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91_SB1490
LRB9112777JSpc
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.
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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
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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
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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
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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
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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.