|
|||||||||||||||||||||||||
|
|||||||||||||||||||||||||
| |||||||||||||||||||||||||
| |||||||||||||||||||||||||
| |||||||||||||||||||||||||
1 | AN ACT concerning regulation.
| ||||||||||||||||||||||||
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 controlled | ||||||||||||||||||||||||
8 | by, or is under
common
control with another company, as | ||||||||||||||||||||||||
9 | determined under the Federal Bank Holding
Company Act of
1956 | ||||||||||||||||||||||||
10 | (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
the | ||||||||||||||||||||||||
14 | regulations promulgated thereunder by the Federal Reserve | ||||||||||||||||||||||||
15 | Board.
| ||||||||||||||||||||||||
16 | "Bona fide loan discount points" means loan discount points | ||||||||||||||||||||||||
17 | knowingly paid by
the
borrower for the purpose of reducing, and | ||||||||||||||||||||||||
18 | which in fact result in a bona fide
reduction of, the
interest | ||||||||||||||||||||||||
19 | rate or time-price differential applicable to the loan, | ||||||||||||||||||||||||
20 | provided the
amount of the interest
rate reduction purchased by | ||||||||||||||||||||||||
21 | the discount points is reasonably consistent with
established | ||||||||||||||||||||||||
22 | industry
norms and practices for secondary mortgage market | ||||||||||||||||||||||||
23 | transactions.
|
| |||||||
| |||||||
1 | "High-cost home loan" means a home loan for which the
| ||||||
2 | annual percentage rate of the home loan at consummation will | ||||||
3 | exceed by
more than 6 percentage points the weekly average | ||||||
4 | yield on United States
Treasury securities adjusted to a | ||||||
5 | constant maturity of one year (as made
available by
the Federal | ||||||
6 | Reserve Board) as of the week immediately preceding the week in
| ||||||
7 | which
the interest rate for the loan is established.
| ||||||
8 | "Home loan" means a loan, other than an open-end credit | ||||||
9 | plan or a reverse
mortgage transaction, in which: (i) the | ||||||
10 | principal amount of the loan does not
exceed the conforming
| ||||||
11 | loan size limit for a single-family dwelling as established | ||||||
12 | from time to time
by the Federal
National Mortgage Association, | ||||||
13 | (ii) the borrower is a natural person, (iii) the
debt is | ||||||
14 | incurred by
the borrower primarily for personal, family, or | ||||||
15 | household purposes, and (iv)
the loan is secured
by a mortgage | ||||||
16 | or deed of trust on real estate upon which there is located or
| ||||||
17 | there is to be located
a structure or structures, designed | ||||||
18 | principally for occupancy of from one to
4 families, that is
or | ||||||
19 | will be occupied by the borrower as the borrower's principal | ||||||
20 | dwelling.
| ||||||
21 | "Points and fees" means:
| ||||||
22 | (1) all items required to be disclosed under Sections | ||||||
23 | 226.4(a) and
226.4(b) of
Title 12 of the Code of Federal | ||||||
24 | Regulations, as amended from time to time,
except
interest | ||||||
25 | or the time-price differential;
| ||||||
26 | (2) all charges for items listed under Section |
| |||||||
| |||||||
1 | 226.4(c)(7) of Title 12 of
the
Code of Federal Regulations, | ||||||
2 | but only if the
lender
receives direct or indirect | ||||||
3 | compensation in connection with the charge or the
charge is
| ||||||
4 | paid to an affiliate of the lender; otherwise, the charges | ||||||
5 | are not included
within the
meaning of the phrase "points | ||||||
6 | and fees";
| ||||||
7 | (3) all compensation paid directly or indirectly to a | ||||||
8 | mortgage broker,
including a broker that originates a loan | ||||||
9 | in its own name in a tablefunded
transaction,
not otherwise | ||||||
10 | included under item (1) or (2);
| ||||||
11 | (4) "Points and fees" does not include (i) taxes, | ||||||
12 | filing fees, recording,
and
other charges and fees paid or | ||||||
13 | to be paid to public officials for determining
the
| ||||||
14 | existence of or for perfecting, releasing, or satisfying a | ||||||
15 | security interest
and (ii) bona
fide and reasonable fees | ||||||
16 | paid to a person other than a lender or an affiliate
of the | ||||||
17 | lender
or to the mortgage broker or an affiliate of the | ||||||
18 | mortgage broker for any of the
following: fees
for flood | ||||||
19 | certification; fees for pest infestation and flood | ||||||
20 | determinations;
appraisal fees;
fees for home inspections | ||||||
21 | performed prior to closing; credit reports; surveys;
| ||||||
22 | attorneys'
fees (if the borrower has the right to select | ||||||
23 | the attorney from an approved
list or
otherwise); notary | ||||||
24 | fees; escrow charges, so long as not otherwise included
| ||||||
25 | under
item (1); title insurance premiums; and fire
| ||||||
26 | insurance and
flood insurance premiums, provided that the |
| |||||||
| |||||||
1 | conditions in Section 226.4(d)(2)
of Title
12 of the Code | ||||||
2 | of Federal Regulations are met.
| ||||||
3 | "Total loan amount" means the same as the term "total loan | ||||||
4 | amount" as used in
Section 226.32 of Title 12 of the Code of | ||||||
5 | Federal Regulations, and
shall be calculated
in accordance with | ||||||
6 | the Federal Reserve Board's Official Staff Commentary
to that | ||||||
7 | provision.
| ||||||
8 | Section 10. Prohibited acts and practices regarding home | ||||||
9 | loans.
| ||||||
10 | (a) No prepayment fees or penalties shall be contracted by | ||||||
11 | the borrower and
lender
with respect to any home loan.
| ||||||
12 | (b) It shall be unlawful for any lender in a home loan to | ||||||
13 | finance, directly
or
indirectly,
any credit life, credit | ||||||
14 | disability, or credit unemployment insurance or any
other life | ||||||
15 | or health
insurance premiums, however, insurance premiums | ||||||
16 | calculated and paid on a
monthly basis
shall not be considered | ||||||
17 | to be financed by the lender.
| ||||||
18 | (c) No lender may knowingly or intentionally engage in the | ||||||
19 | unfair act or
practice of
"flipping" a consumer home loan. | ||||||
20 | "Flipping" a loan is the making of a home loan
to a borrower
| ||||||
21 | that refinances an existing home loan when the new loan does | ||||||
22 | not have
reasonable, tangible net
benefit to the borrower | ||||||
23 | considering all of the circumstances, including the
terms of | ||||||
24 | both the new
and refinanced loans, the cost of the new loan, | ||||||
25 | and the borrower's
circumstances. This provision
shall apply |
| |||||||
| |||||||
1 | regardless of whether the loan is a high-cost home loan.
| ||||||
2 | (d) When there is a charge in addition to the stated rate | ||||||
3 | of interest
payable directly or
indirectly by the borrower and | ||||||
4 | imposed directly or indirectly by the lender as
consideration | ||||||
5 | for
the loan, whether paid by the borrower or the seller to a | ||||||
6 | third party in
connection with the loan,
the charge may not | ||||||
7 | exceed 3% of the total loan amount.
| ||||||
8 | (e) No lender shall recommend or encourage default on an | ||||||
9 | existing loan or
other debt
prior to and in connection with the | ||||||
10 | closing or planned closing of a consumer
home loan that
| ||||||
11 | refinances all or any portion of the existing loan or debt.
| ||||||
12 | (f) As used in this Section, the term "obligor" refers to | ||||||
13 | each borrower,
co-borrower,
cosigner, or guarantor obligated | ||||||
14 | to repay a loan. A lender may not make a home
loan unless the
| ||||||
15 | lender reasonably believes at the time the loan is consummated | ||||||
16 | that one or more
of the obligors,
when considered individually | ||||||
17 | or collectively, will be able to make the
scheduled payments to
| ||||||
18 | repay the obligation based upon a consideration of their | ||||||
19 | current and expected
income, current
obligations, employment | ||||||
20 | status, and other financial resources (other than the
| ||||||
21 | borrower's equity in
the dwelling which secures repayment of | ||||||
22 | the loan). An obligor shall be presumed
to be able to
make the | ||||||
23 | scheduled payments to repay the obligation if, at the time the | ||||||
24 | loan is
consummated, the
obligor's total monthly debts, | ||||||
25 | including amounts owed under the loan, do not
exceed
45% of the | ||||||
26 | obligor's monthly gross income as verified by the credit
|
| |||||||
| |||||||
1 | application, the
obligor's financial statement, a credit | ||||||
2 | report, financial information provided
to the lender by or on
| ||||||
3 | behalf of the obligor, or any other reasonable means.
| ||||||
4 | Section 15. Limitations and prohibited practices for | ||||||
5 | high-cost home loans.
| ||||||
6 | (a) A high-cost home loan is subject to the following | ||||||
7 | limitations and
prohibited
practices:
| ||||||
8 | (1) No call provision. No high-cost home loan may | ||||||
9 | contain a provision
that
permits the lender, in its sole | ||||||
10 | discretion, to accelerate the indebtedness.
This provision
| ||||||
11 | does not apply when repayment of the loan has been | ||||||
12 | accelerated by default,
pursuant to a
due-on-sale | ||||||
13 | provision, or pursuant to some other provision of the loan
| ||||||
14 | documents
unrelated to the payment schedule.
| ||||||
15 | (2) No balloon payment. No high-cost home loan may | ||||||
16 | contain a scheduled
payment that is more than twice as | ||||||
17 | large as the average of earlier scheduled
payments.
This | ||||||
18 | provision does not apply when the payment schedule is | ||||||
19 | adjusted to the
seasonal or
irregular income of the | ||||||
20 | borrower.
| ||||||
21 | (3) No negative amortization. No high-cost home loan | ||||||
22 | may contain a payment
schedule with regular periodic | ||||||
23 | payments that cause the principal balance to
increase.
| ||||||
24 | (4) No increased interest rate. No high-cost home loan | ||||||
25 | may contain a
provision
that increases the interest rate |
| |||||||
| |||||||
1 | after default. This provision does not apply
to interest | ||||||
2 | rate
changes in a variable rate loan otherwise consistent | ||||||
3 | with the provisions of the
loan
documents, provided the | ||||||
4 | change in the interest rate is not triggered by the
event | ||||||
5 | of default
or the acceleration of the indebtedness.
| ||||||
6 | (5) No advance payments. No high cost home loan may | ||||||
7 | include terms under
which more than 2 periodic payments | ||||||
8 | required under the loan are consolidated
and
paid in | ||||||
9 | advance from the loan proceeds provided to the borrower.
| ||||||
10 | (6) No modification or deferral fees. A lender may not | ||||||
11 | charge a borrower
any
fees or other charges to modify, | ||||||
12 | renew, extend, or amend a high-cost home loan
or to
defer | ||||||
13 | any payment due under the terms of a high cost home loan.
| ||||||
14 | (7) No mandatory arbitration clause. No high cost loan | ||||||
15 | may be subject to a
mandatory arbitration clause that | ||||||
16 | limits in any way the right of the borrower
to seek relief
| ||||||
17 | through the judicial process.
| ||||||
18 | (8) No lending without home-ownership counseling or | ||||||
19 | advice from an
attorney.
A lender may not make a high-cost | ||||||
20 | home loan without first receiving
certification from a
| ||||||
21 | counselor approved by the United States Department of | ||||||
22 | Housing and Urban
Development, a state housing financing | ||||||
23 | agency, or the National Credit Union
Administration that | ||||||
24 | the borrower has received counseling on the advisability of
| ||||||
25 | the loan
transaction and the appropriate loan for the | ||||||
26 | borrower.
|
| |||||||
| |||||||
1 | (9) No lending without attorney representation. A | ||||||
2 | lender may not make a
high
cost home loan unless the | ||||||
3 | borrower is represented by an attorney at the
closing. The
| ||||||
4 | attorney shall represent the borrower's interests at the | ||||||
5 | closing and may be
paid from the
proceeds of the loan.
| ||||||
6 | (10) No benefit from refinancing existing high-cost | ||||||
7 | home loan with new
high-cost home loan. A lender may not | ||||||
8 | charge a borrower points, fees, or other
charges in
| ||||||
9 | connection with a high-cost home loan if the proceeds of | ||||||
10 | the high-cost home
loan are
used to refinance an existing | ||||||
11 | high-cost home loan unless the annual percentage
rate on | ||||||
12 | the
new loan is at least 200 basis points below the | ||||||
13 | contract rate on the
existing loan.
| ||||||
14 | (11) Restrictions on home-improvement contracts. A | ||||||
15 | lender may not pay a
contractor under a home-improvement | ||||||
16 | contract from the proceeds of a high-cost
home
loan other | ||||||
17 | than (i) by an instrument payable to the borrower or (ii) | ||||||
18 | at the
election of the
borrower, through a third-party | ||||||
19 | escrow agent in accordance with terms
established in a
| ||||||
20 | written agreement signed by the borrower, the lender, and | ||||||
21 | the contractor prior
to the
disbursement.
| ||||||
22 | (b) The provisions of this Section apply to any person who | ||||||
23 | in bad
faith
attempts
to avoid the application of this Section | ||||||
24 | by (i) the structuring of a loan
transaction as an open-end
| ||||||
25 | credit plan for the purpose and with the intent of evading the | ||||||
26 | provisions of
this Section when the
loan would have been a |
| |||||||
| |||||||
1 | high-cost home loan if the loan had been structured as a
| ||||||
2 | closed-end loan,
(ii) dividing any loan transaction into | ||||||
3 | separate parts for the purpose and
with the intent of
evading | ||||||
4 | the provisions of this Section, or (iii) any other subterfuge.
| ||||||
5 | (c) Except as provided in
subsection
(d) of
this Section, | ||||||
6 | the making of a home loan that violates any provisions of
| ||||||
7 | Sections 10 and 15 of this
Act is hereby declared usurious in | ||||||
8 | violation of the provisions of this
Act and unlawful as
an | ||||||
9 | unfair or deceptive act or practice in or affecting commerce.
| ||||||
10 | The provisions of this Section apply to any person who in bad | ||||||
11 | faith attempts to
avoid the application of this Section by (i) | ||||||
12 | the structuring of a loan
transaction as an open-end
credit | ||||||
13 | plan for the purpose and with the intent of evading the | ||||||
14 | provisions of
this Section when the
loan would have been a | ||||||
15 | high-cost home loan if the loan had been structured as a
| ||||||
16 | closed-end loan,
(ii) dividing any loan transaction into | ||||||
17 | separate parts for the purpose and with
the intent of
evading | ||||||
18 | the provisions of this Section, or (iii) any other subterfuge. | ||||||
19 | The
Attorney General,
the Department of Financial and | ||||||
20 | Professional Regulation, or any party to a high-cost home loan | ||||||
21 | may
enforce the
provisions of this Section. Any person seeking | ||||||
22 | damages or penalties under the
provisions of this
Section may | ||||||
23 | recover damages under either this Act or other State law,
but | ||||||
24 | not both.
| ||||||
25 | (d) A lender in a high-cost home
loan
who,
when acting in | ||||||
26 | good faith, fails to comply with subsection (a) of this |
| |||||||
| |||||||
1 | Section,
shall not be deemed
to have violated this Section if | ||||||
2 | the lender establishes that either: (1) Within
30 days after | ||||||
3 | the loan
closing and prior to the institution of any action | ||||||
4 | under this Section, the
borrower is notified of the
compliance | ||||||
5 | failure, appropriate restitution is made, and whatever | ||||||
6 | adjustments
are necessary are
made to the loan to either, at | ||||||
7 | the choice of the borrower, (i) make the
high-cost home loan | ||||||
8 | satisfy
the requirements of subsection (a) of this Section or | ||||||
9 | (ii) change the terms of
the loan in a manner
beneficial to the | ||||||
10 | borrower so that the loan will no longer be considered a
| ||||||
11 | high-cost home loan
subject to the provisions of this Section; | ||||||
12 | or (2) the compliance failure was
not intentional and
resulted | ||||||
13 | from a bona fide error notwithstanding the maintenance of | ||||||
14 | procedures
reasonably
adapted to avoid errors and within 60 | ||||||
15 | days after the discovery of the
compliance failure and
prior to | ||||||
16 | the institution of any action under this Section or the receipt | ||||||
17 | of
written notice of the
compliance failure, the borrower is | ||||||
18 | notified of the compliance failure,
appropriate restitution is
| ||||||
19 | made, and whatever adjustments are necessary are made to the | ||||||
20 | loan to either, at
the choice of the
borrower, (i) make the | ||||||
21 | high-cost home loan satisfy the requirements of
subsection (a) | ||||||
22 | of this
Section or (ii) change the terms of the loan in a | ||||||
23 | manner beneficial to the
borrower so that the
loan will no | ||||||
24 | longer be considered a high-cost home loan subject to the
| ||||||
25 | provisions of this Section.
|
| |||||||
| |||||||
1 | Section 20. Assignee liability. Any subsequent holder who | ||||||
2 | purchases or is
otherwise assigned a mortgage
referred to
in | ||||||
3 | this Section shall be subject to all claims and defenses, with | ||||||
4 | respect to
that mortgage, that the
consumer could assert | ||||||
5 | against the original creditor of the mortgage.
| ||||||
6 | Section 25. Damages. If any person, corporation, or other | ||||||
7 | lender knowingly
violates either
directly or indirectly
any of | ||||||
8 | the
provisions described in this Act, the borrower may,
recover | ||||||
9 | by means of
an action or defense, an amount equal to twice the | ||||||
10 | total of all interest,
discount, and charges
determined by the | ||||||
11 | loan contract or paid by the borrower, whichever is greater,
| ||||||
12 | plus such
reasonable attorneys' fees and court costs as may be | ||||||
13 | assessed by a court against
the lender.
Recovery by means of a | ||||||
14 | defense may be had at any time after the loan is
transacted. | ||||||
15 | Recovery
by means of an action may be had at any time within 2 | ||||||
16 | years after the date on
which the total
loan amount due under | ||||||
17 | the terms of the loan contract is fully paid.
| ||||||
18 | Section 30. Enforcement. When the Department of Financial | ||||||
19 | and Professional Regulation
determines that a violation of this | ||||||
20 | Act
has occurred, after due process, it shall withdraw the | ||||||
21 | license of the violator.
| ||||||
22 | Section 35. Applicability.
This Act applies to all loans | ||||||
23 | made or entered into after the
effective date of
this Act. |