093_HB2382

 
                                     LRB093 09194 JLS 09426 b

 1        AN ACT concerning high-cost home loans.

 2        Be  it  enacted  by  the People of the State of Illinois,
 3    represented in the General Assembly:

 4        Section 1.  Short title. This Act may  be  cited  as  the
 5    High-cost Home Loan Abuse Prevention Act.

 6        Section 5.  Definitions. As used in this Act:
 7        "Affiliate"   means   any   company   that  controls,  is
 8    controlled by,  or  is  under  common  control  with  another
 9    company, as set forth in the Bank Holding Company Act of 1956
10    (12 U.S.C. 1841 et seq. ), as amended from time to time.
11        "Bona  fide  discount  points" means loan discount points
12    that:
13             (1)  are knowingly paid  by  the  borrower  for  the
14        express purpose of lowering the interest rate;
15             (2)  in  fact reduce the interest rate or time-price
16        differential; and
17             (3)  with respect to which the reduction is recouped
18        within the first 4 years of the scheduled  loan  payment;
19        that  is,  the reduction in the interest rate reduces the
20        interest charged such that the borrower's  dollar  amount
21        of savings in interest over the first 4 years of the loan
22        is equal to or exceeds the dollar amount of loan discount
23        points paid by the borrower.
24        "Borrower"  means  any  natural person obligated to repay
25    the loan, including a co-borrower, co-signer, or guarantor.
26        "Creditor" means a person  who  extends  consumer  credit
27    that  is  subject  to  a finance charge or that is payable by
28    written agreement in more than 4 installments,  and  to  whom
29    the obligation is payable at any time.
30        "High-cost  home  loan" means a loan that exceeds any one
31    of the following thresholds:
 
                            -2-      LRB093 09194 JLS 09426 b
 1             (1)  Rate threshold:
 2                  (A)  For a first  lien  mortgage,  the  trigger
 3             rate equals or exceeds 6 percentage points above the
 4             weekly   average   yield  on  5-year  U.S.  Treasury
 5             securities.
 6                  (B)  For  a  subordinate  mortgage  lien  or  a
 7             mortgage secured solely by a security interest in  a
 8             manufactured   home,  the  trigger  rate  equals  or
 9             exceeds 8 percentage points above the weekly average
10             yield on 5-year U.S. Treasury securities.
11                  (C)  The trigger rate is calculated as follows:
12                       (i)  for fixed rate loans it is  the  rate
13                  as of the date of closing;
14                       (ii)  for loans in which the interest rate
15                  varies  based  on an index, the trigger rate is
16                  the sum of  the  index  rate  at  the  date  of
17                  closing  plus  the  maximum margin permitted at
18                  any time under the loan agreement.
19                       (iii)  For other loans in which  the  rate
20                  may  vary  at  any  time during the term of the
21                  loan, the trigger rate is the maximum rate that
22                  may be charged during the term of the loan.
23             (2)  Points and fees threshold:
24                  (A)  For loans in which the total  loan  amount
25             is $30,000 or more, the total points and fees on the
26             loan  paid  by  the  borrower  at  or before closing
27             exceed 3% of the total loan amount.
28                  (B)  For loans in which the total  loan  amount
29             is  less  than $30,000, the total points and fees on
30             the loan paid by the borrower at or before  closing,
31             exceed  the  lesser  of $900 or 6% of the total loan
32             amount.
33                  (C)  However up to 2 bona fide discount  points
34             paid  on  loans  with interest rates not more than 4
 
                            -3-      LRB093 09194 JLS 09426 b
 1             percentage points above the weekly average yield  on
 2             5-year   U.S.   Treasury  securities  shall  not  be
 3             included in the calculation of points  and  fees  in
 4             determining whether or not a loan exceeds the points
 5             and fees threshold.
 6        "Home  loan"  means  a loan, including an open-end credit
 7    plan, other than a reverse mortgage  transaction,  where  the
 8    total  loan  amount  does not exceed the conforming loan size
 9    limit for a single-family dwelling as established  from  time
10    to  time  by  the  Federal  National Mortgage Association and
11    where the lien is secured by:
12             (1)  a mortgage or deed of trust on real  estate  in
13        this  State  upon which is or will be located a structure
14        or structures designed principally for occupancy of  from
15        one  to  4  families  that  is  or  will be occupied by a
16        borrower as the borrower's principal dwelling; or
17             (2)  a security interest on a manufactured home that
18        is or will be occupied by a borrower  as  the  borrower's
19        principal dwelling.
20        "Points and fees" means:
21             (1)  all   items  required  to  be  disclosed  under
22        Section 226.4 (a) and Section 226.4(b) of Title 12 of the
23        Code of Federal Regulations,  as  amended  from  time  to
24        time, except interest or the time price differential;
25             (2)  all  charges  for  items  listed  under Section
26        226.4(c)(7)  of  Title  12  of  the   Code   of   Federal
27        Regulations,  as  amended  from time to time, but only if
28        the creditor receives direct or indirect compensation  in
29        connection  with  the  charge or the charge is paid to an
30        affiliate of the creditor;
31             (3)  all compensation paid directly or indirectly to
32        a mortgage broker, including a broker that  originates  a
33        home loan in its own name through an advance of funds and
34        subsequently   assigns   the  home  loan  to  the  person
 
                            -4-      LRB093 09194 JLS 09426 b
 1        advancing the funds;
 2             (4)  the  cost  of  all  premiums  financed  by  the
 3        creditor, directly or indirectly  for  any  credit  life,
 4        credit  disability, credit unemployment, credit property,
 5        or other credit life or health insurance or any  payments
 6        financed  by  the creditor directly or indirectly for any
 7        debt cancellation or suspension  agreement  or  contract,
 8        except  insurance  premiums  calculated  and  paid  on  a
 9        monthly  basis  shall  not  be considered financed by the
10        creditor; and
11             (5)  the maximum prepayment fees or  penalties  that
12        may  be  charged or collected under the terms of the loan
13        documents.
14             (6)  For open-end loans  the  points  and  fees  are
15        calculated  by  adding the total fees charged at closing,
16        plus the maximum additional  fees  that  can  be  charged
17        pursuant  to  the  loan  documents during the term of the
18        loan.
19             (7)  The term "points and fees" does not include any
20        of the following:  taxes,  filing  fees,  recording,  and
21        other  charges  and  fees  paid  or  to be paid to public
22        officials  for  determining  the  existence  of,  or  for
23        perfecting, releasing, or satisfying a security interest;
24        or charges paid to a person other than the  creditor,  an
25        affiliate  of  the  creditor,  a  mortgage  broker, or an
26        affiliate of a mortgage  broker,  as  follows:  fees  for
27        flood  certification; fees for pest infestation and flood
28        determinations;  appraisal  fees;  fees  for  inspections
29        performed prior to  loan  closing;  credit  report  fees;
30        survey  fees;  attorneys'  fees  (if the borrower has the
31        right to select the attorney from  an  approved  list  or
32        otherwise);  notary  fees;  escrow  charges  that are not
33        required to be  disclosed  under  Sections  226.4(a)  and
34        226.4(b)  of Title 12 of the Code of Federal Regulations;
 
                            -5-      LRB093 09194 JLS 09426 b
 1        title insurance premiums;  or  fire  insurance  or  flood
 2        insurance  premiums  (provided  that  the  conditions  in
 3        Section  226.4(d)  (2) of Title 12 of the Code of Federal
 4        Regulations are met).
 5        "Rate" means the interest rate charged on the home  loan,
 6    based on an annual simple interest yield.
 7        "Total loan amount" means the principal of the loan minus
 8    those  points  and  fees  that  are included in the principal
 9    amount of the loan. For open-end loans, the total loan amount
10    shall be calculated using the total line  of  credit  allowed
11    under the home loan.

12        Section 10.  Prohibited acts on all home loans.
13        (a)  No creditor making a home loan may finance, directly
14    or  indirectly,  any  credit  life, credit disability, credit
15    property, or credit unemployment  insurance  policy,  or  any
16    other  life or health insurance premiums, or any payments for
17    any debt cancellation or suspension  agreement  or  contract.
18    Insurance  premiums  not  included in the home loan principal
19    and calculated and paid on  a  monthly  basis  shall  not  be
20    considered  financed  by  the  creditor  for purposes of this
21    subsection.
22        (b)  No  creditor  may  charge  a  late  payment  fee  in
23    violation of any of the following rules:
24             (1)  The late payment fee may not be in excess of 4%
25        of the amount of the payment past due;
26             (2)  The fee may only be assessed for a payment past
27        due for 15 days or more;
28             (3)  The fee may not be charged more than once  with
29        respect  to  a  single  late  payment.  If a late payment
30        charge is deducted from a payment on the loan,  and  such
31        deduction  causes  a  subsequent  default on a subsequent
32        payment, no late payment charge may be imposed  for  such
33        default.  If  a late payment charge has been once imposed
 
                            -6-      LRB093 09194 JLS 09426 b
 1        with respect to a particular late payment, no such charge
 2        shall be imposed with respect to any future payment  that
 3        would  have  been  timely  and  sufficient,  but  for the
 4        previous default.
 5             (4)  No fee  may  be  charged  unless  the  creditor
 6        notifies  the  borrower within 45 days following the date
 7        the payment was due that a late payment charge  has  been
 8        imposed  for  a  particular late payment. No late payment
 9        charge may be  collected  if  the  borrower  informs  the
10        creditor that non-payment of an installment is in dispute
11        and  presents  proof of payment within 45 days of receipt
12        of the creditor's notice of the late charge.
13        (c)  No creditor  may  charge  a  fee  for  informing  or
14    transmitting  to any person the balance due to pay off a home
15    loan or to provide a release upon repayment. Payoff  balances
16    shall  be provided within a reasonable time, but in any event
17    not more than 7 business days after the request.
18        (d)  No creditor may make a high-cost home  loan  if  the
19    home  loan  pays off all or part of an existing home loan and
20    the borrower does not receive a reasonable and  tangible  net
21    benefit   from   the   new  home  loan  considering  all  the
22    circumstances, including the terms of both the new home  loan
23    or  loans  and  the refinanced debt, the cost of the new home
24    loan or loans, and the borrower's circumstances.
25        (e)  No creditor shall recommend or encourage default  on
26    an existing loan or other debt prior to or in connection with
27    the closing or planned closing of a home loan that refinances
28    all or any portion of such existing loan or debt.
29        (f)  No  high-cost home loan may contain a provision that
30    increases the interest rate  after  default.  This  provision
31    does  not  apply  to interest rate charges in a variable rate
32    loan when the  increase  is  otherwise  consistent  with  the
33    provisions  of the loan documents, provided that the event of
34    default or the acceleration  of  the  indebtedness  does  not
 
                            -7-      LRB093 09194 JLS 09426 b
 1    trigger the change in the interest rate.
 2        (g)  No  home  loan  may contain a provision that permits
 3    the creditor, in  its  sole  discretion,  to  accelerate  the
 4    indebtedness.  This  provision does not prohibit acceleration
 5    of the loan in good faith due to the  borrower's  failure  to
 6    abide by the material terms of the loan.

 7        Section 15.  Prohibited acts on high-cost home loans.
 8        (a)  No   creditor  making  a  high-cost  home  loan  may
 9    directly or indirectly finance more than 3% of the total loan
10    amount in points or fees.
11        (b)  No prepayment fees of penalties may be  included  in
12    the loan documents for a high-cost home loan.
13        (c)  No  high-cost  home  loan  may  contain  a scheduled
14    payment that is more than twice as large as  the  average  of
15    earlier  scheduled  payments.  This  provision does not apply
16    when the payment schedule is  adjusted  to  the  seasonal  or
17    irregular income of the borrower.
18        (d)  No  high-cost  home  loan  may include payment terms
19    under which the outstanding principal balance  will  increase
20    at  any  time over the course of the loan because the regular
21    periodic payments  do  not  cover  the  full  amount  of  the
22    interest due.
23        (e)  No  creditor  may  make a high-cost home loan if the
24    new loan refinances an existing home loan that is  a  special
25    mortgage  originated, subsidized, or guaranteed by or through
26    a  state,  tribal,  or  local   government,   or   non-profit
27    organization,  which  either bears non-standard payment terms
28    beneficial to the borrower, such as payments which vary  with
29    income  or are limited to a percentage of income, or where no
30    payments are required under specified conditions, and  where,
31    as a result of the refinancing, the borrower will lose one or
32    more of the benefits of the mortgage.
33        (f)  No high-cost home loan may include terms under which
 
                            -8-      LRB093 09194 JLS 09426 b
 1    more  than  2  periodic  payments required under the loan are
 2    consolidated and paid  in  advance  from  the  loan  proceeds
 3    provided to the borrower.
 4        (g)  No  high-cost home loan may contain a provision that
 5    allows a party to require a borrower, whether he  or  she  is
 6    acting   individually   or  on  behalf  of  others  similarly
 7    situated, to assert any claim or defense in a forum  that  is
 8    less  convenient,  more  costly,  or  more  dilatory  for the
 9    resolution of a dispute than a judicial forum established  in
10    this  State  where  the borrower may otherwise properly bring
11    the claim or defense or  limits  in  any  way  any  claim  or
12    defense the borrower may have.
13        (h)  No  creditor  may make a high-cost home loan without
14    due regard to repayment ability. Such a determination by  the
15    creditor must be based upon a consideration of the borrower's
16    current  and expected income, current obligations, employment
17    status,  and  other  financial  resources  (other  than   the
18    borrower's  equity in the home). A borrower shall be presumed
19    to be able to make the scheduled payments if, at the time the
20    loan is made, or at the time of the first rate adjustment  in
21    the   case   of  a  lower  introductory  interest  rate,  the
22    borrower's scheduled monthly payments on the loan  (including
23    principal,   interest,  taxes,  insurance,  and  assessments)
24    combined with the scheduled payments for all other  debt,  do
25    not  exceed  50%  of  the  borrower's documented and verified
26    monthly  gross  income,  provided  that  the   borrower   has
27    sufficient  residual  income,  as  defined  in the guidelines
28    established in 38 C.F.R. 36.4337(e) and VA form  26-6393,  to
29    pay  essential  monthly  expenses  after paying the scheduled
30    monthly payments and any additional debt.
31        (i)  No creditor may make a high-cost home  loan  without
32    first  receiving  written  certification  from an independent
33    housing or credit counselor approved  by  the  United  States
34    Department  of  Housing and Urban Development or the Illinois
 
                            -9-      LRB093 09194 JLS 09426 b
 1    Housing Financing Agency,  that  the  borrower  has  received
 2    counseling on the advisability of the loan transaction.
 3        (j)  No  creditor may charge a borrower any fees or other
 4    charges to modify, renew, extend, or amend a  high-cost  home
 5    loan  or  to  defer  any  payment  due  under  the terms of a
 6    high-cost home loan.
 7        (k)  No creditor making a high-cost home loan  shall  pay
 8    proceeds  of  a  high-cost  home  loan  to a home improvement
 9    contractor other than:
10             (1)  by an instrument payable solely the borrower or
11        borrowers; or
12             (2)  at the election of the borrower  or  borrowers,
13        through  a  third-party  escrow  agent in accordance with
14        terms established in a written agreement  signed  by  the
15        borrower and the contractor prior to the disbursement.
16        (l)  No creditor making a high-cost home loan may steer a
17    borrower  into  a loan with higher costs than the lowest cost
18    category of loans for which the borrower could  qualify  with
19    that creditor or any of its affiliates. No broker arranging a
20    high-cost  home  loan  may  steer a borrower into a loan with
21    higher costs than the lowest cost array of loans available to
22    that  borrower  from  the  creditors  with  whom  the  broker
23    regularly does business.

24        Section 20.  Enforcement and remedies.
25        (a)  A violation of this Act subjects the violator to the
26    civil penalties set forth in this subsection.
27             (1)  Any  violation  of  this  Act   constitutes   a
28        violation  of  the  Consumer Fraud and Deceptive Business
29        Practices Act.
30             (2)  Any person found by a preponderance of evidence
31        to have violated this Act shall be liable to the borrower
32        for the following:
33                  (A)  actual damages sustained by  the  borrower
 
                            -10-     LRB093 09194 JLS 09426 b
 1             as a result of the violation;
 2                  (B)  statutory  damages  equal  to  the finance
 3             charges agreed to in the home loan  agreement,  plus
 4             10%  of  the amount financed for willful and knowing
 5             violations;
 6                  (C)  punitive damages when  the  violation  was
 7             malicious or reckless; and
 8                  (D)  reasonable costs and attorney's fees.
 9        In   addition,   the   court  may,  as  the  court  deems
10    appropriate,  grant  injunctive,   declaratory,   and   other
11    equitable relief in an action to enforce compliance with this
12    Act.
13             (3)  The  intentional  violation of this Act renders
14        the home loan agreement void, and the creditor shall have
15        no rights to collect, receive, or retain  any  principal,
16        interest, or other charges whatsoever with respect to the
17        loan,  and  the  borrower  may  recover any payments made
18        under the agreement. Loan terms that violate  this  Act's
19        protections  are  unenforceable,  and the court may issue
20        orders to  reform  any  terms  to  bring  the  loan  into
21        compliance.
22             (4)  The  rights  of  rescission  granted  under  15
23        U.S.C.  1601  et  seq. for violations of that law and all
24        other remedies provided in this Act shall be available to
25        a  borrower  by  way  of  recoupment  against   a   party
26        foreclosing on the home loan or collecting on the loan at
27        any time during the term of the loan.
28             (5)  A  borrower may also assert a violation of this
29        Act as a defense, bar, or  counterclaim  to  any  default
30        action,  collection  action,  or  judicial or nonjudicial
31        foreclosure action in connection with a home loan.
32             (6)  The  remedies  provided  under  this  Act   are
33        cumulative.  The  protections and remedies provided under
34        this  Act  are  in  addition  to  other  protections  and
 
                            -11-     LRB093 09194 JLS 09426 b
 1        remedies that  may  be  otherwise  available  under  law.
 2        Nothing  in  this  Act is intended to limit the rights of
 3        any injured person to recover damages or pursue any other
 4        legal or equitable action under any other applicable  law
 5        or legal theory.
 6             (7)  Any   person  who  purchases  or  is  otherwise
 7        assigned a home loan shall be subject to all  affirmative
 8        claims  and  defenses  with  respect to the loan that the
 9        borrower could assert against the creditor or  broker  of
10        the loan.
11             (8)  The  violation  of  this  Act  shall constitute
12        grounds  for  licensing  actions  and  other  enforcement
13        procedures according  to  the  administrative  procedures
14        under Illinois law.
15        (b)  A  creditor  in a home loan who, when acting in good
16    faith, fails to comply with the provisions of this Act  shall
17    not  be  deemed  to  have  violated  this Act if the creditor
18    establishes that either:
19             (1)  within 30 days after the loan closing and prior
20        to  receiving  any  notice  from  the  borrower  of   the
21        compliance  failure,  the  creditor  has made appropriate
22        restitution to the borrower and  appropriate  adjustments
23        are made to the loan; or
24             (2)  within 60 days after the loan closing and prior
25        to   receiving  any  notice  from  the  borrower  of  the
26        compliance failure, and that the compliance  failure  was
27        not  intentional  and  resulted  from  a  bona fide error
28        notwithstanding the maintenance of procedures  reasonably
29        adapted  to  avoid  such  errors,  the  creditor has made
30        appropriate restitution to the borrower, and  appropriate
31        adjustments are made to the loan. Examples of a bona fide
32        error include clerical, calculation, computer malfunction
33        programming,  and  printing  errors.  An  error  of legal
34        judgment with respect to  a  person's  obligations  under
 
                            -12-     LRB093 09194 JLS 09426 b
 1        this Act is not a bona fide error.

 2        Section 95.  Severability. The provisions of this Act are
 3    severable under Section 1.31 of the Statute on Statutes.

 4        Section  97.  The  Consumer  Fraud and Deceptive Business
 5    Practices Act is amended by changing Section 2Z as follows:

 6        (815 ILCS 505/2Z) (from Ch. 121 1/2, par. 262Z)
 7        Sec. 2Z.  Violations  of  other  Acts.   Any  person  who
 8    knowingly violates the Automotive Repair Act, the Home Repair
 9    and Remodeling Act, High-cost Home Loan Abuse Prevention Act,
10    the  Dance Studio Act, the Physical Fitness Services Act, the
11    Hearing Instrument  Consumer  Protection  Act,  the  Illinois
12    Union  Label  Act,  the Job Referral and Job Listing Services
13    Consumer  Protection  Act,  the  Travel  Promotion   Consumer
14    Protection  Act,  the  Credit Services Organizations Act, the
15    Automatic Telephone Dialers Act,  the  Pay-Per-Call  Services
16    Consumer Protection Act, the Telephone Solicitations Act, the
17    Illinois  Funeral or Burial Funds Act, the Cemetery Care Act,
18    the Safe and Hygienic Bed Act, the  Pre-Need  Cemetery  Sales
19    Act,  subsection  (a) or (b) of Section 3-10 of the Cigarette
20    Tax Act, subsection  (a)  or  (b)  of  Section  3-10  of  the
21    Cigarette  Use Tax Act, the Electronic Mail Act, or paragraph
22    (6) of subsection  (k)  of  Section  6-305  of  the  Illinois
23    Vehicle  Code commits an unlawful practice within the meaning
24    of this Act.
25    (Source: P.A. 91-164,  eff.  7-16-99;  91-230,  eff.  1-1-00;
26    91-233,  eff.  1-1-00;  91-810,  eff.  6-13-00;  92-426, eff.
27    1-1-02.)