97TH GENERAL ASSEMBLY
State of Illinois
2011 and 2012
SB1603

 

Introduced 2/9/2011, by Sen. Michael W. Frerichs

 

SYNOPSIS AS INTRODUCED:
 
205 ILCS 635/1-3  from Ch. 17, par. 2321-3
205 ILCS 635/1-4

    Amends the Residential Mortgage License Act of 1987. In a provision concerning definitions, that an "exempt person or entity" shall also mean any person or entity that does not originate mortgage loans in the ordinary course of business, but makes or acquires residential mortgage loans with his or her own funds for his or her or its own investment without intent to make, acquire, or resell more than 3 residential mortgage loans in any one calendar year. Makes other changes. Effective immediately.


LRB097 09201 CEL 49336 b

 

 

A BILL FOR

 

SB1603LRB097 09201 CEL 49336 b

1    AN ACT concerning regulation.
 
2    Be it enacted by the People of the State of Illinois,
3represented in the General Assembly:
 
4    Section 5. The Residential Mortgage License Act of 1987 is
5amended by changing Sections 1-3 and 1-4 as follows:
 
6    (205 ILCS 635/1-3)  (from Ch. 17, par. 2321-3)
7    Sec. 1-3. Necessity for License; Scope of Act.
8    (a) No person, partnership, association, corporation or
9other entity shall engage in the business of brokering,
10funding, originating, servicing or purchasing of residential
11mortgage loans without first obtaining a license from the
12Commissioner in accordance with the licensing procedure
13provided in this Article I and such regulations as may be
14promulgated by the Commissioner. The licensing provisions of
15this Section shall not apply to any entity engaged solely in
16commercial mortgage lending or to any person, partnership
17association, corporation or other entity exempted pursuant to
18Section 1-4, subsection (d), of this Act or in accordance with
19regulations promulgated by the Commissioner hereunder. No
20provision of this Act shall apply to an exempt person or entity
21as defined in items (1) and (1.5) of subsection (d) of Section
221-4 of this Act. Notwithstanding anything to the contrary in
23the preceding sentence, an individual acting as a mortgage loan

 

 

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1originator who is not employed by and acting for an entity
2described in item (1) of subsection (tt) of Section 1-4 of this
3Act shall be subject to the mortgage loan originator licensing
4requirements of Article VII of this Act.
5    (b) No person, partnership, association, corporation, or
6other entity except a licensee under this Act or an entity
7exempt from licensing pursuant to Section 1-4, subsection (d),
8of this Act shall do any business under any name or title, or
9circulate or use any advertising or make any representation or
10give any information to any person, which indicates or
11reasonably implies activity within the scope of this Act.
12    (c) The Commissioner may, through the Attorney General,
13request the circuit court of either Cook or Sangamon County to
14issue an injunction to restrain any person from violating or
15continuing to violate any of the foregoing provisions of this
16Section.
17    (d) When the Commissioner has reasonable cause to believe
18that any entity which has not submitted an application for
19licensure is conducting any of the activities described in
20subsection (a) hereof, the Commissioner shall have the power to
21examine all books and records of the entity and any additional
22documentation necessary in order to determine whether such
23entity should become licensed under this Act.
24    (d-1) The Commissioner may issue orders against any person
25if the Commissioner has reasonable cause to believe that an
26unsafe, unsound, or unlawful practice has occurred, is

 

 

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1occurring, or is about to occur, if any person has violated, is
2violating, or is about to violate any law, rule, or written
3agreement with the Commissioner, or for the purposes of
4administering the provisions of this Act and any rule adopted
5in accordance with this Act.
6    (e) Any person, partnership, association, corporation or
7other entity who violates any provision of this Section commits
8a business offense and shall be fined an amount not to exceed
9$25,000.
10    (f) Each person, partnership, association, corporation or
11other entity conducting activities regulated by this Act shall
12be issued one license. Each office, place of business or
13location at which a residential mortgage licensee conducts any
14part of his or her business must be recorded with the
15Commissioner pursuant to Section 2-8 of this Act.
16    (g) Licensees under this Act shall solicit, broker, fund,
17originate, service and purchase residential mortgage loans
18only in conformity with the provisions of this Act and such
19rules and regulations as may be promulgated by the
20Commissioner.
21    (h) This Act applies to all entities doing business in
22Illinois as residential mortgage bankers, as defined by "An Act
23to provide for the regulation of mortgage bankers", approved
24September 15, 1977, as amended, regardless of whether licensed
25under that or any prior Act. Any existing residential mortgage
26lender or residential mortgage broker in Illinois whether or

 

 

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1not previously licensed, must operate in accordance with this
2Act.
3    (i) This Act is a successor Act to and a continuance of the
4regulation of residential mortgage bankers provided in, "An Act
5to provide for the regulation of mortgage bankers", approved
6September 15, 1977, as amended.
7    Entities and persons subject to the predecessor Act shall
8be subject to this Act from and after its effective date.
9(Source: P.A. 96-112, eff. 7-31-09; 96-1216, eff. 1-1-11.)
 
10    (205 ILCS 635/1-4)
11    Sec. 1-4. Definitions.
12    (a) "Residential real property" or "residential real
13estate" shall mean any real property located in Illinois, upon
14which is constructed or intended to be constructed a dwelling.
15    (b) "Making a residential mortgage loan" or "funding a
16residential mortgage loan" shall mean for compensation or gain,
17either directly or indirectly, advancing funds or making a
18commitment to advance funds to a loan applicant for a
19residential mortgage loan.
20    (c) "Soliciting, processing, placing, or negotiating a
21residential mortgage loan" shall mean for compensation or gain,
22either directly or indirectly, accepting or offering to accept
23an application for a residential mortgage loan, assisting or
24offering to assist in the processing of an application for a
25residential mortgage loan on behalf of a borrower, or

 

 

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1negotiating or offering to negotiate the terms or conditions of
2a residential mortgage loan with a lender on behalf of a
3borrower including, but not limited to, the submission of
4credit packages for the approval of lenders, the preparation of
5residential mortgage loan closing documents, including a
6closing in the name of a broker.
7    (d) "Exempt person or entity" shall mean the following:
8        (1) (i) Any banking organization or foreign banking
9    corporation licensed by the Illinois Commissioner of Banks
10    and Real Estate or the United States Comptroller of the
11    Currency to transact business in this State; (ii) any
12    national bank, federally chartered savings and loan
13    association, federal savings bank, federal credit union;
14    (iii) any pension trust, bank trust, or bank trust company;
15    (iv) any bank, savings and loan association, savings bank,
16    or credit union organized under the laws of this or any
17    other state; (v) any Illinois Consumer Installment Loan Act
18    licensee; (vi) any insurance company authorized to
19    transact business in this State; (vii) any entity engaged
20    solely in commercial mortgage lending; (viii) any service
21    corporation of a savings and loan association or savings
22    bank organized under the laws of this State or the service
23    corporation of a federally chartered savings and loan
24    association or savings bank having its principal place of
25    business in this State, other than a service corporation
26    licensed or entitled to reciprocity under the Real Estate

 

 

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1    License Act of 2000; or (ix) any first tier subsidiary of a
2    bank, the charter of which is issued under the Illinois
3    Banking Act by the Illinois Commissioner of Banks and Real
4    Estate, or the first tier subsidiary of a bank chartered by
5    the United States Comptroller of the Currency and that has
6    its principal place of business in this State, provided
7    that the first tier subsidiary is regularly examined by the
8    Illinois Commissioner of Banks and Real Estate or the
9    Comptroller of the Currency, or a consumer compliance
10    examination is regularly conducted by the Federal Reserve
11    Board.
12        (1.5) Any employee of a person or entity mentioned in
13    item (1) of this subsection, when acting for such person or
14    entity, or any registered mortgage loan originator when
15    acting for an entity described in subsection (tt) of this
16    Section.
17        (1.8) Any person or entity that does not originate
18    mortgage loans in the ordinary course of business, but
19    makes or acquires residential mortgage loans with his or
20    her own funds for his or her or its own investment without
21    intent to make, acquire, or resell more than 3 residential
22    mortgage loans in any one calendar year.
23        (2) (Blank).
24        (3) Any person employed by a licensee to assist in the
25    performance of the residential mortgage licensee's
26    activities regulated by this Act who is compensated in any

 

 

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1    manner by only one licensee.
2        (4) (Blank).
3        (5) Any individual, corporation, partnership, or other
4    entity that originates, services, or brokers residential
5    mortgage loans, as these activities are defined in this
6    Act, and who or which receives no compensation for those
7    activities, subject to the Commissioner's regulations and
8    the federal Secure and Fair Enforcement for Mortgage
9    Licensing Act of 2008 and the rules promulgated under that
10    Act with regard to the nature and amount of compensation.
11        (6) (Blank).
12    (e) "Licensee" or "residential mortgage licensee" shall
13mean a person, partnership, association, corporation, or any
14other entity who or which is licensed pursuant to this Act to
15engage in the activities regulated by this Act.
16    (f) "Mortgage loan" "residential mortgage loan" or "home
17mortgage loan" shall mean any loan primarily for personal,
18family, or household use that is secured by a mortgage, deed of
19trust, or other equivalent consensual security interest on a
20dwelling as defined in Section 103(v) of the federal Truth in
21Lending Act, or residential real estate upon which is
22constructed or intended to be constructed a dwelling.
23    (g) "Lender" shall mean any person, partnership,
24association, corporation, or any other entity who either lends
25or invests money in residential mortgage loans.
26    (h) "Ultimate equitable owner" shall mean a person who,

 

 

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1directly or indirectly, owns or controls an ownership interest
2in a corporation, foreign corporation, alien business
3organization, trust, or any other form of business organization
4regardless of whether the person owns or controls the ownership
5interest through one or more persons or one or more proxies,
6powers of attorney, nominees, corporations, associations,
7partnerships, trusts, joint stock companies, or other entities
8or devices, or any combination thereof.
9    (i) "Residential mortgage financing transaction" shall
10mean the negotiation, acquisition, sale, or arrangement for or
11the offer to negotiate, acquire, sell, or arrange for, a
12residential mortgage loan or residential mortgage loan
13commitment.
14    (j) "Personal residence address" shall mean a street
15address and shall not include a post office box number.
16    (k) "Residential mortgage loan commitment" shall mean a
17contract for residential mortgage loan financing.
18    (l) "Party to a residential mortgage financing
19transaction" shall mean a borrower, lender, or loan broker in a
20residential mortgage financing transaction.
21    (m) "Payments" shall mean payment of all or any of the
22following: principal, interest and escrow reserves for taxes,
23insurance and other related reserves, and reimbursement for
24lender advances.
25    (n) "Commissioner" shall mean the Commissioner of Banks and
26Real Estate, except that, beginning on April 6, 2009 (the

 

 

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1effective date of Public Act 95-1047), all references in this
2Act to the Commissioner of Banks and Real Estate are deemed, in
3appropriate contexts, to be references to the Secretary of
4Financial and Professional Regulation, or his or her designee,
5including the Director of the Division of Banking of the
6Department of Financial and Professional Regulation.
7    (n-1) "Director" shall mean the Director of the Division of
8Banking of the Department of Financial and Professional
9Regulation, except that, beginning on July 31, 2009 (the
10effective date of Public Act 96-112), all references in this
11Act to the Director are deemed, in appropriate contexts, to be
12the Secretary of Financial and Professional Regulation, or his
13or her designee, including the Director of the Division of
14Banking of the Department of Financial and Professional
15Regulation.
16    (o) "Loan brokering", "brokering", or "brokerage service"
17shall mean the act of helping to obtain from another entity,
18for a borrower, a loan secured by residential real estate
19situated in Illinois or assisting a borrower in obtaining a
20loan secured by residential real estate situated in Illinois in
21return for consideration to be paid by either the borrower or
22the lender including, but not limited to, contracting for the
23delivery of residential mortgage loans to a third party lender
24and soliciting, processing, placing, or negotiating
25residential mortgage loans.
26    (p) "Loan broker" or "broker" shall mean a person,

 

 

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1partnership, association, corporation, or limited liability
2company, other than those persons, partnerships, associations,
3corporations, or limited liability companies exempted from
4licensing pursuant to Section 1-4, subsection (d), of this Act,
5who performs the activities described in subsections (c) and
6(o) of this Section.
7    (q) "Servicing" shall mean the collection or remittance for
8or the right or obligation to collect or remit for any lender,
9noteowner, noteholder, or for a licensee's own account, of
10payments, interests, principal, and trust items such as hazard
11insurance and taxes on a residential mortgage loan in
12accordance with the terms of the residential mortgage loan; and
13includes loan payment follow-up, delinquency loan follow-up,
14loan analysis and any notifications to the borrower that are
15necessary to enable the borrower to keep the loan current and
16in good standing.
17    (r) "Full service office" shall mean an office, provided by
18the licensee and not subleased from the licensee's employees,
19and staff in Illinois reasonably adequate to handle efficiently
20communications, questions, and other matters relating to any
21application for, or an existing home mortgage secured by
22residential real estate situated in Illinois with respect to
23which the licensee is brokering, funding originating,
24purchasing, or servicing. The management and operation of each
25full service office must include observance of good business
26practices such as proper signage; adequate, organized, and

 

 

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1accurate books and records; ample phone lines, hours of
2business, staff training and supervision, and provision for a
3mechanism to resolve consumer inquiries, complaints, and
4problems. The Commissioner shall issue regulations with regard
5to these requirements and shall include an evaluation of
6compliance with this Section in his or her periodic examination
7of each licensee.
8    (s) "Purchasing" shall mean the purchase of conventional or
9government-insured mortgage loans secured by residential real
10estate situated in Illinois from either the lender or from the
11secondary market.
12    (t) "Borrower" shall mean the person or persons who seek
13the services of a loan broker, originator, or lender.
14    (u) "Originating" shall mean the issuing of commitments for
15and funding of residential mortgage loans.
16    (v) "Loan brokerage agreement" shall mean a written
17agreement in which a broker or loan broker agrees to do either
18of the following:
19        (1) obtain a residential mortgage loan for the borrower
20    or assist the borrower in obtaining a residential mortgage
21    loan; or
22        (2) consider making a residential mortgage loan to the
23    borrower.
24    (w) "Advertisement" shall mean the attempt by publication,
25dissemination, or circulation to induce, directly or
26indirectly, any person to enter into a residential mortgage

 

 

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1loan agreement or residential mortgage loan brokerage
2agreement relative to a mortgage secured by residential real
3estate situated in Illinois.
4    (x) "Residential Mortgage Board" shall mean the
5Residential Mortgage Board created in Section 1-5 of this Act.
6    (y) "Government-insured mortgage loan" shall mean any
7mortgage loan made on the security of residential real estate
8insured by the Department of Housing and Urban Development or
9Farmers Home Loan Administration, or guaranteed by the Veterans
10Administration.
11    (z) "Annual audit" shall mean a certified audit of the
12licensee's books and records and systems of internal control
13performed by a certified public accountant in accordance with
14generally accepted accounting principles and generally
15accepted auditing standards.
16    (aa) "Financial institution" shall mean a savings and loan
17association, savings bank, credit union, or a bank organized
18under the laws of Illinois or a savings and loan association,
19savings bank, credit union or a bank organized under the laws
20of the United States and headquartered in Illinois.
21    (bb) "Escrow agent" shall mean a third party, individual or
22entity charged with the fiduciary obligation for holding escrow
23funds on a residential mortgage loan pending final payout of
24those funds in accordance with the terms of the residential
25mortgage loan.
26    (cc) "Net worth" shall have the meaning ascribed thereto in

 

 

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1Section 3-5 of this Act.
2    (dd) "Affiliate" shall mean:
3        (1) any entity that directly controls or is controlled
4    by the licensee and any other company that is directly
5    affecting activities regulated by this Act that is
6    controlled by the company that controls the licensee;
7        (2) any entity:
8            (A) that is controlled, directly or indirectly, by
9        a trust or otherwise, by or for the benefit of
10        shareholders who beneficially or otherwise control,
11        directly or indirectly, by trust or otherwise, the
12        licensee or any company that controls the licensee; or
13            (B) a majority of the directors or trustees of
14        which constitute a majority of the persons holding any
15        such office with the licensee or any company that
16        controls the licensee;
17        (3) any company, including a real estate investment
18    trust, that is sponsored and advised on a contractual basis
19    by the licensee or any subsidiary or affiliate of the
20    licensee.
21    The Commissioner may define by rule and regulation any
22terms used in this Act for the efficient and clear
23administration of this Act.
24    (ee) "First tier subsidiary" shall be defined by regulation
25incorporating the comparable definitions used by the Office of
26the Comptroller of the Currency and the Illinois Commissioner

 

 

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1of Banks and Real Estate.
2    (ff) "Gross delinquency rate" means the quotient
3determined by dividing (1) the sum of (i) the number of
4government-insured residential mortgage loans funded or
5purchased by a licensee in the preceding calendar year that are
6delinquent and (ii) the number of conventional residential
7mortgage loans funded or purchased by the licensee in the
8preceding calendar year that are delinquent by (2) the sum of
9(i) the number of government-insured residential mortgage
10loans funded or purchased by the licensee in the preceding
11calendar year and (ii) the number of conventional residential
12mortgage loans funded or purchased by the licensee in the
13preceding calendar year.
14    (gg) "Delinquency rate factor" means the factor set by rule
15of the Commissioner that is multiplied by the average gross
16delinquency rate of licensees, determined annually for the
17immediately preceding calendar year, for the purpose of
18determining which licensees shall be examined by the
19Commissioner pursuant to subsection (b) of Section 4-8 of this
20Act.
21    (hh) "Loan originator" means any natural person who, for
22compensation or in the expectation of compensation, either
23directly or indirectly makes, offers to make, solicits, places,
24or negotiates a residential mortgage loan. This definition
25applies only to Section 7-1 of this Act.
26    (ii) "Confidential supervisory information" means any

 

 

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1report of examination, visitation, or investigation prepared
2by the Commissioner under this Act, any report of examination
3visitation, or investigation prepared by the state regulatory
4authority of another state that examines a licensee, any
5document or record prepared or obtained in connection with or
6relating to any examination, visitation, or investigation, and
7any record prepared or obtained by the Commissioner to the
8extent that the record summarizes or contains information
9derived from any report, document, or record described in this
10subsection. "Confidential supervisory information" does not
11include any information or record routinely prepared by a
12licensee and maintained in the ordinary course of business or
13any information or record that is required to be made publicly
14available pursuant to State or federal law or rule.
15    (jj) "Mortgage loan originator" means an individual who for
16compensation or gain or in the expectation of compensation or
17gain:
18        (i) takes a residential mortgage loan application; or
19        (ii) offers or negotiates terms of a residential
20    mortgage loan.
21    "Mortgage loan originator" does not include an individual
22engaged solely as a loan processor or underwriter except as
23otherwise provided in subsection (d) of Section 7-1A of this
24Act.
25    "Mortgage loan originator" does not include a person or
26entity that only performs real estate brokerage activities and

 

 

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1is licensed in accordance with the Real Estate License Act of
22000, unless the person or entity is compensated by a lender, a
3mortgage broker, or other mortgage loan originator, or by any
4agent of that lender, mortgage broker, or other mortgage loan
5originator.
6    "Mortgage loan originator" does not include a person or
7entity solely involved in extensions of credit relating to
8timeshare plans, as that term is defined in Section 101(53D) of
9Title 11, United States Code.
10    (kk) "Depository institution" has the same meaning as in
11Section 3 of the Federal Deposit Insurance Act, and includes
12any credit union.
13    (ll) "Dwelling" means a residential structure or mobile
14home which contains one to 4 family housing units, or
15individual units of condominiums or cooperatives.
16    (mm) "Immediate family member" means a spouse, child,
17sibling, parent, grandparent, or grandchild, and includes
18step-parents, step-children, step-siblings, or adoptive
19relationships.
20    (nn) "Individual" means a natural person.
21    (oo) "Loan processor or underwriter" means an individual
22who performs clerical or support duties as an employee at the
23direction of and subject to the supervision and instruction of
24a person licensed, or exempt from licensing, under this Act.
25"Clerical or support duties" includes subsequent to the receipt
26of an application:

 

 

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1        (i) the receipt, collection, distribution, and
2    analysis of information common for the processing or
3    underwriting of a residential mortgage loan; and
4        (ii) communicating with a consumer to obtain the
5    information necessary for the processing or underwriting
6    of a loan, to the extent that the communication does not
7    include offering or negotiating loan rates or terms, or
8    counseling consumers about residential mortgage loan rates
9    or terms. An individual engaging solely in loan processor
10    or underwriter activities shall not represent to the
11    public, through advertising or other means of
12    communicating or providing information, including the use
13    of business cards, stationery, brochures, signs, rate
14    lists, or other promotional items, that the individual can
15    or will perform any of the activities of a mortgage loan
16    originator.
17    (pp) "Nationwide Mortgage Licensing System and Registry"
18means a mortgage licensing system developed and maintained by
19the Conference of State Bank Supervisors and the American
20Association of Residential Mortgage Regulators for the
21licensing and registration of licensed mortgage loan
22originators.
23    (qq) "Nontraditional mortgage product" means any mortgage
24product other than a 30-year fixed rate mortgage.
25    (rr) "Person" means a natural person, corporation,
26company, limited liability company, partnership, or

 

 

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1association.
2    (ss) "Real estate brokerage activity" means any activity
3that involves offering or providing real estate brokerage
4services to the public, including:
5        (1) acting as a real estate agent or real estate broker
6    for a buyer, seller, lessor, or lessee of real property;
7        (2) bringing together parties interested in the sale,
8    purchase, lease, rental, or exchange of real property;
9        (3) negotiating, on behalf of any party, any portion of
10    a contract relating to the sale, purchase, lease, rental,
11    or exchange of real property, other than in connection with
12    providing financing with respect to any such transaction;
13        (4) engaging in any activity for which a person engaged
14    in the activity is required to be registered or licensed as
15    a real estate agent or real estate broker under any
16    applicable law; or
17        (5) offering to engage in any activity, or act in any
18    capacity, described in this subsection (ss).
19    (tt) "Registered mortgage loan originator" means any
20individual that:
21        (1) meets the definition of mortgage loan originator
22    and is an employee of:
23            (A) a depository institution;
24            (B) a subsidiary that is:
25                (i) owned and controlled by a depository
26            institution; and

 

 

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1                (ii) regulated by a federal banking agency; or
2            (C) an institution regulated by the Farm Credit
3        Administration; and
4        (2) is registered with, and maintains a unique
5    identifier through, the Nationwide Mortgage Licensing
6    System and Registry.
7    (uu) "Unique identifier" means a number or other identifier
8assigned by protocols established by the Nationwide Mortgage
9Licensing System and Registry.
10    (vv) "Residential mortgage license" means a license issued
11pursuant to Section 1-3, 2-2, or 2-6 of this Act.
12    (ww) "Mortgage loan originator license" means a license
13issued pursuant to Section 7-1A, 7-3, or 7-6 of this Act.
14    (xx) "Secretary" means the Secretary of the Department of
15Financial and Professional Regulation, or a person authorized
16by the Secretary or by this Act to act in the Secretary's
17stead.
18(Source: P.A. 95-1047, eff. 4-6-09; 96-112, eff. 7-31-09;
1996-1000, eff. 7-2-10; 96-1216, eff. 1-1-11.)
 
20    Section 99. Effective date. This Act takes effect upon
21becoming law.