Rep. Daniel J. Burke

Filed: 4/26/2007

 

 


 

 


 
09500HB1478ham002 LRB095 06755 MJR 35586 a

1
AMENDMENT TO HOUSE BILL 1478

2     AMENDMENT NO. ______. Amend House Bill 1478 by replacing
3 everything after the enacting clause with the following:
 
4     "Section 5. The Residential Mortgage License Act of 1987 is
5 amended by adding Sections 4-15, 4-16, 5-6, 5-7, 5-8, 5-9,
6 5-10, 5-11, 5-12, 5-14, 5-15, 5-16, and 5-17 as follows:
 
7     (205 ILCS 635/4-15 new)
8     Sec. 4-15. Enforcement and reporting provisions.
9     (a) The Attorney General may enforce any violation of
10 Section 5-6, 5-7, 5-8, 5-9, 5-10, 5-11, 5-12, 5-14, or 5-15 of
11 this Act as an unlawful practice under the Consumer Fraud and
12 Deceptive Business Practices Act.
13     (b) The Department of Financial and Professional
14 Regulation and the Department of Financial Institutions must
15 report to the Attorney General all violations of this
16 amendatory Act of which they become aware.
 

 

 

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1     (205 ILCS 635/4-16 new)
2     Sec. 4-16. Private right of action. A borrower injured by a
3 violation of the standards, duties, prohibitions, or
4 requirements of Sections 5-6, 5-7, 5-8, 5-9, 5-10, 5-11, 5-12,
5 5-13, 5-14, 5-15, and 5-16 of this Act shall have a private
6 right of action.
7     (a) A licensee is not liable for a violation of this Act
8 if:
9         (1) within 30 days of the loan closing and prior to
10     receiving any notice from the borrower of the violation,
11     the licensee has made appropriate restitution to the
12     borrower and appropriate adjustments are made to the loan;
13     or
14         (2) the violation was not intentional and resulted from
15     a bona fide error in fact, notwithstanding the maintenance
16     of procedures reasonably adopted to avoid such errors, and
17     within 60 days of the discovery of the violation and prior
18     to receiving any notice from the borrower of the violation,
19     the borrower is notified of the violation, appropriate
20     restitution is made to the borrower, and appropriate
21     adjustments are made to the loan.
22     (b) The remedies and rights provided for in this Act are
23 not exclusive, but cumulative, and all other applicable claims
24 are specifically preserved.
 

 

 

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1     (205 ILCS 635/5-6 new)
2     Sec. 5-6. Verification of borrower's ability to repay.
3     (a) No licensee may make, provide, or arrange for a
4 residential mortgage loan without verifying the borrower's
5 reasonable ability to pay the principal and interest on the
6 loan, real estate taxes, homeowner's insurance, assessments,
7 and mortgage insurance premiums, if applicable.
8     For residential mortgage loans in which the interest rate
9 may vary, the reasonable ability to pay the principal and
10 interest on the loan shall be determined based on a fully
11 indexed rate, which rate shall be calculated by using the index
12 rate prevailing at the time of origination of the loan plus the
13 margin that will apply when calculating the adjustable rate
14 under the terms of the loan, assuming a fully amortizing
15 repayment schedule based on the term of the loan.
16     For loans that allow for negative amortization, the
17 principal amount of the loan shall be calculated by including
18 the maximum amount the principal balance may increase due to
19 negative amortization under the terms of the loan.
20     (b) For all residential mortgage loans, the borrower's
21 income and financial resources must be verified by tax returns,
22 payroll receipts, bank records, or other similarly reliable
23 documents. Nothing in this Section shall be construed to limit
24 a licensee's ability to rely on criteria other than the
25 borrower's income and financial resources to establish the
26 borrower's reasonable ability to repay a residential mortgage

 

 

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1 loan; however, such other criteria must be verified through
2 reasonably reliable methods and documentation. A statement by
3 the borrower to the licensee of the borrower's income and
4 resources is not sufficient to establish the existence of the
5 income or resources when verifying the reasonable ability to
6 pay.
 
7     (205 ILCS 635/5-7 new)
8     Sec. 5-7. Broker agency relationship.
9     (a) A mortgage broker shall be considered to have created
10 an agency relationship with the borrower in all cases and shall
11 comply with the following duties:
12         (1) mortgage brokers shall act in the borrower's best
13     interest and in the utmost good faith toward borrowers, and
14     shall not compromise a borrower's right or interest in
15     favor of another's right or interest, including a right or
16     interest of the mortgage broker. A mortgage broker shall
17     not accept, give, or charge any undisclosed compensation or
18     realize any undisclosed remuneration, either through
19     direct or indirect means, that inures to the benefit of the
20     mortgage broker on an expenditure made for the borrower;
21         (2) mortgage brokers shall carry out all lawful
22     instructions given by borrowers;
23         (3) mortgage brokers shall disclose to borrowers all
24     material facts of which the mortgage broker has knowledge
25     which might reasonably affect the borrower's rights,

 

 

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1     interests, or ability, or both, to receive the borrower's
2     intended benefit from the residential mortgage loan, but
3     not facts which are reasonably susceptible to the knowledge
4     of the borrower;
5         (4) mortgage brokers shall use reasonable care in
6     performing duties; and
7         (5) mortgage brokers shall account to a borrower for
8     all the borrower's money and property received as agent.
9     (b) Nothing in this Section prohibits a mortgage broker
10 from contracting for or collecting a fee for services rendered
11 and which had been disclosed to the borrower in advance of the
12 provision of those services.
13     (c) Nothing in this Section requires a mortgage broker to
14 obtain a loan containing terms or conditions not available to
15 the mortgage broker in the mortgage broker's usual course of
16 business, or to obtain a loan for the borrower from a mortgage
17 lender with whom the mortgage broker does not have a business
18 relationship.
 
19     (205 ILCS 635/5-8 new)
20     Sec. 5-8. Prepayment penalties.
21     (a) No licensee may make, provide, or arrange a mortgage
22 loan with a prepayment penalty unless the licensee offers the
23 borrower a loan without a prepayment penalty, the offer is in
24 writing, and the borrower initials the offer to indicate that
25 the borrower has declined the offer. In addition, the licensee

 

 

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1 must disclose the discount in rate received in consideration
2 for a mortgage loan with the prepayment penalty.
3     (b) If a borrower declines an offer required under
4 subsection (a) of this Section, the licensee may include a
5 prepayment penalty that extends no longer than three years or
6 the first change date or rate adjustment of a variable rate
7 mortgage, whichever comes earlier, provided that, if a
8 prepayment is made during the fixed rate period, the licensee
9 shall receive an amount that is no 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, if the fixed rate period extends 3
19     years.
20     (c) Notwithstanding any provision in this Section,
21 prepayment penalties are prohibited in connection with the sale
22 or destruction of a dwelling secured by a residential mortgage
23 loan.
24     (d) This subsection (d) applies to loans made, refinanced,
25 renewed, extended, or modified on or after the effective date
26 of this amendatory Act of the 95th General Assembly.
 

 

 

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1     (205 ILCS 635/5-9 new)
2     Sec. 5-9. Notice of change in loan terms.
3     (a) No licensee may fail to do either of the following:
4         (1) Provide timely notice to the borrower of any
5     material change in the terms of the residential mortgage
6     loan prior to the closing of the loan. For purposes of this
7     Section, a "material change means" any of the following:
8             (A) A change in the type of loan being offered,
9         such as a fixed or variable rate loan or a loan with a
10         balloon payment.
11             (B) A change in the term of the loan, as reflected
12         in the number of monthly payments due before a final
13         payment is scheduled to be made.
14             (C) An increase in the interest rate of more than
15         0.15%, or an equivalent increase in the amount of
16         discount points charged.
17             (D) An increase in the regular monthly payment of
18         principal and interest of more than 5%.
19             (E) A change regarding the requirement or amount of
20         escrow of taxes or insurance.
21             (F) A change regarding the requirement or payment,
22         or both, of private mortgage insurance.
23         (2) Timely inform the borrower if any fees payable by
24     the borrower to the licensee increase by more than 10% or
25     $100, whichever is greater.

 

 

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1     (b) The disclosures required by this Section shall be
2 deemed timely if the licensee provides the borrower with the
3 revised information not later than 3 days after learning of the
4 change or 24 hours before the residential mortgage loan is
5 closed, whichever is earlier. If the licensee discloses a
6 material change more than the 3 days after learning of the
7 change but still 24 hours before the residential mortgage loan
8 is closed, it will not be liable for penalties or forfeitures
9 if the licensee cures in time for the borrower to avoid any
10 damage.
11     (c) If an increase in the total amount of the fee to be
12 paid by the borrower to the lender or broker is not disclosed
13 in accordance with this Section, the lender or broker, whoever
14 received the increased fee, shall refund to the borrower the
15 amount by which the fee was increased. If the fee is financed
16 into the residential mortgage loan, the lender or broker shall
17 also refund to the borrower the interest charged to finance the
18 fee.
 
19     (205 ILCS 635/5-10 new)
20     Sec. 5-10. Comparable monthly payment quotes. When
21 comparing different loans, the licensee must not state or imply
22 that monthly loan payments, if they include amounts escrowed
23 for payment of property taxes and homeowner's insurance, are
24 comparable with monthly loan payments that do not include these
25 amounts.
 

 

 

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1     (205 ILCS 635/5-11 new)
2     Sec. 5-11. Requirement to provide borrower with a copy of
3 all appraisals. Lenders must provide to the borrower a complete
4 copy of any appraisal, including any appraisal generated using
5 the Automated Valuation Model, obtained by the lender for use
6 in underwriting the residential mortgage loan within 3 business
7 days of receipt by the licensee, but in no event less than 24
8 hours prior to the day of closing. The appraisal may be sent
9 via first class mail, commercial carrier, by facsimile or by
10 e-mail, if the borrower has supplied an email address.
 
11     (205 ILCS 635/5-12 new)
12     Sec. 5-12. Disclosure of refinancing options. If the
13 subject of a future loan is discussed by a licensee making,
14 providing, or arranging a mortgage loan, the licensee shall
15 disclose the circumstances under which a new loan could be
16 considered. Such disclosure shall clearly state that it is not
17 a contract and that the licensee is not representing or
18 promising that a new loan could or would be made at any time in
19 the future.
 
20     (205 ILCS 635/5-14 new)
21     Sec. 5-14. Prohibition on equity stripping and loan
22 flipping. No licensee may engage in equity stripping or loan
23 flipping, as those terms are defined in the Illinois Fairness

 

 

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1 in Lending Act.
 
2     (205 ILCS 635/5-15 new)
3     Sec. 5-15. Prohibition on financing certain insurance
4 premiums. No licensee may make, provide, or arrange for a
5 residential mortgage loan that finances, directly or
6 indirectly, any credit life, credit disability, or credit
7 unemployment insurance; however, insurance premiums calculated
8 and paid on a monthly basis shall not be considered to be
9 financed by the lender.
 
10     (205 ILCS 635/5-16 new)
11     Sec. 5-16. Prohibition on encouraging default. A licensee
12 may not recommend or encourage default or the failure to make
13 timely payments on an existing residential mortgage loan or
14 other debt prior to and in connection with the closing or
15 planned closing of a residential mortgage loan that refinances
16 all or any portion of the existing loan or debt.
 
17     (205 ILCS 635/5-17 new)
18     Sec. 5-17. Severability. If any provision of this Act or
19 its application to any person or circumstance is held invalid,
20 the invalidity of that provision or application does not affect
21 other provisions or applications of this Act that can be given
22 effect without the invalid provision or application.
 

 

 

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1     Section 10. The Interest Act is amended by changing Section
2 4.1a as follows:
 
3     (815 ILCS 205/4.1a)  (from Ch. 17, par. 6406)
4     Sec. 4.1a. Charges for and cost of the following items paid
5 or incurred by any lender in connection with any loan shall not
6 be deemed to be charges for or in connection with any loan of
7 money referred to in Section 6 of this Act, or charges by the
8 lender as a consideration for the loan referred to in this
9 Section:
10         (a) hazard, mortgage or life insurance premiums,
11     survey, credit report, title insurance, abstract and
12     attorneys' fees, recording charges, escrow and appraisal
13     fees, and similar charges.
14         (b) in the case of construction loans, in addition to
15     the matters referred to in clause (a) above, the actual
16     cost incurred by the lender for services for making
17     physical inspections, processing payouts, examining and
18     reviewing contractors' and subcontractors' sworn
19     statements and waivers of lien and the like.
20         (c) in the case of any loan made pursuant to the
21     provisions of the Emergency Home Purchase Assistance Act of
22     1974 (Section 313 of the National Housing Act, Chapter B of
23     Title 12 of the United States Code), in addition to the
24     matters referred to in paragraphs (a) and (b) of this
25     Section all charges required or allowed by the Government

 

 

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

 

 

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

 

 

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1 for the loan, or for or in connection with the loan of money,
2 whether paid or payable by the borrower, the seller, or any
3 other person on behalf of the borrower to the lender or to a
4 third party, or for or in connection with the loan of money,
5 other than as hereinabove in this Section provided, whether
6 denominated "points," "service charge," "discount,"
7 "commission," or otherwise, and without regard to declining
8 balances of principal which would result from any required or
9 optional amortization of the principal of the loan, the rate of
10 interest shall be calculated in the following manner:
11     The percentage of the principal amount of the loan
12 represented by all of such charges shall first be computed,
13 which in the case of a loan with an interest rate in excess of
14 8% per annum secured by residential real estate, other than
15 loans described in paragraphs (e) and (f) of Section 4, shall
16 not exceed 3% of such principal amount. Said percentage shall
17 then be divided by the number of years and fractions thereof of
18 the period of the loan according to its stated maturity. The
19 percentage thus obtained shall then be added to the percentage
20 of the stated annual rate of interest.
21     The borrower in the case of nonexempt loan shall have the
22 right to prepay the loan in whole or in part at any time, but,
23 except as may otherwise be provided by Section 4, the lender
24 may require payment of not more than 6 months' advance interest
25 on that part of the aggregate amount of all prepayments on a
26 loan in one year, which exceeds 20% of the original principal

 

 

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1 amount of the loan.
2 (Source: P.A. 87-496.)".