Division of Banking

The High Risk Home Loan Act (the "Act") [815 ILCS 137] is commonly referred to as the Illinois predatory lending law. The term "predatory lending" is not defined by Illinois law, but most closely refers to a number of restricted practices for state licensed or chartered residential mortgage brokers and lenders under the Act. In addition, any person who knowingly violates the Act also commits an unlawful practice under the Consumer Fraud and Deceptive Business Practices Act [815 ILCS 505/2Z].

A "high risk home loan" is defined in Section 10 of the Act. A high risk home loan occurs when a refinanced home equity loan either exceeds the annual percentage rate (APR) by more than 6% on a first lien mortgage (or by more than 8% on a second lien mortgage) in comparison to the yield on comparable U.S. Treasury securities as of fifteenth of the preceding month, or 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 $1,000 (adjusted annually by the Consumer Price Index).

Example: A high risk home loan occurs when a consumer refinances a first lien mortgage of 10.50% or second lien mortgage of 12.50% (with a comparable U.S. Treasury rate of 4%), or a consumer refinances a first or second lien mortgage of $100,000 which includes $5,500 (5.5%) in points and fees payable by the consumer.

If your loan meets the definition of a "high risk home loan" and your loan was subject to one or more predatory lending practices described in the Act then you may be in a predatory loan. Under Section 80 of the Act, no lender shall make a high risk home loan that provides for a late payment fee except under the following conditions:

• The payment past due does not exceed 4% of the amount;
• The late payment fee shall only be assessed for a payment past due for 15 days or more;
• The late payment fee shall not be imposed more than once with respect to a single late payment;
• A late payment fee that the lender has collected shall be reimbursed if the borrower presents proof of having made a timely payment;
• And a lender shall treat each payment as posted on the same business day as it was received by the lender. This includes the servicer, lender's agent or at the address provided to the borrower by the lender, servicer, or lender's agent for making payments.

Example: A consumer's schedule payment of $1,000 is due on the first of every month. If the consumer is charged a late payment fee of $60 or 6% of the amount on the tenth day of the month and is again charged a late payment fee on the twentieth day of the month, then in a high risk home loan this may be a violation of Section 80 of the High Risk Home Loan Act.

Conventional mortgages are known as "A" loans and generally provide the lowest interest rates and contain fewer "balloon" payments, pre-payment penalties or other features. Sub-prime mortgages allow borrowers with low incomes or bad credit ratings access to home financing. They are known as "B," "C," or "D" loans and usually have higher interest rates and fees. Most sub-prime lenders are legitimate businesses that seek to provide credit accessibility to people with low incomes or impaired credit histories. Always ask a lender if you qualify for a conventional mortgage before agreeing to a sub-prime mortgage loan.

Example: The lender makes a high risk home loan and offers you a sub-prime loan at an 8% interest rate knowing that you qualify for a conventional loan at a lower interest rate of 7%. If the broker or lender makes a high risk home loan and does not act in good faith with the consumer, then this may be a violation of Section 25 of the Act. /p>

If the lender offers less favorable terms (larger down payments, shorter maturity dates on loans, higher interest rates, or under appraisal of real estate) for financial credit used to purchase or improve a home due to the consumer's age, then the lender has violated the Illinois Human Rights Act [775 ILCS 5/4-101].

Example: An individual aged 65 years old requests a 30-year home mortgage loan and is only offered a 15-year loan because the broker says the lender wants to make sure that the consumer will be around to pay off this loan. This example may be a violation under the Illinois Human Rights Act [775 ILCS 5/4-101].

If the appraiser at the broker's request inflates the value of the property in order for the broker to make the loan, then the appraiser would be not be exercising his or her independent judgment and would be violating the federal Uniform Standards of Professional Appraisal Practice (USPAP) and the Real Estate Appraiser Licensing Act of 2002 [225 ILCS 458]. Moreover, if the broker compensates the appraiser for the purpose of influencing the independent judgment of the appraiser, then the broker would be violating Section 2-4(g) of the Residential Mortgage Licensing Act of 1987 [205 ILCS 635].

Example: The broker is aware that the lender will not refinance the homeowner's loan because the appraised value of the home is too low. The broker directs the appraiser to value the home at a predetermined higher than fair market value in order to complete the transaction with the lender and compensates the appraiser for that providing an appraisal at the directed valuation. This example may be a violation of Uniform Standards of Professional Appraisal Practice, the Real Estate Appraiser Licensing Act of 2002 or the Residential Mortgage Licensing Act of 1987.

If the broker made a high risk home loan and believed at the time the refinanced loan closed that the borrower would not be able to make the scheduled payments to repay the obligation, then in no case may a broker allow a borrower to close the loan if it exceeds 50% of the borrower's monthly gross income. This practice violates Section 15 of the Act. A financial institution (under State of Illinois regulation) must reasonably believe for any refinanced loan that the person will be able to make the scheduled payments under the Illinois Fairness in Lending Act [815 ILCS 120]. If a financial institution cannot make this determination and proceeds with the loan it is considered unlawful "equity stripping" under Section 2 of the Illinois Fairness in Lending Act.

Example: A borrower with a monthly gross income of $1,000 contracts for an adjustable rate high risk home loan with a $500 monthly (lower introductory interest rate) payment that includes the principal, interest, taxes, insurance and assessments, but at the first rate adjustment it increases above the $500 monthly scheduled payment. This example may be a violation of Section 15 of the High Risk Home Loan Act.

If the broker makes a high risk home loan and did not verify your ability to repay the loan through a borrower's personal income and expense statement, by means of tax returns, pay stubs, accounting statements, or other prudent means, and by obtaining the borrower's credit report, then this may be a violation of Section 20 of the High Risk Home Loan Act.

If a lender makes a high risk home loan, not subject to the federal Home Ownership Equity Protection Act [see 12 CFR 226.32(d)(7)] that includes a penalty provision for payment made after the expiration of the 36 month period following the date the loan was made or that is more than 3% for the first 12-months, 2% for the second 12-months or 1% within the third 12-months, then this practice may be a violation of Section 30 of the High Risk Home Loan Act. Further, under the Interest Act [815 ILCS 205/4] whenever the interest rate exceeds 8% per year on any loan secured by a mortgage on Illinois residential property, it is unlawful for a state licensed or chartered lender to provide for a prepayment penalty or other charge for prepayment (Note: This provision became effective for Adjusted Rate Mortgages on 07/01/03).

S Example: If a consumer closed on a high risk home loan for $100,000 on January 01, 2004 and is charged 4% or $4,000 of the total loan amount as a prepayment penalty within the first 12 months from the date the loan was made, then this may be a violation of Section 30 of the High Risk Home Loan Act.

If you did not receive a copy of the signed papers at closing either directly from a lender licensed by Office of Banks and Real Estate or from the lender's agent at the closing, then the lender is in violation of Section 1050.1150 of the Rules of the Residential Mortgage License Act of 1987 [38 Ill. Adm. Code 1050.1150]. A consumer may file a complaint with Office of Banks and Real Estate against a lender who is an Illinois residential mortgage licensee. Title companies are under the jurisdiction of the Department of Financial Institutions (DFI). You may file a complaint with DFI against the title agent. The withholding of closing documents or errors found in closing documents will be reviewed by Office of Banks and Real Estate or DFI.

Example: Consumer goes to closing at a title agent's office and neither the Office of Banks and Real Estate -licensed mortgage broker or lender are present at the closing and the title agent does not provide a closing packet with signed papers to the consumer when he or she leaves the closing, or the title agent provides closing documents with errors at the closing. This example may be a violation of the Rules of the Residential Mortgage License Act of 1987.

As required under the federal Real Estate Settlement Procedures Act (RESPA) and Regulation X [24 CFR 3500.7], a lender must provide all applicants for a federally related mortgage loan with a Good Faith Estimate (GFE) of the amount or range of charges for the specific settlement services the borrower is likely to incur at settlement. This is only an estimate and the actual costs may differ, however, Office of Banks and Real Estate requires its licensed brokers and lenders to inform borrowers of material changes to the GFE while the loan is in process [38 Ill. Adm. Code 1050.1230]. Under RESPA and Regulation X [24 CFR 3500.10], a borrower may typically request a copy of the final closing statement one business day in advance of the settlement. Also, under the federal Truth in Lending Act (TILA) and Regulation Z [12 CFR 226.23], most borrowers have 3 business days from closing a refinanced loan (from settlement) to rescind the loan and receive any monies provided to the broker or third parties for the loan transaction.

If a lender refinances and as a part of such refinancing charges additional points and fees within a 12 month period after the original loan agreement was signed, then for a high risk home loan this may be a violation of Section 45 of the High Risk Home Loan Act unless there is a tangible net benefit. For any refinanced loan, the financial institution must reasonably believe that person will receive a tangible net benefit from the loan or it would be considered unlawful "loan flipping" under the Illinois Fairness in Lending Act [815 ILCS 120/2] (Note: The terms "tangible net benefit" and "tangible benefit" currently are not defined by Illinois law).

Example: Broker talks a consumer into refinancing into a high risk home loan 10 months after originating a loan with the consumer and the refinancing does not result in lower monthly payments or other benefits such as cash out to the borrower or paying off debts. This may be a violation of Section 45 of the High Risk Home Loan Act unless there is a tangible net benefit.