Unless a court blocks it, a new Montgomery County law will take effect on Wednesday that could have significant impact on home buyers and mortgage lenders there.

In November, the Montgomery County Council enacted legislation that expanded the county's fair housing and civil rights law, with an eye to increasing the penalties for what it saw as predatory lending practices. According to a news release issued by the council, "The measure expands the categories of lending activities that constitute discriminatory housing practices and increases the amount of damages that the Commission on Human Rights can award from a maximum of $5,000 to a maximum of $500,000."

Know Your Rights as a Home Buyer
CasaNuevaHouston, a Texas group that promotes homeownership, recently published what it calls the Home Buyer's Bill of Rights. These are the rights it lists. For more detail, in both English and Spanish, see the organization's Web page: http://www.casanuevahouston.com/ .


The new law defines "indicators" of discriminatory lending practices, some of which include:

· Marketing mortgages that a borrower cannot afford to repay based on income and credit levels.

· Charging abusive prepayment penalties.

· Financing excessive points and fees.

· Steering a borrower to a more expensive mortgage by discouraging that borrower from obtaining a loan with more favorable terms.

According to the council: "Discriminatory predatory lending targets borrowers with limited or poor credit for loans with exorbitant or abusive terms based on race, national origin, sex, age. . . . Most abusive home-lending practices occur in the sub-prime market and many address home loan opportunities for people with limited credit histories. African Americans, Latinos, the elderly and those with low-incomes are disproportionately victims of predatory lending."

On Feb. 10, the American Financial Services Association, a trade group representing lenders, filed suit in Maryland Circuit Court challenging the authority of the council to enact this law.

According to Randy Lively, president of the association, "Maryland's law is clear that only the state has the power to enact regulations governing mortgage lending."

There has been no court action yet on the suit, but a hearing is set for Tuesday.

Several states and other jurisdictions have passed laws in recent years cracking down on lending practices. The Center for Responsible Lending, a consumer-advocacy group that supports such laws, recently released a study it said showed that consumers have benefited. "State laws enacted to prevent predatory mortgage lending work as intended to reduce abusive loan terms without impeding credit," according to the center. "Strong state laws have been good for consumers while supporting a thriving subprime lending market. They provide credit-strapped families with plenty of access to responsible home loans at typical -- or even lower -- costs."

The center described some of the most common of the practices it considers abusive:

· Loan flipping: The borrower is "flipped" by a lender who insists that the consumer refinance a current loan, sometimes over and over, primarily for the purpose of generating more fees for the lender.

· Unnecessary products: The lender insists that the consumer buy products that are not useful, such as credit life insurance. Once again, this serves primarily to increase the lender's profit.

· Mandatory arbitration: The lender requires that a borrower go to arbitration if there are any complaints, instead of allowing the borrower the option of taking the lender to court. Often, this arbitration must take place in the home state of the lender, which may be thousands of miles away from where the borrower lives.

Unscrupulous lenders have long made mortgage loans where the terms of the loan were designed for failure -- and for foreclosure. Once the home is foreclosed upon, the lender starts all over again. It is a vicious cycle with little or no end in sight.

The Center for Responsible Lending concluded that its findings have two significant implications for state and federal policymakers who are "grappling with the best way to prevent predatory lending." The center's study said, "First, the findings suggest that strong state laws like those in place in New Mexico, Massachusetts and North Carolina can serve as successful models.

"Second, the findings call into question the advisability of federal proposals that would nullify state efforts and substitute a weak national standard. . . . From a homeowner's perspective, it appears that mortgages protected by strong state laws may be the best deal in the real estate market."

But laws alone are not enough. Consumers must understand that they must protect themselves. They must learn the basics of mortgage lending as well as what to avoid. CasaNuevaHouston, a Texas organization that assists home buyers, mostly Latinos, recently published a Home Buyer's Bill of Rights, which lists many of the things house-hunters should expect. (See box at left.)

In addition to knowing those rights, remember: If you are looking for a mortgage loan, you must shop around. And if you qualify for a loan, you must also be comfortable that you can make the monthly payments on a timely and regular basis.

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