SB0278 94TH GENERAL ASSEMBLY

LRB094 06374 RXD 36455 b

94TH GENERAL ASSEMBLY
State of Illinois
2005 and 2006
SB0278

Introduced 2/3/2005, by Sen. William R. Haine

SYNOPSIS AS INTRODUCED:

815 ILCS 120/2	from Ch. 17, par. 852
815 ILCS 137/10

Amends the Illinois Fairness in Lending Act. Provides that "equity stripping" and "loan flipping" shall only include loans that qualify as high risk home loans. Amends the High Risk Home Loan Act. Provides that "points and fees" does not include: (i) fees paid to the Veterans Administration required by law; (ii) fees paid to the Federal Housing Administration required by law; (iii) fees paid for private mortgage insurance; or (iv) all fees paid to a mortgage broker by a lender if the loan is less than $50,000, or 50% of fees paid to a mortgage broker by a lender if the loan is between $50,000 and $100,000.

A BILL FOR

AN ACT concerning business.

Be it enacted by the People of the State of Illinois, represented in the General Assembly:

Section 5. The Illinois Fairness in Lending Act is amended by changing Section 2 as follows:

(815 ILCS 120/2) (from Ch. 17, par. 852)

Sec. 2. As used in this Act:

(a) "Financial Institution" means any bank, credit union, insurance company, mortgage banking company, savings bank, savings and loan association, or other residential mortgage lender which operates or has a place of business in this State.

(b) "Person" means any natural person.

(c) "Varying the terms of a loan" includes, but is not limited to the following practices:

(1) Requiring a greater than average down payment than is usual for the particular type of a loan involved.

(2) Requiring a shorter period of amortization than is usual for the particular type of loan involved.

(3) Charging a higher interest rate than is usual for the particular type of loan involved.

(4) An underappraisal of real estate or other item of property offered as security.

(d) "Equity stripping" means to assist a person in obtaining a loan secured by the person's principal residence for the primary purpose of receiving fees related to the financing when (i) the loan decreased the person's equity in the principal residence and (ii) at the time the loan is made, the financial institution does not reasonably believe that the person will be able to make the scheduled payments to repay the loan. "Equity stripping" shall only include loans that qualify as "high risk home loans" as defined in the High Risk Home Loan Act. "Equity stripping" does not include reverse mortgages as defined in Section 5a of the Illinois Banking Act, Section 1-6a of the Illinois Savings and Loan Act of 1985, or subsection (3) of Section 46 of the Illinois Credit Union Act.

(e) "Loan flipping" means to assist a person in refinancing a loan secured by the person's principal residence for the primary purpose of receiving fees related to the refinancing when (i) the refinancing of the loan results in no tangible benefit to the person and (ii) at the time the loan is made, the financial institution does not reasonably believe that the refinancing of the loan will result in a tangible benefit to the person. "Loan flipping" shall only include loans that qualify as "high risk home loans" as defined in the High Risk Home Loan Act.

(f) "Principal residence" means a person's primary residence that is a dwelling consisting of 4 or fewer family units or that is in a dwelling consisting of condominium or cooperative units.

(Source: P.A. 93-561, eff. 1-1-04.)

Section 10. The High Risk Home Loan Act is amended by changing Section 10 as follows:

(815 ILCS 137/10)

Sec. 10. Definitions. As used in this Act:

"Approved credit counselor" means a credit counselor approved by the Director of Financial Institutions.

"Borrower" means a natural person who seeks or obtains a high risk home loan.

"Commissioner" means the Commissioner of the Office of Banks and Real Estate.

"Department" means the Department of Financial Institutions.

"Director" means the Director of Financial Institutions.

"Good faith" means honesty in fact in the conduct or transaction concerned.

"High risk home loan" means a home equity loan in which (i) at the time of origination, the annual percentage rate exceeds by more than 6 percentage points in the case of a first lien mortgage, or by more than 8 percentage points in the case of a junior mortgage, the yield on U.S. Treasury securities having comparable periods of maturity to the loan maturity as of the fifteenth day of the month immediately preceding the month in which the application for the loan is received by the lender or (ii) the total points and fees payable by the consumer at or before closing will exceed the greater of 5% of the total loan amount or $800. The $800 figure shall be adjusted annually on January 1 by the annual percentage change in the Consumer Price Index for All Urban Consumers for all items published by the United States Department of Labor. "High risk home loan" does not include a loan that is made primarily for a business purpose unrelated to the residential real property securing the loan or to an open-end credit plan subject to 12 CFR 226 (2000, no subsequent amendments or editions are included).

"Home equity loan" means any loan secured by the borrower's primary residence where the proceeds are not used as purchase money for the residence.

"Lender" means a natural or artificial person who transfers, deals in, offers, or makes a high risk home loan. "Lender" includes, but is not limited to, creditors and brokers who transfer, deal in, offer, or make high risk home loans. "Lender" does not include purchasers, assignees, or subsequent holders of high risk home loans.

"Office" means the Office of Banks and Real Estate.

"Points and fees" means all items required to be disclosed as points and fees under 12 CFR 226.32 (2000, no subsequent amendments or editions included); the premium of any single premium credit life, credit disability, credit unemployment, or any other life or health insurance that is financed directly or indirectly into the loan; and compensation paid directly or indirectly to a mortgage broker, including a broker that originates a loan in its own name in a table-funded transaction, not otherwise included in 12 CFR 226.4. "Points and fees" does not include: (i) fees paid to the Veterans Administration required by law; (ii) fees paid to the Federal Housing Administration required by law; (iii) fees paid for private mortgage insurance; or (iv) all fees paid to a mortgage broker by a lender if the loan is less than $50,000, or 50% of fees paid to a mortgage broker by a lender if the loan is between $50,000 and $100,000.

"Reasonable" means fair, proper, just, or prudent under the circumstances.

"Servicer" means any entity chartered under the Illinois Banking Act, the Savings Bank Act, the Illinois Credit Union Act, or the Illinois Savings and Loan Act of 1985 and any person or entity licensed under the Residential Mortgage License Act of 1987, the Consumer Installment Loan Act, or the Sales Finance Agency Act who is responsible for the collection or remittance for, or has the right or obligation to collect or remit for, any lender, note owner, or note holder or for a licensee's own account, of payments, interest, principal, and trust items (such as hazard insurance and taxes on a residential mortgage loan) in accordance with the terms of the residential mortgage loan, including loan payment follow-up, delinquency loan follow-up, loan analysis, and any notifications to the borrower that are necessary to enable the borrower to keep the loan current and in good standing.

"Total loan amount" has the same meaning as that term is given in 12 CFR 226.32 and shall be calculated in accordance with the Federal Reserve Board's Official Staff Commentary to that regulation.

(Source: P.A. 93-561, eff. 1-1-04.)