State of Illinois
91st General Assembly
Legislation

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91_SB1490

 
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 1        AN ACT to create the Predatory Home Loan Practices Act.

 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    Predatory Home Loan Practices Act.

 6        Section 5.  Definitions.  As used in this Act:
 7        "Affiliate"  means  any   company   that   controls,   is
 8    controlled  by,  or  is  under  common  control  with another
 9    company, as determined under the Federal Bank Holding Company
10    Act of 1956 (12 U.S.C. 1841 et seq.).
11        "Annual percentage rate" means the annual percentage rate
12    for the loan calculated according to the  provisions  of  the
13    federal  Truth-in-Lending  Act  (15 U.S.C. 1601, et seq.) and
14    the regulations promulgated thereunder by the Federal Reserve
15    Board.
16        "Bona fide loan  discount  points"  means  loan  discount
17    points  knowingly  paid  by  the  borrower for the purpose of
18    reducing, and which in fact result in a bona  fide  reduction
19    of,  the  interest rate or time-price differential applicable
20    to the  loan,  provided  the  amount  of  the  interest  rate
21    reduction  purchased  by  the  discount  points is reasonably
22    consistent with established industry norms and practices  for
23    secondary mortgage market transactions.
24        "High-cost  home  loan"  means  a home loan for which the
25    annual percentage rate of the home loan at consummation  will
26    exceed  by  more  than 6 percentage points the weekly average
27    yield on United States  Treasury  securities  adjusted  to  a
28    constant  maturity  of  one  year  (as  made available by the
29    Federal Reserve Board) as of the week  immediately  preceding
30    the  week  in  which  the  interest  rate  for  the  loan  is
31    established.
 
                            -2-                LRB9112777JSpc
 1        "Home  loan"  means a loan, other than an open-end credit
 2    plan or a reverse mortgage transaction,  in  which:  (i)  the
 3    principal  amount  of the loan does not exceed the conforming
 4    loan size limit for a single-family dwelling  as  established
 5    from   time   to   time  by  the  Federal  National  Mortgage
 6    Association, (ii) the borrower is a natural person, (iii) the
 7    debt is incurred by  the  borrower  primarily  for  personal,
 8    family,  or  household purposes, and (iv) the loan is secured
 9    by a mortgage or deed of trust  on  real  estate  upon  which
10    there  is  located  or  there is to be located a structure or
11    structures, designed principally for occupancy of from one to
12    4 families, that is or will be occupied by  the  borrower  as
13    the borrower's principal dwelling.
14        "Points and fees" means:
15             (1)  all   items  required  to  be  disclosed  under
16        Sections 226.4(a) and 226.4(b) of Title 12 of the Code of
17        Federal Regulations, as amended from time to time, except
18        interest or the time-price differential;
19             (2)  all charges  for  items  listed  under  Section
20        226.4(c)(7)   of   Title   12  of  the  Code  of  Federal
21        Regulations, but only if the lender  receives  direct  or
22        indirect  compensation  in  connection with the charge or
23        the charge  is  paid  to  an  affiliate  of  the  lender;
24        otherwise,  the  charges  are  not  included  within  the
25        meaning of the phrase "points and fees";
26             (3)  all compensation paid directly or indirectly to
27        a  mortgage  broker, including a broker that originates a
28        loan in its own name in a  tablefunded  transaction,  not
29        otherwise included under item 1 or 2;
30             (4)  "Points  and  fees" does not include (i) taxes,
31        filing fees, recording, and other charges and  fees  paid
32        or  to  be  paid  to public officials for determining the
33        existence of or for perfecting, releasing, or  satisfying
34        a  security  interest  and  (ii) bona fide and reasonable
 
                            -3-                LRB9112777JSpc
 1        fees paid to a person other than a lender or an affiliate
 2        of the lender or to the mortgage broker or  an  affiliate
 3        of the mortgage broker for any of the following: fees for
 4        flood  certification; fees for pest infestation and flood
 5        determinations; appraisal fees; fees for home inspections
 6        performed prior  to  closing;  credit  reports;  surveys;
 7        attorneys'  fees (if the borrower has the right to select
 8        the attorney from an approved list or otherwise);  notary
 9        fees;  escrow  charges, so long as not otherwise included
10        under  item  (1);  title  insurance  premiums;  and  fire
11        insurance and flood insurance premiums, provided that the
12        conditions in Section 226.4(d)(2) of Title 12 of the Code
13        of Federal Regulations are met.
14        "Total loan amount" means the same  as  the  term  "total
15    loan  amount"  as  used  in Section 226.32 of Title 12 of the
16    Code of Federal  Regulations,  and  shall  be  calculated  in
17    accordance  with  the  Federal Reserve Board's Official Staff
18    Commentary to that provision.

19        Section 10.  Prohibited acts and practices regarding home
20    loans.
21        (a)  No prepayment fees or penalties shall be  contracted
22    by the borrower and lender with respect to any home loan.
23        (b)  It  shall  be unlawful for any lender in a home loan
24    to finance, directly or indirectly, any credit  life,  credit
25    disability,  or  credit  unemployment insurance, or any other
26    life  or  health  insurance  premiums,   however,   insurance
27    premiums  calculated and paid on a monthly basis shall not be
28    considered to be financed by the lender.
29        (c)  No lender may knowingly or intentionally  engage  in
30    the  unfair  act  or  practice  of "flipping" a consumer home
31    loan. "Flipping" a loan is the making of a  home  loan  to  a
32    borrower  that  refinances an existing home loan when the new
33    loan does not have reasonable, tangible net  benefit  to  the
 
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 1    borrower  considering all of the circumstances, including the
 2    terms of both the new and refinanced loans, the cost  of  the
 3    new  loan,  and  the borrower's circumstances. This provision
 4    shall apply regardless of whether the  loan  is  a  high-cost
 5    home loan.
 6        (d)  When  there  is  a  charge in addition to the stated
 7    rate of  interest  payable  directly  or  indirectly  by  the
 8    borrower  and imposed directly or indirectly by the lender as
 9    consideration for the loan, whether paid by the  borrower  or
10    the  seller to a third party in connection with the loan, the
11    charge may not exceed 3% of the total loan amount.
12        (e)  No lender shall recommend or encourage default on an
13    existing loan or other debt prior to and in  connection  with
14    the  closing  or planned closing of a consumer home loan that
15    refinances all or any portion of the existing loan or debt.
16        (f)  As used in this Section, the term  "obligor"  refers
17    to   each   borrower,  co-borrower,  cosigner,  or  guarantor
18    obligated to repay a loan. A lender may not make a home  loan
19    unless the lender reasonably believes at the time the loan is
20    consummated that one or more of the obligors, when considered
21    individually  or  collectively,  will  be  able  to  make the
22    scheduled payments to  repay  the  obligation  based  upon  a
23    consideration  of  their current and expected income, current
24    obligations, employment status, and other financial resources
25    (other than the  borrower's  equity  in  the  dwelling  which
26    secures  repayment of the loan). An obligor shall be presumed
27    to be able to  make  the  scheduled  payments  to  repay  the
28    obligation  if,  at  the  time  the  loan is consummated, the
29    obligor's total monthly debts, including amounts  owed  under
30    the  loan,  do  not exceed 45% of the obligor's monthly gross
31    income as verified by the credit application,  the  obligor's
32    financial  statement,  a credit report, financial information
33    provided to the lender by or on behalf of the obligor, or any
34    other reasonable means.
 
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 1        Section 15.  Limitations  and  prohibited  practices  for
 2    high-cost home loans.
 3        (a)  A  high-cost  home  loan is subject to the following
 4    limitations and prohibited practices:
 5             (1)  No call provision. No high-cost home  loan  may
 6        contain  a provision that permits the lender, in its sole
 7        discretion,  to   accelerate   the   indebtedness.   This
 8        provision  does  not apply when repayment of the loan has
 9        been accelerated by default, pursuant  to  a  due-on-sale
10        provision,  or  pursuant  to  some other provision of the
11        loan documents unrelated to the payment schedule.
12             (2)  No balloon payment. No high-cost home loan  may
13        contain  a  scheduled  payment that is more than twice as
14        large as the average of earlier scheduled payments.  This
15        provision  does  not  apply  when the payment schedule is
16        adjusted to the  seasonal  or  irregular  income  of  the
17        borrower.
18             (3)  No  negative  amortization.  No  high-cost home
19        loan may contain a payment schedule with regular periodic
20        payments that cause the principal balance to increase.
21             (4)  No increased interest rate. No  high-cost  home
22        loan  may contain a provision that increases the interest
23        rate after default. This  provision  does  not  apply  to
24        interest  rate  changes in a variable rate loan otherwise
25        consistent with the provisions  of  the  loan  documents,
26        provided the change in the interest rate is not triggered
27        by  the  event  of  default  or  the  acceleration of the
28        indebtedness.
29             (5)  No advance payments.  No high  cost  home  loan
30        may  include  terms  under  which  more  than  2 periodic
31        payments required under the  loan  are  consolidated  and
32        paid  in  advance  from the loan proceeds provided to the
33        borrower.
34             (6)  No modification or deferral fees.  A lender may
 
                            -6-                LRB9112777JSpc
 1        not charge a  borrower  any  fees  or  other  charges  to
 2        modify,  renew, extend, or amend a high-cost home loan or
 3        to defer any payment due under the terms of a  high  cost
 4        home loan.
 5             (7)  No  mandatory  arbitration clause. No high cost
 6        loan may be subject to  a  mandatory  arbitration  clause
 7        that  limits in any way the right of the borrower to seek
 8        relief through the judicial process.
 9             (8)  No lending without home-ownership counseling or
10        advice  from  an  attorney.  A  lender  may  not  make  a
11        high-cost home loan without first receiving certification
12        from a counselor approved by the United States Department
13        of  Housing  and  Urban  Development,  a  state   housing
14        financing   agency,   or   the   National   Credit  Union
15        Administration that the borrower has received  counseling
16        on  the  advisability  of  the  loan  transaction and the
17        appropriate loan for the borrower.
18             (9)  No lending without attorney representation.   A
19        lender  may  not  make  a  high cost home loan unless the
20        borrower is represented by an attorney  at  the  closing.
21        The  attorney shall represent the borrower's interests at
22        the closing and may be paid  from  the  proceeds  of  the
23        loan.
24             (10)  No benefit from refinancing existing high-cost
25        home  loan with new high-cost home loan. A lender may not
26        charge a borrower  points,  fees,  or  other  charges  in
27        connection  with a high-cost home loan if the proceeds of
28        the high-cost home loan are used to refinance an existing
29        high-cost home loan unless the annual percentage rate  on
30        the  new  loan  is  at  least  200 basis points below the
31        contract rate on the existing loan.
32             (11)  Restrictions on home-improvement contracts.  A
33        lender  may not pay a contractor under a home-improvement
34        contract from the proceeds of a high-cost home loan other
 
                            -7-                LRB9112777JSpc
 1        than (i) by an instrument payable to the borrower or (ii)
 2        at the election of the borrower,  through  a  third-party
 3        escrow  agent  in  accordance with terms established in a
 4        written agreement signed by the borrower, the lender, and
 5        the contractor prior to the disbursement.
 6        (b)  The provisions of this Section apply to  any  person
 7    who  in  bad  faith attempts to avoid the application of this
 8    Section by (i) the structuring of a loan  transaction  as  an
 9    open-end  credit  plan for the purpose and with the intent of
10    evading the provisions of this Section when  the  loan  would
11    have  been  a  high-cost  home  loan  if  the  loan  had been
12    structured as a  closed-end  loan,  (ii)  dividing  any  loan
13    transaction  into separate parts for the purpose and with the
14    intent of evading the provisions of this  Section,  or  (iii)
15    any other subterfuge.
16        (c)  Unfair  and  deceptive acts or practices.  Except as
17    provided in subsection (d) of this Section, the making  of  a
18    home  loan that violates any provisions of Sections 10 and 15
19    of this Act is hereby declared usurious in violation  of  the
20    provisions of this Act and unlawful as an unfair or deceptive
21    act  or  practice in or affecting commerce. The provisions of
22    this Section apply to any person who in bad faith attempts to
23    avoid the application of this Section by (i) the  structuring
24    of  a  loan  transaction  as  an open-end credit plan for the
25    purpose and with the intent of evading the provisions of this
26    Section when the loan would have been a high-cost  home  loan
27    if  the  loan  had been structured as a closed-end loan, (ii)
28    dividing any loan transaction into  separate  parts  for  the
29    purpose and with the intent of evading the provisions of this
30    Section, or (iii) any other subterfuge. The Attorney General,
31    the  Office  of  Banks  and  Real  Estate,  or any party to a
32    high-cost home  loan  may  enforce  the  provisions  of  this
33    Section.  Any  person  seeking damages or penalties under the
34    provisions of this Section may recover damages  under  either
 
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 1    this Act or other State law, but not both.
 2        (d)  Corrections  and  unintentional violations. A lender
 3    in a high-cost home loan who,  when  acting  in  good  faith,
 4    fails  to  comply  with subsection (a) of this Section, shall
 5    not be deemed to have violated this  Section  if  the  lender
 6    establishes  that  either:  (1) Within 30 days after the loan
 7    closing and prior to the institution of any action under this
 8    Section, the borrower is notified of the compliance  failure,
 9    appropriate restitution is made, and whatever adjustments are
10    necessary  are  made  to the loan to either, at the choice of
11    the borrower, (i) make the high-cost home  loan  satisfy  the
12    requirements of subsection (a) of this Section or (ii) change
13    the  terms of the loan in a manner beneficial to the borrower
14    so that the loan will no longer  be  considered  a  high-cost
15    home  loan  subject to the provisions of this Section; or (2)
16    the compliance failure was not intentional and resulted  from
17    a   bona   fide  error  notwithstanding  the  maintenance  of
18    procedures reasonably adapted to avoid errors and  within  60
19    days  after the discovery of the compliance failure and prior
20    to the institution of any action under this  Section  or  the
21    receipt  of  written  notice  of  the compliance failure, the
22    borrower is notified of the compliance  failure,  appropriate
23    restitution  is  made, and whatever adjustments are necessary
24    are made to  the  loan  to  either,  at  the  choice  of  the
25    borrower,  (i)  make  the  high-cost  home  loan  satisfy the
26    requirements of subsection (a) of this Section or (ii) change
27    the terms of the loan in a manner beneficial to the  borrower
28    so  that  the  loan  will no longer be considered a high-cost
29    home loan subject to the provisions of this Section.

30        Section 20.  Assignee liability.  Any  subsequent  holder
31    who purchases or is otherwise assigned a mortgage referred to
32    in  this  Section shall be subject to all claims and defenses
33    with respect to that mortgage that the consumer could  assert
 
                            -9-                LRB9112777JSpc
 1    against the original creditor of the mortgage.

 2        Section  25.  Damages.   If  any  person, corporation, or
 3    other lender knowingly violates either directly or indirectly
 4    any of the provisions described in this  Act,   the  borrower
 5    may,  recover  by  means  of  an action or defense, an amount
 6    equal to twice the  total  of  all  interest,  discount,  and
 7    charges  determined  by  the  loan  contract  or  paid by the
 8    borrower,  whichever  is  greater,   plus   such   reasonable
 9    attorneys  fees and court costs as may be assessed by a court
10    against the lender. Recovery by means of a defense may be had
11    at any time after the loan is transacted.  Recovery by  means
12    of  an action may be had at any time within 2 years after the
13    date on which the total loan amount due under  the  terms  of
14    the loan contract is fully paid.

15        Section  30.  Enforcement.   When the Office of Banks and
16    Real Estate determines that  a  violation  of  this  Act  has
17    occurred, after due process, it shall withdraw the license of
18    the violator.

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

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