97TH GENERAL ASSEMBLY
State of Illinois
2011 and 2012
SB3522

 

Introduced 2/8/2012, by Sen. Jacqueline Y. Collins

 

SYNOPSIS AS INTRODUCED:
 
205 ILCS 635/5-8
815 ILCS 137/10
815 ILCS 137/30
815 ILCS 137/35 new
815 ILCS 137/35.5 new
815 ILCS 137/55
815 ILCS 137/80
815 ILCS 137/80.5 new
815 ILCS 137/80.6 new
815 ILCS 137/90.5 new
815 ILCS 137/145
815 ILCS 205/4.1a  from Ch. 17, par. 6406

    Amends the Residential Mortgage License Act of 1987, the High Risk Home Loan Act, and the Interest Act. Limits the imposition of prepayment penalties in connection with high risk home loans. Limits the size of balloon payments in connection with high risk home loans. Limits the imposition of late fees. Effective January 1, 2013.


LRB097 19115 JLS 64356 b

HOUSING AFFORDABILITY IMPACT NOTE ACT MAY APPLY

 

 

A BILL FOR

 

SB3522LRB097 19115 JLS 64356 b

1    AN ACT concerning business.
 
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 Section 5-8 as follows:
 
6    (205 ILCS 635/5-8)
7    Sec. 5-8. Prepayment penalties.
8    (a) No licensee may make, provide, or arrange a mortgage
9loan with a prepayment penalty unless the licensee offers the
10borrower a loan without a prepayment penalty, the offer is in
11writing, and the borrower initials the offer to indicate that
12the borrower has declined the offer. In addition, the licensee
13must disclose the discount in rate received in consideration
14for a mortgage loan with the prepayment penalty.
15    (b) If a borrower declines an offer required under
16subsection (a) of this Section, the licensee may include,
17except as prohibited by Section 30 of the High Risk Home Loan
18Act, a prepayment penalty that extends no longer than three
19years or the first change date or rate adjustment of a variable
20rate mortgage, whichever comes earlier, provided that, if a
21prepayment is made during the fixed rate period, the licensee
22shall receive an amount that is no more than:
23        (1) 3% of the total loan amount if the prepayment is

 

 

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1    made within the first 12-month period following the date
2    the loan was made;
3        (2) 2% of the total loan amount if the prepayment is
4    made within the second 12-month period following the date
5    the loan was made; or
6        (3) 1% of the total loan amount if the prepayment is
7    made within the third 12-month period following the date
8    the loan was made, if the fixed rate period extends 3
9    years.
10    (c) Notwithstanding any provision in this Section,
11prepayment penalties are prohibited in connection with the sale
12or destruction of a dwelling secured by a residential mortgage
13loan.
14    (d) This Section applies to loans made, refinanced,
15renewed, extended, or modified on or after the effective date
16of this amendatory Act of the 95th General Assembly.
17(Source: P.A. 95-691, eff. 6-1-08.)
 
18    Section 10. The High Risk Home Loan Act is amended by
19changing Sections 10, 30, 55, 80, and 145 and by adding
20Sections 35, 35.5, 80.5, 80.6, and 90.5 as follows:
 
21    (815 ILCS 137/10)
22    Sec. 10. Definitions. As used in this Act:
23    "Approved credit counselor" means a credit counselor
24approved by the Director of Financial Institutions.

 

 

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1    "Bona fide discount points" means loan discount points that
2are knowingly paid by the consumer for the purpose of reducing,
3and that in fact result in a bona fide reduction of, the
4interest rate or time price differential applicable to the
5mortgage.
6    "Borrower" means a natural person who seeks or obtains a
7high risk home loan.
8    "Commissioner" means the Commissioner of the Office of
9Banks and Real Estate.
10    "Department" means the Department of Financial
11Institutions.
12    "Director" means the Director of Financial Institutions.
13    "Good faith" means honesty in fact in the conduct or
14transaction concerned.
15    "High risk home loan" means a consumer credit transaction,
16other than a reverse mortgage, that is secured by the
17consumer's principal dwelling if: home equity loan in which (i)
18at the time of origination, the annual percentage rate exceeds
19by more than 6 percentage points in the case of a first lien
20mortgage, or by more than 8 percentage points in the case of a
21junior mortgage, the yield on U.S. Treasury securities having
22comparable periods of maturity to the loan maturity as of the
23fifteenth day of the month immediately preceding the month in
24which the application for the loan is received by the lender,
25or (ii) the loan documents permit the creditor to charge or
26collect prepayment fees or penalties more than 36 months after

 

 

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1the transaction closing or such fees exceed, in the aggregate,
2more than 2% of the amount prepaid, or (iii) the total points
3and fees payable in connection with the transaction by the
4consumer at or before closing will exceed the greater of 5% of
5the total loan amount or $800, except that bona fide loan
6discount points may be excluded as provided for in Section 35
7of this Act. The $800 figure shall be adjusted annually on
8January 1 by the annual percentage change in the Consumer Price
9Index for All Urban Consumers for all items published by the
10United States Department of Labor. For purposes of this
11definition, the annual percentage rate of interest shall be
12determined based on the following rate: (i) in the case of a
13fixed rate transaction in which the annual percentage rate will
14not vary during the term of the loan, the interest rate in
15effect on the date of consummation of the transaction; (ii) in
16the case of a transaction in which the rate of interest varies
17solely in accordance with an index, the interest rate
18determined by adding the index rate in effect on the date of
19consummation of the transaction to the maximum margin permitted
20at any time during the loan agreement; and (iii) in the case of
21any other transaction in which the rate may vary at any time
22during the term of the loan for any reason, the interest
23charged on the transaction at the maximum rate that may charged
24during the term of the loan. "High risk home loan" does not
25include a loan that is made primarily for a business purpose
26unrelated to the residential real property securing the loan or

 

 

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1to an open-end credit plan subject to 12 CFR 226 (2000, no
2subsequent amendments or editions are included).
3    "Home equity loan" means any loan secured by the borrower's
4primary residence where the proceeds are not used as purchase
5money for the residence.
6    "Lender" means a natural or artificial person who
7transfers, deals in, offers, or makes a high risk home loan.
8"Lender" includes, but is not limited to, creditors and brokers
9who transfer, deal in, offer, or make high risk home loans.
10"Lender" does not include purchasers, assignees, or subsequent
11holders of high risk home loans.
12    "Office" means the Office of Banks and Real Estate.
13    "Points and fees" means all items considered required to be
14disclosed as points and fees under 12 CFR 226.32 (2000, or as
15initially amended pursuant to Section 1431 of the federal
16Dodd-Frank Act with no subsequent amendments or editions
17included, whichever is later); the premium of any single
18premium credit life, credit disability, credit unemployment,
19or any other life or health insurance that is financed directly
20or indirectly into the loan; and compensation paid directly or
21indirectly by a consumer or creditor to a mortgage broker from
22any source, including a broker that originates a loan in its
23own name in a table-funded transaction, not otherwise included
24in 12 CFR 226.4; the maximum prepayment fees and penalties that
25may be charged or collected under the terms of the credit
26transaction; all prepayment fees or penalties that are incurred

 

 

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1by the consumer if the loan refinances a previous loan made or
2currently held by the same creditor or an affiliate of the
3creditor; and premiums or other charges payable at or before
4closing, including premiums or charges financed directly or
5indirectly into the loan, for any credit life, credit
6disability, credit unemployment, credit property, other
7accident, loss of income, life, or health insurance or payments
8directly or indirectly for any debt cancellation or suspension
9agreement or contract, except that insurance premiums or debt
10cancellation or suspension fees calculated and paid in full on
11a monthly basis shall not be considered financed by the
12creditor. "Points and fees" does not include any insurance
13premium provided by an agency of the Federal Government or an
14agency of a State; any insurance premium paid by the consumer
15after closing; and any amount of a premium, charge, or fee that
16is not in excess of the amount payable under policies in effect
17at the time of origination under Section 203(c)(2)(A) of the
18National Housing Act (12 U.S.C. 1709(c)(2)(A)), provided that
19the premium, charge, or fee is required to be refundable on a
20pro-rated basis and the refund is automatically issued upon
21notification of the satisfaction of the underlying mortgage
22loan.
23    "Reasonable" means fair, proper, just, or prudent under the
24circumstances.
25    "Servicer" means any entity chartered under the Illinois
26Banking Act, the Savings Bank Act, the Illinois Credit Union

 

 

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1Act, or the Illinois Savings and Loan Act of 1985 and any
2person or entity licensed under the Residential Mortgage
3License Act of 1987, the Consumer Installment Loan Act, or the
4Sales Finance Agency Act who is responsible for the collection
5or remittance for, or has the right or obligation to collect or
6remit for, any lender, note owner, or note holder or for a
7licensee's own account, of payments, interest, principal, and
8trust items (such as hazard insurance and taxes on a
9residential mortgage loan) in accordance with the terms of the
10residential mortgage loan, including loan payment follow-up,
11delinquency loan follow-up, loan analysis, and any
12notifications to the borrower that are necessary to enable the
13borrower to keep the loan current and in good standing.
14    "Total loan amount" has the same meaning as that term is
15given in 12 CFR 226.32 and shall be calculated in accordance
16with the Federal Reserve Board's Official Staff Commentary to
17that regulation.
18(Source: P.A. 93-561, eff. 1-1-04.)
 
19    (815 ILCS 137/30)
20    Sec. 30. No prepayment Prepayment penalty. A high risk home
21loan may not contain terms under which a consumer must pay a
22prepayment penalty for paying all or part of the principal
23before the date on which the principal is due. For purposes of
24this Section, any method of computing a refund of unearned
25scheduled interest is a prepayment penalty if it is less

 

 

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1favorable to the consumer than the actuarial method as that
2term is defined by Section 933(d) of the federal Housing and
3Community Development Act of 1992, 15 U.S.C. 1615(d). For any
4loan that is subject to the provisions of this Act and is not
5subject to the provisions of the Home Ownership and Equity
6Protection Act of 1994, no lender shall make a high risk home
7loan that includes a penalty provision for payment made: (i)
8after the expiration of the 36-month period following the date
9the loan was made; or (ii) that is more than:
10        (1) 3% of the total loan amount if the prepayment is
11    made within the first 12-month period following the date
12    the loan was made;
13        (2) 2% of the total loan amount if the prepayment is
14    made within the second 12-month period following the date
15    the loan was made; or
16        (3) 1% of the total loan amount if the prepayment is
17    made within the third 12-month period following the date
18    the loan was made.
19(Source: P.A. 93-561, eff. 1-1-04.)
 
20    (815 ILCS 137/35 new)
21    Sec. 35. Bona fide discount points. For the purposes of
22determining whether the amount of points and fees meets the
23definition of "high risk home loan" under this Act, either the
24amounts described in paragraph (1) or (2) of this Section, but
25not both, shall be excluded:

 

 

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1        (1) Up to and including 2 bona fide discount points
2    payable by the consumer in connection with the mortgage,
3    but only if the interest rate from which the mortgage's
4    interest rate will be discounted does not exceed by more
5    than one percentage point:
6            (A) the average prime offer rate, as defined in
7        Section 129C of the federal Truth in Lending Act (15
8        U.S.C. 1639); or
9            (B) if secured by a personal property loan, the
10        average rate on a loan in connection with which
11        insurance is provided under Title I of the National
12        Housing Act (12 U.S.C. 1702 et seq.).
13        (2) Unless 2 bona fide discount points have been
14    excluded under paragraph (1), up to and including one bona
15    fide discount point payable by the consumer in connection
16    with the mortgage, but only if the interest rate from which
17    the mortgage's interest rate will be discounted does not
18    exceed by more than 2 percentage points:
19            (A) the average prime offer rate, as defined in
20        Section 129C of the federal Truth in Lending Act (15
21        U.S.C. 1639); or
22            (B) if secured by a personal property loan, the
23        average rate on a loan in connection with which
24        insurance is provided under Title I of the National
25        Housing Act (12 U.S.C. 1702 et seq.).
26    Paragraphs (1) and (2) shall not apply to discount points

 

 

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1used to purchase an interest rate reduction unless the amount
2of the interest rate reduction purchased is reasonably
3consistent with established industry norms and practices for
4secondary mortgage market transactions.
 
5    (815 ILCS 137/35.5 new)
6    Sec. 35.5. No balloon payments. No high risk home loan may
7contain a scheduled payment that is more than twice as large as
8the average of earlier scheduled payments. This Section does
9not apply when the payment schedule is adjusted to the seasonal
10or irregular income of the consumer.
 
11    (815 ILCS 137/55)
12    Sec. 55. Financing of points and fees. No lender shall
13transfer, deal in, offer, or make a high risk home loan that
14finances points and fees in excess of 6% of the total loan
15amount. No lender shall transfer, deal in, offer, or make a
16high risk home loan that finances any points and fees if the
17creditor or an affiliate of the creditor is the noteholder of
18the note being financed. No lender shall transfer, deal in,
19offer, or make a high risk home loan that finances any
20prepayment fee or penalty payable by the consumer in a
21refinancing transaction.
22(Source: P.A. 93-561, eff. 1-1-04.)
 
23    (815 ILCS 137/80)

 

 

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1    Sec. 80. Late payment fee. A lender shall not transfer,
2deal in, offer, or make a high risk home loan that provides for
3a late payment fee, except under the following conditions:
4        (1) the late payment fee shall not be in excess of 4%
5    5% of the amount of the payment past due;
6        (2) the late payment fee shall only be assessed for a
7    payment past due for 15 days or more;
8        (3) the late payment fee shall not be imposed more than
9    once with respect to a single late payment;
10        (4) a late payment fee that the lender has collected
11    shall be reimbursed if the borrower presents proof of
12    having made a timely payment; and
13        (5) a lender shall treat each payment as posted on the
14    same business day as it was received by the lender,
15    servicer, or lender's agent or at the address provided to
16    the borrower by the lender, servicer, or lender's agent for
17    making payments.
18(Source: P.A. 93-561, eff. 1-1-04.)
 
19    (815 ILCS 137/80.5 new)
20    Sec. 80.5. Coordination with subsequent late fees. If a
21payment is otherwise a full payment for the applicable period,
22is paid on its due date or within an applicable grace period,
23and the only delinquency or insufficiency of payment is
24attributable to any late fee or delinquency charge assessed on
25any earlier payment, no late fee or delinquency charge may be

 

 

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1imposed on the payment.
 
2    (815 ILCS 137/80.6 new)
3    Sec. 80.6. Failure to make installment payment. If, in the
4case of a loan agreement the terms of which provide that any
5payment shall first be applied to any past principal balance,
6the consumer fails to make an installment payment and the
7consumer subsequently resumes making installment payments but
8has not paid all past due installments, the creditor may impose
9a separate late payment charge or fee for any principal due
10(without deduction due to late fees or related fees) until the
11default is cured.
 
12    (815 ILCS 137/90.5 new)
13    Sec. 90.5. Modification and deferral fees prohibited. A
14lender, successor in interest, assignee, or any agent of any of
15the foregoing may not charge a consumer any fee to modify,
16renew, extend, or amend a high risk home loan or to defer any
17payment due under the terms of the loan.
 
18    (815 ILCS 137/145)
19    Sec. 145. Subterfuge prohibited. No lender, with the intent
20to avoid the application or provisions of this Act, shall (i)
21divide a loan transaction into separate parts, or (ii)
22structure a loan transaction as an open-end credit plan or
23another form of loan, or (iii) perform any other subterfuge.

 

 

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1(Source: P.A. 93-561, eff. 1-1-04.)
 
2    Section 15. The Interest Act is amended by changing Section
34.1a as follows:
 
4    (815 ILCS 205/4.1a)  (from Ch. 17, par. 6406)
5    Sec. 4.1a. Charges for and cost of the following items paid
6or incurred by any lender in connection with any loan shall not
7be deemed to be charges for or in connection with any loan of
8money referred to in Section 6 of this Act, or charges by the
9lender as a consideration for the loan referred to in this
10Section:
11        (a) hazard, mortgage or life insurance premiums,
12    survey, credit report, title insurance, abstract and
13    attorneys' fees, recording charges, escrow and appraisal
14    fees, and similar charges.
15        (b) in the case of construction loans, in addition to
16    the matters referred to in clause (a) above, the actual
17    cost incurred by the lender for services for making
18    physical inspections, processing payouts, examining and
19    reviewing contractors' and subcontractors' sworn
20    statements and waivers of lien and the like.
21        (c) in the case of any loan made pursuant to the
22    provisions of the Emergency Home Purchase Assistance Act of
23    1974 (Section 313 of the National Housing Act, Chapter B of
24    Title 12 of the United States Code), in addition to the

 

 

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1    matters referred to in paragraphs (a) and (b) of this
2    Section all charges required or allowed by the Government
3    National Mortgage Association, whether designated as
4    processing fees, commitment fees, loss reserve and
5    marketing fees, discounts, origination fees or otherwise
6    designated.
7        (d) in the case of a single payment loan, made for a
8    period of 6 months or less, a regulated financial
9    institution or licensed lender may contract for and receive
10    a maximum charge of $15 in lieu of interest. Such charge
11    may be collected when the loan is made, but only one such
12    charge may be contracted for, received, or collected for
13    any such loan, including any extension or renewal thereof.
14        (e) if the agreement governing the loan so provides, a
15    charge not to exceed the rate permitted under Section 3-806
16    of the Uniform Commercial Code-Commercial Paper for any
17    check, draft or order for the payment of money submitted in
18    accordance with said agreement which is unpaid or not
19    honored by a bank or other depository institution.
20        (f) if the agreement governing the loan so provides,
21    for each loan installment in default for a period of not
22    less than 10 days, a charge in an amount not in excess of
23    5% of such loan installment. Only one delinquency charge
24    may be collected on any such loan installment regardless of
25    the period during which it remains in default. Payments
26    timely received by the lender under a written extension or

 

 

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1    deferral agreement shall not be subject to any delinquency
2    charge.
3    Notwithstanding items (k) and (l) of subsection (1) of
4Section 4 of this Act, the lender, in the case of any nonexempt
5residential mortgage loan, as defined in Section 1-4 of the
6Residential Mortgage License Act of 1987, other than a high
7risk home loan as defined in Section 10 of the High Risk Home
8Loan Act, shall have the right to include a prepayment penalty
9that extends no longer than the fixed rate period of a variable
10rate mortgage provided that, if a prepayment is made during the
11fixed rate period and not in connection with the sale or
12destruction of the dwelling securing the loan, the lender shall
13receive an amount that is no more than:
14        (1) 3% of the total loan amount if the prepayment is
15    made within the first 12-month period following the date
16    the loan was made;
17        (2) 2% of the total loan amount if the prepayment is
18    made within the second 12-month period following the date
19    the loan was made; or
20        (3) 1% of the total loan amount if the prepayment is
21    made within the third 12-month period following the date
22    the loan was made, if the fixed rate period extends 3
23    years.
24    This Section applies to loans made, refinanced, renewed,
25extended, or modified on or after the effective date of this
26amendatory Act of the 95th General Assembly.

 

 

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1    Where there is a charge in addition to the stated rate of
2interest payable directly or indirectly by the borrower and
3imposed directly or indirectly by the lender as a consideration
4for the loan, or for or in connection with the loan of money,
5whether paid or payable by the borrower, the seller, or any
6other person on behalf of the borrower to the lender or to a
7third party, or for or in connection with the loan of money,
8other than as hereinabove in this Section provided, whether
9denominated "points," "service charge," "discount,"
10"commission," or otherwise, and without regard to declining
11balances of principal which would result from any required or
12optional amortization of the principal of the loan, the rate of
13interest shall be calculated in the following manner:
14    The percentage of the principal amount of the loan
15represented by all of such charges shall first be computed,
16which in the case of a loan with an interest rate in excess of
178% per annum secured by residential real estate, other than
18loans described in paragraphs (e) and (f) of Section 4, shall
19not exceed 3% of such principal amount. Said percentage shall
20then be divided by the number of years and fractions thereof of
21the period of the loan according to its stated maturity. The
22percentage thus obtained shall then be added to the percentage
23of the stated annual rate of interest.
24(Source: P.A. 95-691, eff. 6-1-08.)
 
25    Section 99. Effective date. This Act takes effect January
261, 2013.