The Story of Mortgage Law SB 0566

Why you should care about a Maryland Mortgage Law I helped change…

McKay Mortgage Co - Brendan McKay

Strap in. I’m about to tell a story about everyone’s favorite topic: state level financial regulatory legislation mortgage law. I’ll stay as irreverent as possible to keep you awake.

On February 22, 2018, I testified in front of the Maryland House Finance Committee to have a regulation specific to Mortgage Brokers repealed.

First let’s talk about the regulation. Since 1979, a law had been on the books preventing Mortgage Brokers from making a profit off the same client, on the same home twice in two years. Meaning that if a mortgage broker helped someone finance their home, they could not profit off the refinance in the first 24 months. The intent was to prevent mortgage brokers from engaging in a practice called “Churning” where they would do the first transaction at a higher rate (and profit) setting them up to refinance even if rates did not go down.

Sounds good, right?

Wrong. It’s terrible and here’s why…

Believe it or not, a lot has changed since 1979. Standard industry practice, in addition to federal regulation has gone a long way to get churning out of the industry. There is also this wonderful (and terrifying) thing called the internet. It’s a lot harder to offer an out of market interest rate (step 1 to Churning) because borrowers can easily go online and get a sense of what a reasonable interest rate looks like.

Well OK, so the law is redundant and largely unnecessary. So what? The more consumer protection the better, right? Wrong. At least not with a heavy-handed and clunky law like this.

Because guess what, in addition to preventing Churning or Bad Refinances, it also prevents Mortgage Brokers from helping their clients with Good Refinances. Rates have gone down since you bought your home? Sorry, I can’t help you. You’d like to go from your 30 Year loan to a 15 Year Mortgage? Mind waiting 9 months?

Consumer Protection

And that’s why the mortgage law that had roots in consumer protection was actually bad for consumers. There is a reason you chose to work with your mortgage broker in the first place. More likely than not you’d like to work with them again. There’s a decent chance they still have the lowest rate, just like they did the first time. You already know how to communicate with them, you already trust them, and I sure as hell bet you’d probably rather not share all your personal information with someone else if you can avoid it.

On top of all that, this law did little to protect consumers anyways. At the time of writing, mortgage brokers make up less than 10% of the residential mortgage originations in Maryland and the rest of the country. This law is only for them. Banks and Direct Lenders, churn away. Why would the law be written this way? Who the hell knows, but I’ll guess anyways. Brokers are typically small businesses like the family shop I own. I don’t have money for lobbyists, and until recently our Association has been weak (more on this soon). Banks and Lenders do. So let’s write a consumer protection law to look like we’re doing something, when in fact it only impacts a small percentage of the loans that are originated.

The Good News

The good news is that things are happening on the state level of politics. Not just in Maryland but in state capitals around the country. People want to be heard, and many politicians are listening. So I when I found out about SB0566 and its goal of repealing the law I just spent 500 words babbling about, I e-mailed the sponsoring politician, Senator Andrew Serafini from Washington County, Maryland. To my surprise, I got an immediate response and a request to come testify the following week in front of the finance committee. Pretty cool.

I started asking anyone who knew anything about this sort of stuff. What do I do? How should I prepare? What should I expect? I got lots of great advice, but was told to temper my expectations. It’s a Republican Bill in a Democratic-Controlled State. They’ve tried to pass this the last two years and have gotten nowhere. That’s OK, this is going to be a great experience either way.

On My Way

So I head down to Annapolis, into the State House, sat in the back and waited for my bill to get called. I watched a bill on improvements in public navigational services for the blind go up. Pretty neat. Then there was one on banking regulation. I sat listening in boring agony until I realized that this is probably how the rest of the audience would feel during my bill. All the while thinking, I can do this. I’ve spoken in front of lots of strangers before, no big deal.

Then I got called up, sat at the end of a VERRRRRRRRYYYYYYYYYYYYY long table and the red light for the microphone went on. I was terrified. I could feel my voice shaking. But I made it through it, and I think I did alright. Watch the video here. Cut to the 3:22:00 mark for the good stuff. The Maryland Legislature needs to get on YouTube.

The Anticipation

Then I waited. Expectations were low but I wrote letters of support to as many State Senators as I could, and let’s see what happens.

To my shock, on March 30, 2018 it passed. And on May 26, 2018 it became law. I’ll be damned, it worked.

So there you go. You can now refinance as many times as you please with whoever the hell you want. You’re welcome.

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