $500,000 per violation against lenders that discriminate against borrowers who are racial minorities by giving them costlier loans than they give to other borrowers, sticking them with big penalties when they refinance, or overcharging them on fees.

Lending statistics released by the federal government last year found that about a third of African Americans got high-cost loans in 2004, compared with 9 percent of non-Hispanic whites. About 20 percent of Hispanics got the more costly loans, which are called "subprime" loans. Asians were less likely to get high-cost loans than any other group. Having a high-cost loan is more likely to cause a borrower to go into foreclosure or bankruptcy or to face ruined credit.

Lenders say African Americans and Hispanics get costlier loans because they are more likely to have bad credit, low down payments and irregular work histories, which make them riskier customers. Consumer advocates say that even minority borrowers with good credit are more likely to get subprime loans.

"The fact of the matter is that African Americans and Latinos are disproportionately in the subprime market -- and substantial proportions shouldn't be there at all," said County Council member Tom Perez (D-Silver Spring), who sponsored the new law. "They qualify for better loans than they are getting."

But some lenders say the new law is vague and poses big financial risks for them. Thomas Shaner, executive director of the Maryland Association of Mortgage Brokers, said that his group opposes any racism in lending but that many lenders fear that some borrowers will take advantage of the law by complaining that other people got better interest rates than they did, seeking redress from the county Commission on Human Rights, an agency the lenders say has no understanding of the mortgage business.

"It has added anti-predatory-lending provisions into civil rights laws," said Gary Himes, national sales manager for National Bank of Arkansas, one of the lenders that is discontinuing operations. "It's opened up a huge can of worms, and it's too much liability for us to take a chance."

The District passed anti-predatory-lending legislation in 2000 but amended the measure after lenders said they would leave the city if it were not revised.

A lenders' group has sued to block the Montgomery County ordinance, claiming the county has no authority to govern lending because a 2002 Maryland law gave that authority to the state, not local jurisdictions. Marc Hansen, deputy county attorney for Montgomery County, said the state law allows local jurisdictions to make regulations that protect civil rights. The lenders' group has sought and obtained an expedited hearing, set for Tuesday.

The fight over the Montgomery County ordinance is part of a national tug-of-war among lenders, local officials and consumer advocates over whether lending practices should be regulated on the state or local level or whether they should be regulated on the federal level.

Lenders say permitting states to pass their own laws is creating a patchwork of regulation that makes it hard for lenders to operate smoothly nationwide. Lending industry officials prefer to be regulated on the federal level, if at all.

"The issue isn't that the bill is ambiguous or vague, but that they don't want local governments anywhere to enforce anti-discrimination legislation," Perez said. "They want the Bush administration to be the only entity that protects your civil rights from discrimination. The notion the Bush administration will be my sole protector sends chills down my spine."