State of Illinois
91st General Assembly

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[ Introduced ][ House Amendment 002 ]




 1                    AMENDMENT TO HOUSE BILL 3007

 2        AMENDMENT NO.     .  Amend House Bill 3007  by  replacing
 3    the title with the following:
 4        "AN  ACT  to  create  the  Predatory  Home Loan Practices
 5    Act."; and

 6    by replacing everything after the enacting  clause  with  the
 7    following:

 8        "Section  1.  Short  title.  This Act may be cited as the
 9    Predatory Home Loan Practices Act.

10        Section 5.  Definitions.  As used in this Act:
11        "Affiliate"  means  any   company   that   controls,   is
12    controlled  by,  or  is  under  common  control  with another
13    company, as determined under the Federal Bank Holding Company
14    Act of 1956 (12 U.S.C. 1841 et seq.).
15        "Annual percentage rate" means the annual percentage rate
16    for the loan calculated according to the  provisions  of  the
17    federal  Truth-in-Lending  Act  (15 U.S.C. 1601, et seq.) and
18    the regulations promulgated thereunder by the Federal Reserve
19    Board.
20        "High-cost home loan" means a home  loan  for  which  the
21    annual  percentage rate of the home loan at consummation will
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 1    exceed by more than 6 percentage points  the  weekly  average
 2    yield  on  United  States  Treasury  securities adjusted to a
 3    constant maturity of one  year  (as  made  available  by  the
 4    Federal  Reserve  Board) as of the week immediately preceding
 5    the  week  in  which  the  interest  rate  for  the  loan  is
 6    established.
 7        "Home loan" means a loan, other than an  open-end  credit
 8    plan  or  a  reverse  mortgage transaction, in which: (i) the
 9    principal amount of the loan does not exceed  the  conforming
10    loan  size  limit for a single-family dwelling as established
11    from  time  to  time  by  the   Federal   National   Mortgage
12    Association, (ii) the borrower is a natural person, (iii) the
13    debt  is  incurred  by  the  borrower primarily for personal,
14    family, or household purposes, and (iv) the loan  is  secured
15    by  a  mortgage  or  deed  of trust on real estate upon which
16    there is located or there is to be  located  a  structure  or
17    structures, designed principally for occupancy of from one to
18    4  families,  that  is or will be occupied by the borrower as
19    the borrower's principal dwelling.
20        "Points and fees" means:
21             (1)  all  items  required  to  be  disclosed   under
22        Sections 226.4(a) and 226.4(b) of Title 12 of the Code of
23        Federal Regulations, as amended from time to time, except
24        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,  but  only  if the lender receives direct or
28        indirect compensation in connection with  the  charge  or
29        the  charge  is  paid  to  an  affiliate  of  the lender;
30        otherwise,  the  charges  are  not  included  within  the
31        meaning of the phrase "points and fees";
32             (3)  all compensation paid directly or indirectly to
33        a mortgage broker, including a broker that  originates  a
34        loan  in  its  own name in a tablefunded transaction, not
                            -3-              LRB9109639JSpkam
 1        otherwise included under item 1 or 2;
 2             (4)  "Points and fees" does not include  (i)  taxes,
 3        filing  fees,  recording, and other charges and fees paid
 4        or to be paid to public  officials  for  determining  the
 5        existence  of or for perfecting, releasing, or satisfying
 6        a security interest and (ii)  bona  fide  and  reasonable
 7        fees paid to a person other than a lender or an affiliate
 8        of  the  lender or to the mortgage broker or an affiliate
 9        of the mortgage broker for any of the following: fees for
10        flood certification; fees for pest infestation and  flood
11        determinations; appraisal fees; fees for home inspections
12        performed  prior  to  closing;  credit  reports; surveys;
13        attorneys' fees (if the borrower has the right to  select
14        the  attorney from an approved list or otherwise); notary
15        fees; escrow charges, so long as not  otherwise  included
16        under  item  (1);  title  insurance  premiums;  and  fire
17        insurance and flood insurance premiums, provided that the
18        conditions in Section 226.4(d)(2) of Title 12 of the Code
19        of Federal Regulations are met.
20        "Total  loan  amount"  means  the same as the term "total
21    loan amount" as used in Section 226.32 of  Title  12  of  the
22    Code  of  Federal  Regulations,  and  shall  be calculated in
23    accordance with the Federal Reserve  Board's  Official  Staff
24    Commentary to that provision.

25        Section 10.  Prohibited acts and practices regarding home
26    loans.
27        (a)  No  lender  may knowingly or intentionally engage in
28    the unfair act or practice  of  "flipping"  a  consumer  home
29    loan.  "Flipping"  a  loan  is the making of a home loan to a
30    borrower that refinances an existing home loan when  the  new
31    loan  does  not  have reasonable, tangible net benefit to the
32    borrower considering all of the circumstances, including  the
33    terms  of  both the new and refinanced loans, the cost of the
                            -4-              LRB9109639JSpkam
 1    new loan, and the borrower's  circumstances.  This  provision
 2    shall  apply  regardless  of  whether the loan is a high-cost
 3    home loan.
 4        (b)  When there is a charge in  addition  to  the  stated
 5    rate  of  interest  payable  directly  or  indirectly  by the
 6    borrower and imposed directly or indirectly by the lender  as
 7    consideration  for  the loan, whether paid by the borrower or
 8    the seller to a third party in connection with the closing of
 9    the loan, the charge may not exceed  3%  of  the  total  loan
10    amount.
11        (c)  No lender shall recommend or encourage default on an
12    existing  loan  or other debt prior to and in connection with
13    the closing or planned closing of a consumer home  loan  that
14    refinances all or any portion of the existing loan or debt.

15        Section  15.  Limitations  and  prohibited  practices for
16    high-cost home loans.
17        (a) A high-cost home loan is  subject  to  the  following
18    limitations and prohibited practices:
19             (1)  No  call  provision. No high-cost home loan may
20        contain a provision that permits the lender, in its  sole
21        discretion,   to   accelerate   the   indebtedness.  This
22        provision does not apply when repayment of the  loan  has
23        been  accelerated  by  default, pursuant to a due-on-sale
24        provision, or pursuant to some  other  provision  of  the
25        loan documents unrelated to the payment schedule.
26             (2)  No  balloon payment. No high-cost home loan may
27        contain a scheduled payment that is more  than  twice  as
28        large  as the average of earlier scheduled payments. This
29        provision does not apply when  the  payment  schedule  is
30        adjusted  to  the  seasonal  or  irregular  income of the
31        borrower.
32             (3)  No negative  amortization.  No  high-cost  home
33        loan may contain a payment schedule with regular periodic
                            -5-              LRB9109639JSpkam
 1        payments that cause the principal balance to increase.
 2             (4)  No  increased  interest rate. No high-cost home
 3        loan may contain a provision that increases the  interest
 4        rate  after  default.  This  provision  does not apply to
 5        interest rate changes in a variable rate  loan  otherwise
 6        consistent  with  the  provisions  of the loan documents,
 7        provided the change in the interest rate is not triggered
 8        by the event  of  default  or  the  acceleration  of  the
 9        indebtedness.
10             (5)  No  advance  payments.   No high-cost home loan
11        may include  terms  under  which  more  than  2  periodic
12        payments  required  under  the  loan are consolidated and
13        paid in advance from the loan proceeds  provided  to  the
14        borrower.
15             (6)  No modification or deferral fees.  A lender may
16        not  charge  a  borrower  any  fees  or  other charges to
17        modify, renew, extend, or amend a high-cost home loan  or
18        to  defer  any payment due under the terms of a high-cost
19        home loan.
20             (7)  No mandatory arbitration clause.  No  high-cost
21        loan  may  be  subject  to a mandatory arbitration clause
22        that limits in any way the right of the borrower to  seek
23        relief through the judicial process.
24             (8)  No lending without home-ownership counseling. A
25        lender  may  not make a high-cost home loan without first
26        receiving certification from a counselor approved by  the
27        United   States   Department   of   Housing   and   Urban
28        Development,  a  state  housing  financing agency, or the
29        National Credit Union Administration  that  the  borrower
30        has  received  counseling on the advisability of the loan
31        transaction and the appropriate loan for the borrower.
32             (9)  No refinancing  existing  high-cost  home  loan
33        with  new  high-cost home loan. A lender may not charge a
34        borrower points, fees, or  other  charges  in  connection
                            -6-              LRB9109639JSpkam
 1        with  a  high-cost  home  loan  if  the  proceeds  of the
 2        high-cost home loan are used, in whole  or  in  part,  to
 3        refinance  an  existing  high-cost  home  loan unless the
 4        annual percentage rate on the new loan is  at  least  200
 5        basis  points  below  the  contract  rate on the existing
 6        high-cost loan.
 7             (10)  Restrictions on home-improvement contracts.
 8                  (A)  Before a creditor makes  partial  or  full
 9             payment   to  a  home  improvement  contractor,  the
10             creditor must receive reasonable assurance,  through
11             releases    or   other   certifications   from   all
12             subcontractors that have worked on the residence  up
13             to  that  point in time, that no claim or mechanics'
14             lien will be  placed  upon  the  property  for  that
15             portion of the work for which the payment is made.
16                  (B)  The   proceeds   for  a  home  improvement
17             contract shall be disbursed only to the consumer  or
18             to  the  consumer  and  home  improvement contractor
19             jointly or to  a  bona  fide  escrow  agent  of  the
20             creditor.  Prior to paying more than 70% of the full
21             price  contracted  for  under  the  home improvement
22             contract, the creditor shall  obtain  an  inspection
23             from  an  independent  inspector  who shall supply a
24             completion  certification  stating  that  the   home
25             improvements were satisfactorily completed.
26                  (C)  It  shall be a complete defense to payment
27             on a home improvement agreement if payment  of  more
28             than 70% of the contract price is made by a creditor
29             to  a  contractor  or  broker  without  having fully
30             complied with the requirements of this item (10).
31             (11)  Prepayment    penalties    prohibited.      No
32        prepayment   fees   or   prepayment  penalties  shall  be
33        contracted by the borrower and lender with respect to any
34        home loan.
                            -7-              LRB9109639JSpkam
 1             (12)  Credit  insurance  financing  prohibited.   It
 2        shall be unlawful for  any  lender  in  a  home  loan  to
 3        finance,  directly or indirectly, any credit life, credit
 4        disability, or  credit  unemployment  insurance,  or  any
 5        other   life   or  health  insurance  premiums,  however,
 6        insurance premiums calculated and paid on a monthly basis
 7        shall not be considered to be financed by the lender.
 8        As used in this Section, the term  "borrower"  refers  to
 9    each  borrower  or  co-borrower  obligated to repay a loan. A
10    lender may not make a home loan unless the lender  reasonably
11    believes at the time the loan is consummated that one or more
12    of   the   borrowers,   when   considered   individually   or
13    collectively,  will be able to make the scheduled payments to
14    repay the obligation based  upon  a  consideration  of  their
15    current  and expected income, current obligations, employment
16    status,  and  other  financial  resources  (other  than   the
17    borrower's  equity in the dwelling which secures repayment of
18    the loan). A borrower shall be presumed to be  able  to  make
19    the  scheduled  payments  to  repay the obligation if, at the
20    time the loan is consummated, the  borrower's  total  monthly
21    debts,  including  amounts owed under the loan, do not exceed
22    45% of the borrower's monthly gross income as verified by the
23    credit application, the  borrower's  financial  statement,  a
24    credit  report,  financial information provided to the lender
25    by or on behalf of the  borrower,  or  any  other  reasonable
26    means.
27        (b)  The  provisions  of this Section apply to any person
28    who attempts to avoid the application of this Section by  (i)
29    the  structuring  of a loan transaction as an open-end credit
30    plan when the loan would have been a high-cost home  loan  if
31    the  loan  had  been  structured  as  a closed-end loan, (ii)
32    dividing any loan transaction into  separate  parts  for  the
33    purpose and with the intent of evading the provisions of this
34    Section, or (iii) any other subterfuge.
                            -8-              LRB9109639JSpkam
 1        (c)  Unfair  and  deceptive acts or practices.  Except as
 2    provided in subsection (d) of this Section, the making  of  a
 3    home  loan that violates any provisions of Sections 10 and 15
 4    of this Act is hereby declared usurious in violation  of  the
 5    provisions of this Act and unlawful as an unfair or deceptive
 6    act  or  practice in or affecting commerce. The provisions of
 7    this Section apply to any person who in bad faith attempts to
 8    avoid the application of this Section by (i) the  structuring
 9    of  a  loan  transaction  as  an open-end credit plan for the
10    purpose and with the intent of evading the provisions of this
11    Section when the loan would have been a high-cost  home  loan
12    if  the  loan  had been structured as a closed-end loan, (ii)
13    dividing any loan transaction into  separate  parts  for  the
14    purpose and with the intent of evading the provisions of this
15    Section, or (iii) any other subterfuge. The Attorney General,
16    the  Office  of  Banks  and  Real  Estate,  or any party to a
17    high-cost home  loan  may  enforce  the  provisions  of  this
18    Section.  Any  person  seeking damages or penalties under the
19    provisions of this Section may recover damages  under  either
20    this Act or other State law, but not both.
21        (d)  Corrections  and  unintentional violations. A lender
22    in a high-cost home loan who,  when  acting  in  good  faith,
23    fails  to  comply  with subsection (a) of this Section, shall
24    not be deemed to have violated this  Section  if  the  lender
25    establishes  that  either:  (1) Within 30 days after the loan
26    closing and prior to the institution of any action under this
27    Section, the borrower is notified of the compliance  failure,
28    appropriate restitution is made, and whatever adjustments are
29    necessary  are  made  to the loan to either, at the choice of
30    the borrower, (i) make the high-cost home  loan  satisfy  the
31    requirements of subsection (a) of this Section or (ii) change
32    the  terms of the loan in a manner beneficial to the borrower
33    so that the loan will no longer  be  considered  a  high-cost
34    home  loan  subject to the provisions of this Section; or (2)
                            -9-              LRB9109639JSpkam
 1    the compliance failure was not intentional and resulted  from
 2    a   bona   fide  error  notwithstanding  the  maintenance  of
 3    procedures reasonably adapted to avoid errors and  within  60
 4    days  after the discovery of the compliance failure and prior
 5    to the institution of any action under this  Section  or  the
 6    receipt  of  written  notice  of  the compliance failure, the
 7    borrower is notified of the compliance  failure,  appropriate
 8    restitution  is  made, and whatever adjustments are necessary
 9    are made to  the  loan  to  either,  at  the  choice  of  the
10    borrower,  (i)  make  the  high-cost  home  loan  satisfy the
11    requirements of subsection (a) of this Section or (ii) change
12    the terms of the loan in a manner beneficial to the  borrower
13    so  that  the  loan  will no longer be considered a high-cost
14    home loan subject to the provisions of this Section.
15        (e)  Assignee  liability.   Any  subsequent  holder   who
16    purchases  or is otherwise assigned a mortgage referred to in
17    this Section shall be subject to all claims and defenses with
18    respect to that  mortgage  that  the  consumer  could  assert
19    against the original creditor of the mortgage.

20        Section  20.  Damages.   If  any  person, corporation, or
21    other lender knowingly violates either directly or indirectly
22    any of the provisions described in this  Act,   the  borrower
23    may,  recover  by  means  of  an action or defense, an amount
24    equal to twice the  total  of  all  interest,  discount,  and
25    charges  determined  by  the  loan  contract  or  paid by the
26    borrower,  whichever  is  greater,   plus   such   reasonable
27    attorneys  fees and court costs as may be assessed by a court
28    against the lender. Recovery by means of a defense may be had
29    at any time after the loan is transacted.  Recovery by  means
30    of  an action may be had at any time within 2 years after the
31    date on which the total loan amount due under  the  terms  of
32    the  loan  contract  is  fully paid. The remedies provided in
33    this Act are  not  intended  to  be  the  exclusive  remedies
                            -10-             LRB9109639JSpkam
 1    available  to  a  borrower  nor must the borrower exhaust any
 2    administrative remedies provided under this Act or any  other
 3    applicable law.

 4        Section  25.  Enforcement.   When the Office of Banks and
 5    Real Estate determines that  a  violation  of  this  Act  has
 6    occurred, after due process, it shall withdraw the license of
 7    the violator.

 8        Section 30.  Severability.  If any portion of this Act is
 9    determined   to   be  invalid  for  any  reason  by  a  final
10    nonappealable order of any  court  of  this  State  or  of  a
11    federal  court  of  competent  jurisdiction, then it shall be
12    severed from this Act.  All  other  provisions  of  this  Act
13    shall remain in full force and effect.

14        Section 35.  Applicability. This Act applies to all loans
15    made or entered into after the effective date of this Act.".

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