The Maryland legislature, reacting to bankers' arguments that mortgage money was fleeing the state, lifted the 10 percent ceiling on home mortgage interest rates today, sending the bill to the governor for his expected signature.
The emergency bill will go into effect immediately upon the signature of Gov. Harry R. Hughes. The governor said he will sign it "as soon as it hits my desk," which aides said may happen Thursday.
Maryland has maintained a 10 percent ceiling on home mortgage interest rates for the past four years, and bankers have argued that the ceiling caused the mortgage lending market to virtually dry up.
The lifting of the ceiling is almost certain to cause interest rates to rise, although representatives of the industries involved differ on how fast. William Weaver, a lobbyist for the banking industry, said he expected that the rate would be no higher than 11.5 percent by the end of the year.
"I think it will level off somewhat at that point," said Weaver. "That's the experience in Virginia" where the interest rate ceiling was lifted several years ago.
Several mortgage lenders in Maryland said they had "millions of dollars" to lend and that their rates would range from a low of 10 3/8 to a high of 11 percent.
These rates would bring Maryland in line with the District of Columbia and Virginia where prevailing rates are 10 3/8 to 10 3/4 percent although Virginia allows a form of service charge in addition The District has a mortgage ceiling of 11 percent.
The state has had some form of control over residential mortgage interest rates since 1867. But bankers, mortgage brokers and real estate agents made the bill to lift the 10 percent ceiling their number one issue of the 1979 session, lobbying legislators day and night for the last two months.
Even before the session began, these lobbyists had lined up the support of most of the state's new political establishment -- including Gov. Hughes, Baltimore Mayor William Donal Schaefer and the House and Senate leaders.
The bill's opponents, recognizing the futility of trying to stop the measure altogether, drafted an amendment that would allow the ceiling to be lifted for a three-year period, with the lid reverting to 10 percent in 1982. That amendment, proposed by Baltimore Del. Frank C. Robey Jr., was defeated in the House today by a 49-to-74 vote. The no-ceiling measure then passed easily, 108 to 20.
"This bill is going to help every homeowner and prospective homebuyer in the state, not just the industry," said Del. Fred Rummage (D-Prince George's) who, as chairman of the House Committee on Economic Matters, steered the measure through the House. "The aim is to make the market competitive so the loans will start flowing again."
Rummage said his committee considered every possible amendment to the bill -- including the three-year concept -- and decided that only a complete elimination of the ceiling would pump the necessary money into the state's mortgage market. He said that his committee would serve as an oversight panel in coming years to make sure that the lending institutions "are not gouging the public."
Baltimore Del. Steven V. Sklar, one of the most outspoken opponents of the no-ceiling bill, said Rummage's technical arguments against the three-year amendment were "totally devoid of reason and logic." Sklar said it would be virtually impossible for the General Assembly to undo what it did today. "It's like going through the jungles of Vietnam," he said. "There's an ambush waiting behind every tree, behind every bush."
Throughout the debate on the bill in both the Senate and House, legislators on both sides of the question claimed that they were acting in the interests of "the little guy." There was Sen. Rosalie Abrams (D-Baltimore), arguing that the current ceiling makes it impossible for the middle-class and poor to get home mortgages because "when money is tight, they're the last to get a piece of it." And, on the other side, there was Sklar, arguing that it was "unconscionable" for the legislature to appease the very institutions that he said had held back money from poor districts through their red-lining practices.
The vote in the House today showed that the issue was not drawn on ideological or territorial lines. Thirteen of the 24 delegates from Prince George's County, where the lending market is said to be tightest, voted in favor of Robey's three-year amendment -- Pauline Menes, Timothy Maloney, Anthony Cicoria, Thomas Mooney, Richard Palumbo, David Bird, Frank Pesci, Joan Pitkin, Nathaniel Exum, Sylvania Woods Jr., Charles Blumenthal, William McCaffrey and Joseph Vallario. In Montgomery County, only five of the 19 delegates supported the amendment -- Robin Ficker, Jennie Forehand, David Scull, Lucille Maurer and Sheila Hixson.
Robey and Sklar attributed the failure of the amendment to a division within the Baltimore City delegation, which was expected to be a solid bloc in support. "It lost right here in the city," said Robey. "Maybe it was Schaefer's influence, I don't know. I do know that our delegation was supposed to meet and talk about how we'd vote on it and that meeting never took place."