Bill Text: IL SB0251 | 2009-2010 | 96th General Assembly | Introduced

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Bill Title: Amends the Residential Mortgage License Act of 1987. In provisions concerning verification, provides that stated income should be accepted only if there are mitigating factors that clearly minimize the need for direct verification of ability to repay or the licensee is originating the loan directly for a federally insured financial institution that is subject to applicable federal regulation. Amends the Residential Real Property Disclosure Act. Changes the definitions of "adjustable rate mortgage" and "interest only" to include additional specified criteria. Provides that exemptions from the Act also include (1) any loan that qualifies to be processed through the automated underwriting system of Fannie Mae or Freddie Mac and (2) any loan that is a refinance of a FHA loan which only reduces the interest rate and reduces the loan payment for the borrower without additional borrower cost.

Spectrum: Partisan Bill (Democrat 1-0)

Status: (Introduced - Dead) 2009-08-15 - Pursuant to Senate Rule 3-9(b) / Referred to Assignments [SB0251 Detail]

Download: Illinois-2009-SB0251-Introduced.html

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96TH GENERAL ASSEMBLY State of Illinois 2009 and 2010 SB0251 Introduced 2/4/2009, by Sen. Terry Link SYNOPSIS AS INTRODUCED:
205 ILCS 635/5-6
765 ILCS 77/70
765 ILCS 77/78
Amends the Residential Mortgage License Act of 1987. In provisions concerning verification, provides that stated income should be accepted only if there are mitigating factors that clearly minimize the need for direct verification of ability to repay or the licensee is originating the loan directly for a federally insured financial institution that is subject to applicable federal regulation. Amends the Residential Real Property Disclosure Act. Changes the definitions of "adjustable rate mortgage" and "interest only" to include additional specified criteria. Provides that exemptions from the Act also include (1) any loan that qualifies to be processed through the automated underwriting system of Fannie Mae or Freddie Mac and (2) any loan that is a refinance of a FHA loan which only reduces the interest rate and reduces the loan payment for the borrower without additional borrower cost.
LRB096 03561 MJR 13586 b
A BILL FOR
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AN ACT concerning financial regulation.
Be it enacted by the People of the State of Illinois,
represented in the General Assembly:
Section 5. The Residential Mortgage License Act of 1987 is
amended by changing Section 5-6 as follows:
(205 ILCS 635/5-6)
Sec. 5-6. Verification of borrower's ability to repay.
(a) No licensee may make, provide, or arrange for a
residential mortgage loan without verifying the borrower's
reasonable ability to pay the principal and interest on the
loan, real estate taxes, homeowner's insurance, assessments,
and mortgage insurance premiums, if applicable.
For residential mortgage loans in which the interest rate
may vary, the reasonable ability to pay the principal and
interest on the loan shall be determined based on a fully
indexed rate, which rate shall be calculated by using the index
rate prevailing at the time of origination of the loan plus the
margin that will apply when calculating the adjustable rate
under the terms of the loan, assuming a fully amortizing
repayment schedule based on the term of the loan.
For loans that allow for negative amortization, the
principal amount of the loan shall be calculated by including
the maximum amount the principal balance may increase due to

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negative amortization under the terms of the loan.
(b) For all residential mortgage loans made by a licensee,
the borrower's income and financial resources must be verified
by tax returns, payroll receipts, bank records, or other
reasonably reliable methods, based upon the circumstances of
the proposed loan. Nothing in this Section shall be construed
to limit a licensee's ability to rely on criteria other than
the borrower's income and financial resources to establish the
borrower's reasonable ability to repay a residential mortgage
loan; however, such other criteria must be verified through
reasonably reliable methods and documentation. A statement by
the borrower to the licensee of the borrower's income and
resources is not sufficient to establish the existence of the
income or resources when verifying the reasonable ability to
pay. Stated income should be accepted only if there are
mitigating factors that clearly minimize the need for direct
verification of ability to repay or the licensee is originating
the loan directly for a federally insured financial institution
that is subject to applicable federal regulation.
(Source: P.A. 95-691, eff. 6-1-08.)
Section 10. The Residential Real Property Disclosure Act is
amended by changing Sections 70 and 78 as follows:
(765 ILCS 77/70)
Sec. 70. Predatory lending database program.

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(a) As used in this Article:
"Adjustable rate mortgage" or "ARM" means a closed-end
mortgage transaction that allows adjustments of the loan
interest rate during the first 3 years of the loan term if the
interest rate at the date of application was 3% greater than
the treasury security rate of equivalent maturity as of the
fifteenth day of the previous month and the loan to value ratio
is greater than 90%.
"Borrower" means a person seeking a mortgage loan.
"Broker" means a "broker" or "loan broker", as defined in
subsection (p) of Section 1-4 of the Residential Mortgage
License Act of 1987.
"Closing agent" means an individual assigned by a title
insurance company or a broker or originator to ensure that the
execution of documents related to the closing of a real estate
sale or the refinancing of a real estate loan and the
disbursement of closing funds are in conformity with the
instructions of the entity financing the transaction.
"Counseling" means in-person counseling provided by a
counselor employed by a HUD-certified counseling agency to all
borrowers, or documented telephone counseling where a hardship
would be imposed on one or more borrowers. A hardship shall
exist in instances in which the borrower is confined to his or
her home due to medical conditions, as verified in writing by a
physician, or the borrower resides 50 miles or more from the
nearest participating HUD-certified housing counseling agency.

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In instances of telephone counseling, the borrower must supply
all necessary documents to the counselor at least 72 hours
prior to the scheduled telephone counseling session.
"Counselor" means a counselor employed by a HUD-certified
housing counseling agency.
"Credit score" means a credit risk score as defined by the
Fair Isaac Corporation, or its successor, and reported under
such names as "BEACON", "EMPIRICA", and "FAIR ISAAC RISK SCORE"
by one or more of the following credit reporting agencies or
their successors: Equifax, Inc., Experian Information
Solutions, Inc., and TransUnion LLC. If the borrower's credit
report contains credit scores from 2 reporting agencies, then
the broker or loan originator shall report the lower score. If
the borrower's credit report contains credit scores from 3
reporting agencies, then the broker or loan originator shall
report the middle score.
"Department" means the Department of Financial and
Professional Regulation.
"Exempt person" means that term as it is defined in
subsections (d)(1) and (d)(1.5) of Section 1-4 of the
Residential Mortgage License Act of 1987.
"First-time homebuyer" means a borrower who has not held an
ownership interest in residential property.
"HUD-certified counseling" or "counseling" means
counseling given to a borrower by a counselor employed by a
HUD-certified housing counseling agency.

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"Interest only" means a closed-end loan that permits one or
more payments of interest without any reduction of the
principal balance of the loan, other than the first payment on
the loan and the interest rate on the loan at application is 4%
greater than treasury securities of equivalent maturities as of
the fifteenth day of the previous month and the loan to value
ration is greater than 90%.
"Lender" means that term as it is defined in subsection (g)
of Section 1-4 of the Residential Mortgage License Act of 1987.
"Licensee" means that term as it is defined in subsection
(e) of Section 1-4 of the Residential Mortgage License Act of
1987.
"Mortgage loan" means that term as it is defined in
subsection (f) of Section 1-4 of the Residential Mortgage
License Act of 1987.
"Negative amortization" means an amortization method under
which the outstanding balance may increase at any time over the
course of the loan because the regular periodic payment does
not cover the full amount of interest due.
"Originator" means a "loan originator" as defined in
subsection (hh) of Section 1-4 of the Residential Mortgage
License Act of 1987, except an exempt person.
"Points and fees" has the meaning ascribed to that term in
Section 10 of the High Risk Home Loan Act.
"Prepayment penalty" means a charge imposed by a lender
under a mortgage note or rider when the loan is paid before the

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expiration of the term of the loan.
"Refinancing" means a loan secured by the borrower's or
borrowers' primary residence where the proceeds are not used as
purchase money for the residence.
"Title insurance company" means any domestic company
organized under the laws of this State for the purpose of
conducting the business of guaranteeing or insuring titles to
real estate and any title insurance company organized under the
laws of another State, the District of Columbia, or a foreign
government and authorized to transact the business of
guaranteeing or insuring titles to real estate in this State.
(a-5) A predatory lending database program shall be
established within Cook County. The program shall be
administered in accordance with this Article. The inception
date of the program shall be July 1, 2008. Until the inception
date, none of the duties, obligations, contingencies, or
consequences of or from the program shall be imposed. The
program shall apply to all mortgage applications that are
governed by this Article and that are made or taken on or after
the inception of the program.
(b) The database created under this program shall be
maintained and administered by the Department. The database
shall be designed to allow brokers, originators, counselors,
title insurance companies, and closing agents to submit
information to the database online. The database shall not be
designed to allow those entities to retrieve information from

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the database, except as otherwise provided in this Article.
Information submitted by the broker or originator to the
Department may be used to populate the online form submitted by
a counselor, title insurance company, or closing agent.
(c) Within 10 days after taking a mortgage application, the
broker or originator for any mortgage on residential property
within the program area must submit to the predatory lending
database all of the information required under Section 72 and
any other information required by the Department by rule.
Within 7 days after receipt of the information, the Department
shall compare that information to the housing counseling
standards in Section 73 and issue to the borrower and the
broker or originator a determination of whether counseling is
recommended for the borrower. The borrower may not waive
counseling. If at any time after submitting the information
required under Section 72 the broker or originator (i) changes
the terms of the loan or (ii) issues a new commitment to the
borrower, then, within 5 days thereafter, the broker or
originator shall re-submit all of the information required
under Section 72 and, within 4 days after receipt of the
information re-submitted by the broker or originator, the
Department shall compare that information to the housing
counseling standards in Section 73 and shall issue to the
borrower and the broker or originator a new determination of
whether re-counseling is recommended for the borrower based on
the information re-submitted by the broker or originator. The

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Department shall require re-counseling if the loan terms have
been modified to meet another counseling standard in Section
73, or if the broker has increased the interest rate by more
than 200 basis points.
(d) If the Department recommends counseling for the
borrower under subsection (c), then the Department shall notify
the borrower of all participating HUD-certified counseling
agencies located within the State and direct the borrower to
interview with a counselor associated with one of those
agencies. Within 10 days after receipt of the notice of
HUD-certified counseling agencies, the borrower shall select
one of those agencies and shall engage in an interview with a
counselor associated with that agency. Within 7 days after
interviewing the borrower, the counselor must submit to the
predatory lending database all of the information required
under Section 74 and any other information required by the
Department by rule. Reasonable and customary costs not to
exceed $300 associated with counseling provided under the
program shall be paid by the broker or originator. The
Department shall annually calculate to the nearest dollar an
adjusted rate for inflation. A counselor shall not recommend or
suggest that a borrower contact any specific mortgage
origination company, financial institution, or entity that
deals in mortgage finance to obtain a loan, another quote, or
for any other reason related to the specific mortgage
transaction; however, a counselor may suggest that the borrower

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seek an opinion or a quote from another mortgage origination
company, financial institution, or entity that deals in
mortgage finance. A counselor or housing counseling agency that
in good faith provides counseling shall not be liable to a
broker or originator or borrower for civil damages, except for
willful or wanton misconduct on the part of the counselor in
providing the counseling.
(e) The broker or originator and the borrower may not take
any legally binding action concerning the loan transaction
until the later of the following:
(1) the Department issues a determination not to
recommend HUD-certified counseling for the borrower in
accordance with subsection (c); or
(2) the Department issues a determination that
HUD-certified counseling is recommended for the borrower
and the counselor submits all required information to the
database in accordance with subsection (d).
(f) Within 10 days after closing, the title insurance
company or closing agent must submit to the predatory lending
database all of the information required under Section 76 and
any other information required by the Department by rule.
(g) The title insurance company or closing agent shall
attach to the mortgage a certificate of compliance with the
requirements of this Article, as generated by the database. If
the title insurance company or closing agent fails to attach
the certificate of compliance, then the mortgage is not

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recordable. In addition, if any lis pendens for a residential
mortgage foreclosure is recorded on the property within the
program area, a certificate of service must be simultaneously
recorded that affirms that a copy of the lis pendens was filed
with the Department. If the certificate of service is not
recorded, then the lis pendens pertaining to the residential
mortgage foreclosure in question is not recordable and is of no
force and effect.
(h) All information provided to the predatory lending
database under the program is confidential and is not subject
to disclosure under the Freedom of Information Act, except as
otherwise provided in this Article. Information or documents
obtained by employees of the Department in the course of
maintaining and administering the predatory lending database
are deemed confidential. Employees are prohibited from making
disclosure of such confidential information or documents. Any
request for production of information from the predatory
lending database, whether by subpoena, notice, or any other
source, shall be referred to the Department of Financial and
Professional Regulation. Any borrower may authorize in writing
the release of database information. The Department may use the
information in the database without the consent of the
borrower: (i) for the purposes of administering and enforcing
the program; (ii) to provide relevant information to a
counselor providing counseling to a borrower under the program;
or (iii) to the appropriate law enforcement agency or the

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applicable administrative agency if the database information
demonstrates criminal, fraudulent, or otherwise illegal
activity.
(i) Nothing in this Article is intended to prevent a
borrower from making his or her own decision as to whether to
proceed with a transaction.
(j) Any person who violates any provision of this Article
commits an unlawful practice within the meaning of the Consumer
Fraud and Deceptive Business Practices Act.
(k) During the existence of the program, the Department
shall submit semi-annual reports to the Governor and to the
General Assembly by May 1 and November 1 of each year detailing
its findings regarding the program. The report shall include at
least the following information for each reporting period:
(1) the number of loans registered with the program;
(2) the number of borrowers receiving counseling;
(3) the number of loans closed;
(4) the number of loans requiring counseling for each
of the standards set forth in Section 73;
(5) the number of loans requiring counseling where the
mortgage originator changed the loan terms subsequent to
counseling.
(Source: P.A. 94-280, eff. 1-1-06; 94-1029, eff. 7-14-06;
95-691, eff. 6-1-08; revised 11-6-08.)
(765 ILCS 77/78)

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Sec. 78. Exemption.
(1) Borrowers applying for reverse mortgage financing of
residential real estate including under programs regulated by
the Federal Housing Authority (FHA) that require HUD-certified
counseling are exempt from the program and may submit a HUD
counseling certificate to comply with the program.
(2) Any loan that qualifies to be processed through the
automated underwriting system of the Federal Home Loan Mortgage
Corporation or the Federal National Mortgage Association.
(3) Any loan that is a refinance of a FHA loan which only
reduces the interest rate and reduces the loan payment for the
borrower without additional borrower cost.
(Source: P.A. 95-691, eff. 6-1-08.)