093_SB0497

 
                                     LRB093 10650 LRD 10970 b

 1        AN ACT concerning 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    Abusive Home Loan Practices Act.

 6        Section  5.  Legislative  purpose.  It  is the purpose of
 7    this Act to protect homeowners against abusive  practices  on
 8    high-cost home loans.

 9        Section 10.  Definitions. As used in this Act:
10        "Affiliate"   means   any   company   that  controls,  is
11    controlled by,  or  is  under  common  control  with  another
12    company, as set forth in the Bank Holding Company Act of 1956
13    (12 USC 1841 et seq.), as amended from time to time.
14        "Bona  fide  discount  points  means loan discount points
15    that:
16             (1)  are knowingly paid  by  the  borrower  for  the
17        express purpose of lowering the interest rate; and
18             (2)  in  fact reduce the interest rate or time-price
19        differential  if  the  reduction  in  the  interest  rate
20        reduces the interest charged  such  that  the  borrower's
21        dollar  amount  of  savings  in interest over the first 4
22        years of the loan is  equal  to  or  exceeds  the  dollar
23        amount of loan discount point paid by the borrower.
24        "Borrower"  means any natural person obligated to repay a
25    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 the
29    obligation is payable at any time.
30        "High-cost home loan" means a loan that exceeds either of
 
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 1    the following thresholds:
 2        (a)  Rate threshold.
 3             (1)  For a first lien  mortgage,  the  trigger  rate
 4        equals  or  exceeds  6 percentage points above the weekly
 5        average yield on 5-year U.S. Treasury Securities;
 6             (2)  For a subordinate mortgage lien or  a  mortgage
 7        secured  solely  by a security interest in a manufactured
 8        home, the trigger rate equals  or  exceeds  8  percentage
 9        points  above  the  weekly  average  yield  on  5-year US
10        Treasury Securities.
11    For the purpose of  this  definition,  the  trigger  rate  is
12    calculated as follows:
13        (i)  For  fixed  rate loans it is the rate as of the date
14    of closing.
15        (ii)  For loans in which the interest rate  varies  based
16    on an index, the trigger rate is the sum of the index rate at
17    the  date of closing plus the maximum margin permitted at any
18    time under the loan agreement.
19        (iii)  For other loans in which the rate may vary at  any
20    time  during  the  term  of the loan, the trigger rate is the
21    maximum rate that may be charged during the term of the loan.
22        (b)  Points and Fees Threshold.
23             (1)  For loans in which the  total  loan  amount  is
24        $30,000  or  more,  the total points and fees on the loan
25        paid by the borrower at or before closing  exceed  3%  of
26        the  total  loan  amount;  except  that up to 2 bona fide
27        discount points paid on loans  with  interest  rates  not
28        more  than  4  percentage points above the weekly average
29        yield on 5-year U.S. Treasury  Securities  shall  not  be
30        included  in  the  calculation  of  points  and  fees  in
31        determining  whether  a  loan exceeds the points and fees
32        threshold.
33             (2)  For loans in which the  total  loan  amount  is
34        less  than $30,000, the total points and fees on the loan
 
                            -3-      LRB093 10650 LRD 10970 b
 1        paid by the borrower at  or  before  closing  exceed  the
 2        lesser  of  $900  or  6% of the total loan amount; except
 3        that up to 2 bona fide discount points paid on loans with
 4        interest rates not more than 4  percentage  points  above
 5        the   weekly   average  yield  on  5-year  U.S.  Treasury
 6        Securities shall not be included in  the  calculation  of
 7        points  and  fees  in  determining  whether or not a loan
 8        exceeds the points and fees threshold.
 9        "Home loan" means a loan, including  an  open-end  credit
10    plan,  other  than  a  reverse mortgage transaction where the
11    total loan amount does not exceed the  conforming  loan  size
12    limit  for  a single-family dwelling as established from time
13    to time by the Federal  National  Mortgage  Association,  and
14    where the loan is secured by:
15             (1)  a  mortgage  or deed of trust on real estate in
16        this State upon which  is  located  or  there  is  to  be
17        located  a  structure  or structures designed principally
18        for occupancy of from one to 4 families that is  or  will
19        be  occupied  by  a  borrower as the borrower's principal
20        dwelling; or
21             (2)  a security interest on a manufactured home that
22        is or will be occupied by a borrower  as  the  borrower's
23        principal dwelling.
24        "Points and fees" means:
25             (1)  all   items  required  to  be  disclosed  under
26        Section 226.4(a) and Section 226.4(b) of Title 12 of  the
27        Code  of  Federal  Regulations,  as  amended from time to
28        time, except interest or the time-price differential;
29             (2)  all charges  for  items  listed  under  Section
30        226.4(c)(7)   of   Title   12  of  the  Code  of  Federal
31        Regulations, as amended from time to time,  but  only  if
32        the  creditor receives direct or indirect compensation in
33        connection with the charge or the charge is  paid  to  an
34        affiliate of the creditor;
 
                            -4-      LRB093 10650 LRD 10970 b
 1             (3)  all compensation paid directly or indirectly to
 2        a  mortgage  broker, including a broker that originates a
 3        home loan in its own name through an advance of funds and
 4        subsequently  assigns  the  home  loan  to   the   person
 5        advancing the funds;
 6             (4)  the  cost  of  all  premiums  financed  by  the
 7        creditor,  directly  or  indirectly  for any credit life,
 8        credit disability, credit unemployment, credit  property,
 9        or  other credit life or health insurance or any payments
10        financed by the creditor directly or indirectly  for  any
11        debt  cancellation  or  suspension agreement or contract,
12        except  insurance  premiums  calculated  and  paid  on  a
13        monthly basis shall not be  considered  financed  by  the
14        creditor; and
15             (5)  the  maximum  prepayment fees or penalties that
16        may be charged or collected under the terms of  the  loan
17        documents.
18        For  open-end loans the points and fees are calculated by
19    adding the total fees charged at closing,  plus  the  maximum
20    additional  fees  that  can  be  charged pursuant to the loan
21    documents during the term of the loan.
22        The term "points and fees" does not include  any  of  the
23    following:  taxes,  filing  fees, recording and other charges
24    and  fees  paid  or  to  be  paid  to  public  officials  for
25    determining the existence of or for perfecting, releasing, or
26    satisfying a security interest or charges paid  to  a  person
27    other  than  the  creditor,  an  affiliate of the creditor, a
28    mortgage broker, or an affiliate of  a  mortgage  broker,  as
29    follows:   fees   for  flood  certification,  fees  for  pest
30    infestation and flood determinations,  appraisal  fees,  fees
31    for  inspections  performed  prior  to  loan  closing, credit
32    report fees, survey fees, attorneys' fees  (if  the  borrower
33    has the right to select the attorney from an approved list or
34    otherwise), notary fees, escrow charges that are not required
 
                            -5-      LRB093 10650 LRD 10970 b
 1    to  be  disclosed under Section 226.4(a) and Section 226.4(b)
 2    of Title  12  of  the  Code  of  Federal  Regulations,  title
 3    insurance  premiums,  or  fire  insurance  or flood insurance
 4    premiums (provided that the conditions in Section 226.4(d)(2)
 5    of Title 12 of the Code of Federal Regulations are met).
 6        "Rate" means the interest rate charged  on  a  home  loan
 7    based on an annual simple interest yield.
 8        "Total  loan  amount" means the principal of a loan minus
 9    the points and fees that are included in the principal amount
10    of the loan. For open-end loans, the total loan amount  shall
11    be  calculated  using  the total line of credit allowed under
12    the home loan.

13        Section 15.  Prohibited acts on all home loans.
14        (a)  No creditor making a home loan may finance, directly
15    or indirectly, any credit  life,  credit  disability,  credit
16    property,  or credit unemployment insurance policy, any other
17    life or health insurance premiums, or any  payments  for  any
18    debt   cancellation  or  suspension  agreement  or  contract.
19    Insurance premiums not included in the  home  loan  principal
20    and  calculated  and  paid  on  a  monthly basis shall not be
21    considered financed by the  creditor  for  purposes  of  this
22    subsection (a).
23        (b)  No  creditor  may  charge  a  late  payment  fee  in
24    violation of the following provisions:
25             (1)  he  late payment fee may not be in excess of 4%
26        of the amount of the payment past due;
27             (2)  The fee may only be assessed for a payment past
28        due for 15 days or more;
29             (3)  The fee may not be charged more than once  with
30        respect  to  a  single  late  payment.  If a late payment
31        charge is deducted from a payment on  the  loan  and  the
32        deduction  causes  a  subsequent  default on a subsequent
33        payment, no late payment charge may be imposed  for  that
 
                            -6-      LRB093 10650 LRD 10970 b
 1        default.  If  a late payment charge has been once imposed
 2        with respect to a particular late payment, no such charge
 3        shall be imposed with respect to any future payment  that
 4        would  have  been  timely  and  sufficient,  but  for the
 5        previous default; and
 6             (4)  no fee  may  be  charged  unless  the  creditor
 7        notifies  the  borrower within 45 days following the date
 8        the payment was due that a late payment charge  has  been
 9        imposed  for  a  particular late payment. No late payment
10        charge may be  collected  if  the  borrower  informs  the
11        creditor that non-payment of an installment is in dispute
12        and  presents  proof of payment within 45 days of receipt
13        of the creditor's notice of the late charge.
14        (c)  No creditor  may  charge  a  fee  for  informing  or
15    transmitting  to any person the balance due to pay off a home
16    loan or to provide a release upon prepayment. Payoff balances
17    shall be provided within a reasonable time, but in any  event
18    not more than 7 business days after the request.
19        (d)  No  creditor  may  make a high-cost home loan if the
20    home loan pays off all or part of an existing home  loan  and
21    the  borrower  does not receive a reasonable and tangible net
22    benefit  from  the  new  home  loan   considering   all   the
23    circumstances,  including the terms of both the new home loan
24    and the refinanced debt, the cost of the new home  loan,  and
25    the borrower's circumstances.
26        (e)  No  creditor shall recommend or encourage default on
27    an existing loan or other debt prior to or in connection with
28    the closing or planned closing of a home loan that refinances
29    all or any portion of such existing loan or debt.
30        (f)  No high-cost home loan may contain a provision  that
31    increases  the  interest  rate  after default. This provision
32    does not apply to interest rate changes in  a  variable  rate
33    loan  where  the  increase  is  otherwise consistent with the
34    provisions of the loan documents, provided that the event  of
 
                            -7-      LRB093 10650 LRD 10970 b
 1    default  or  the  acceleration  of  the indebtedness does not
 2    trigger the change in the interest rate.
 3        (g)  No home loan may contain a  provision  that  permits
 4    the  creditor,  in  its  sole  discretion,  to accelerate the
 5    indebtedness. This provision does not  prohibit  acceleration
 6    of  the  loan  in good faith due to the borrower's failure to
 7    abide by the material terms of the loan.

 8        Section 20.  Prohibited acts on high-cost home loans.
 9        (a)  No creditor  making  a  high-cost  home  loan  shall
10    directly or indirectly finance more than 3% of the total loan
11    amount in points or fees.
12        (b)  No prepayment fees or penalties shall be included in
13    the loan documents for a high-cost home loan.
14        (c)  No  high-cost  home  loan  may  contain  a scheduled
15    payment that is more than twice as large as  the  average  of
16    earlier  scheduled payments. This provision does not apply if
17    the payment schedule is adjusted to the seasonal or irregular
18    income of the borrower.
19        (d)  No high-cost home loan  may  include  payment  terms
20    under  which  the outstanding principal balance will increase
21    at any time over the course of the loan because  the  regular
22    periodic  payments  do  not  cover  the  full  amount  of the
23    interest due.
24        (e)  No creditor may make a high-cost home  loan  if  the
25    new  loan  refinances an existing home loan that is a special
26    mortgage originated, subsidized, or guaranteed by or  through
27    a   state,  tribal,  or  local  government  or  a  non-profit
28    organization  if  the  loan  either  (1)  bears  non-standard
29    payment terms beneficial to the borrower, including  but  not
30    limited to payments that vary with income or are limited to a
31    percentage  of  income  or (2) where no payments are required
32    under specified conditions, and where, as  a  result  of  the
33    refinancing,  the  borrower  will  lose  one  or  more of the
 
                            -8-      LRB093 10650 LRD 10970 b
 1    benefits of the mortgage.
 2        (f)  No high-cost home loan may include terms under which
 3    more than 2 periodic payments required  under  the  loan  are
 4    consolidated  and  paid  in  advance  from  the loan proceeds
 5    provided to the borrower.
 6        (g)  No high-cost home loan may contain a provision  that
 7    allows   a  party  to  require  a  borrower,  whether  acting
 8    individually or on behalf of others  similarly  situated,  to
 9    assert  any  claim  or  defense  in  a  forum  that  is  less
10    convenient,  more costly, or more dilatory for the resolution
11    of a dispute than a judicial forum established in this  State
12    where  the borrower may otherwise properly bring the claim or
13    defense or limits  in  any  way  any  claim  or  defense  the
14    borrower may have.
15        (h)  No  creditor  may make a high-cost home loan without
16    due regard to repayment ability. Such a determination by  the
17    creditor must be based upon a consideration of the borrower's
18    current  and expected income, current obligations, employment
19    status,  and  other  financial  resources  (other  than   the
20    borrower's  equity in the home). A borrower shall be presumed
21    to be able to make the scheduled payments if, at the time the
22    loan is made, or at the time of the first rate adjustment  in
23    the   case   of  a  lower  introductory  interest  rate,  the
24    borrower's scheduled monthly payments on the loan  (including
25    principal,   interest,  taxes,  insurance,  and  assessments)
26    combined with the scheduled payments for all other  debt,  do
27    not  exceed  50%  of  the  borrower's documented and verified
28    monthly  gross  income,  provided  that  the   borrower   has
29    sufficient  residual  income  as  defined  in  the guidelines
30    established in 38 CFR 36.4337(e) and VA form 26-6393  to  pay
31    essential monthly expenses after paying the scheduled monthly
32    payments and any additional debt.
33        (i)  No  creditor  may make a high-cost home loan without
34    first receiving written  certification  from  an  independent
 
                            -9-      LRB093 10650 LRD 10970 b
 1    housing  or  credit  counselor  approved by the United States
 2    Department of Housing and Urban Development or  the  Illinois
 3    Housing   Finance  Agency  that  the  borrower  has  received
 4    counseling on the advisability of the loan transaction.
 5        (j)  No creditor may charge a borrower any fees or  other
 6    charges  to  modify, renew, extend, or amend a high-cost home
 7    loan or to defer  any  payment  due  under  the  terms  of  a
 8    high-cost home loan.
 9        (k)  No  creditor  making a high-cost home loan shall pay
10    proceeds of a high-cost  home  loan  to  a  home  improvement
11    contractor  other than (1) by an instrument payable solely to
12    the borrower or borrowers, or (2)  at  the  election  of  the
13    borrower  or borrowers, through a third-party escrow agent in
14    accordance with terms  established  in  a  written  agreement
15    signed  by  the  borrower  and  the  contractor  prior to the
16    disbursement.
17        (l)  No creditor making a high-cost home loan may steer a
18    borrower into a loan with higher costs than the  lowest  cost
19    category  of  loans for which the borrower could qualify with
20    that creditor or any of its affiliates. No broker arranging a
21    high-cost home loan may steer a borrower  into  a  loan  with
22    higher costs than the lowest cost array of loans available to
23    that  borrower  from  the  creditors  with  whom  the  broker
24    regularly does business.

25        Section 25.  Enforcement and remedies.
26        (a)  Any violation of this Act constitutes a violation of
27    the Consumer Fraud and Deceptive Business Practices Act.
28        (b)  Any  person  found by a preponderance of evidence to
29    have violated this Act shall be liable to  the  borrower  for
30    the following:
31             (1)  actual  damages  sustained by the borrower as a
32        result of the violation;
33             (2)  statutory damages equal to the finance  charges
 
                            -10-     LRB093 10650 LRD 10970 b
 1        agreed  to  in  the  home loan agreement, plus 10% of the
 2        amount financed for willful and knowing violations;
 3             (3)  punitive damages if the violation was malicious
 4        or reckless;
 5             (4)  reasonable costs and attorneys' fees; and
 6             (5)  if the court deems it appropriate,  injunctive,
 7        declaratory,  and  other equitable relief in an action to
 8        enforce compliance.
 9        (c)  The intentional violation of this Act renders a home
10    loan agreement void, and the creditor shall have no rights to
11    collect, receive, or retain any principal, interest, or other
12    charges whatsoever with respect to the loan, and the borrower
13    may recover any payments made under the agreement. Loan terms
14    that violate the Act's protections are unenforceable,  and  a
15    court  may issue orders to reform any terms to bring the loan
16    into compliance.
17        (d)  The rights of rescission  granted  under  15  U.S.C.
18    1601,  et  seq.,  for  violations  of  that law and all other
19    remedies provided  in  this  Act  shall  be  available  to  a
20    borrower  by way of recoupment against a party foreclosing on
21    a home loan or collecting on the loan at any time during  the
22    term of the loan.
23        (e)  A  borrower  may also assert a violation of this Act
24    as a defense, bar, or counter-claim to  any  default  action,
25    collection  action,  or  judicial or non judicial foreclosure
26    action in connection with a home loan.
27        (f)  The remedies provided under this Act are cumulative.
28    The protections and remedies provided under this Act  are  in
29    addition  to  other  protections  and  remedies  that  may be
30    otherwise  available  under  law.  Nothing  in  this  Act  is
31    intended to limit the rights of any injured person to recover
32    damages or pursue any other legal or equitable  action  under
33    any other applicable law or legal theory.
34        (g)  Any  person who purchases or is otherwise assigned a
 
                            -11-     LRB093 10650 LRD 10970 b
 1    home loan shall be subject  to  all  affirmative  claims  and
 2    defenses  with  respect  to  the loan that the borrower could
 3    assert against the creditor or broker of the loan.
 4        (h)  A violation of this Section constitutes grounds  for
 5    licensing  actions and other enforcement procedures according
 6    to the administrative procedures provided by Illinois law.

 7        Section 30.  Corrections and unintentional violations.  A
 8    creditor in a home loan who, when acting in good faith, fails
 9    to comply with the provisions of this Act, will not be deemed
10    to  have  violated  the  Act if the creditor establishes that
11    either:
12             (1)  within 30 days of the loan closing and prior to
13        receiving any notice from the borrower of the  compliance
14        failure, the creditor has made appropriate restitution to
15        the borrower, and appropriate adjustments are made to the
16        loan; or
17             (2)  within 60 days of the loan closing and prior to
18        receiving  any notice from the borrower of the compliance
19        failure, if the compliance failure  was  not  intentional
20        and  resulted  from a bona fide error notwithstanding the
21        maintenance of procedures  reasonably  adapted  to  avoid
22        such   errors,   the   creditor   has   made  appropriate
23        restitution to the borrower and  appropriate  adjustments
24        are  made  to  the  loan.  Examples  of a bona fide error
25        include, but are not limited to,  clerical,  calculation,
26        computer   malfunction   and  programming,  and  printing
27        errors. An error of legal  judgment  with  respect  to  a
28        person's  obligations  under  this Act is not a bona fide
29        error.

30        Section 35.  Severability. The  provisions  of  this  Act
31    shall  be  severable, and if any clause, sentence, paragraph,
32    or part of this Act, or the application thereof to any person
 
                            -12-     LRB093 10650 LRD 10970 b
 1    or circumstance, shall for any reason be adjudged by a  court
 2    of  competent jurisdiction to be invalid, such judgment shall
 3    not affect, impair or invalidate the remainder  of  this  Act
 4    nor  the  application of such clause, sentence, paragraph, or
 5    part to other persons or circumstances but shall be  confined
 6    in  its operation to the clause, sentence, paragraph, or part
 7    thereof and to the persons or circumstances directly involved
 8    in the controversy in which such  judgment  shall  have  been
 9    rendered.  If  any  provision  of  this Act is declared to be
10    inapplicable to any specific category, type, or kind of  loan
11    or  points  and  fees,  the  provisions  of  this  Act  shall
12    nonetheless continue to apply with respect to all other loans
13    and points and fees.