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1 | AN ACT concerning regulation.
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2 | Be it enacted by the People of the State of Illinois, | ||||||
3 | represented in the General Assembly:
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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. | ||||||
17 | (205 ILCS 635/4-16 new) | ||||||
18 | Sec. 4-16. Private right of action. A borrower injured by a | ||||||
19 | violation of the standards, duties, prohibitions, or | ||||||
20 | requirements of Sections 5-6, 5-7, 5-8, 5-9, 5-10, 5-11, 5-12, | ||||||
21 | 5-13, 5-14, 5-15, and 5-16 of this Act shall have a private | ||||||
22 | right of action. |
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1 | (a) A licensee is not liable for a violation of this Act | ||||||
2 | if: | ||||||
3 | (1) within 30 days of the loan closing and prior to | ||||||
4 | receiving any notice from the borrower of the violation, | ||||||
5 | the licensee has made appropriate restitution to the | ||||||
6 | borrower and appropriate adjustments are made to the loan; | ||||||
7 | or | ||||||
8 | (2) the violation was not intentional and resulted from | ||||||
9 | a bona fide error in fact, notwithstanding the maintenance | ||||||
10 | of procedures reasonably adopted to avoid such errors, and | ||||||
11 | within 60 days of the discovery of the violation and prior | ||||||
12 | to receiving any notice from the borrower of the violation, | ||||||
13 | the borrower is notified of the violation, appropriate | ||||||
14 | restitution is made to the borrower, and appropriate | ||||||
15 | adjustments are made to the loan. | ||||||
16 | (b) The remedies and rights provided for in this Act are | ||||||
17 | not exclusive, but cumulative, and all other applicable claims | ||||||
18 | are specifically preserved.
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19 | (205 ILCS 635/5-6 new) | ||||||
20 | Sec. 5-6. Verification of borrower's ability to repay. | ||||||
21 | (a) No licensee may make, provide, or arrange for a | ||||||
22 | residential mortgage loan without verifying the borrower's | ||||||
23 | reasonable ability to pay the principal and interest on the | ||||||
24 | loan, real estate taxes, homeowner's insurance, assessments, | ||||||
25 | and mortgage insurance premiums, if applicable. |
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1 | For residential mortgage loans in which the interest rate | ||||||
2 | may vary, the reasonable ability to pay the principal and | ||||||
3 | interest on the loan shall be determined based on a fully | ||||||
4 | indexed rate, which rate shall be calculated by using the index | ||||||
5 | rate prevailing at the time of origination of the loan plus the | ||||||
6 | margin that will apply when calculating the adjustable rate | ||||||
7 | under the terms of the loan, assuming a fully amortizing | ||||||
8 | repayment schedule based on the term of the loan. | ||||||
9 | For loans that allow for negative amortization, the | ||||||
10 | principal amount of the loan shall be calculated by including | ||||||
11 | the maximum amount the principal balance may increase due to | ||||||
12 | negative amortization under the terms of the loan. | ||||||
13 | (b) For a residential mortgage loan made by a licensee, the | ||||||
14 | borrower's income and financial resources must be verified by | ||||||
15 | tax returns, payroll receipts, bank records, or other similarly | ||||||
16 | reliable documents. Nothing in this Section shall be construed | ||||||
17 | to limit a licensee's ability to rely on criteria other than | ||||||
18 | the borrower's income and financial resources to establish the | ||||||
19 | borrower's reasonable ability to repay a residential mortgage | ||||||
20 | loan; however, such other criteria must be verified through | ||||||
21 | reasonably reliable methods and documentation. A statement by | ||||||
22 | the borrower to the licensee of the borrower's income and | ||||||
23 | resources is not sufficient to establish the existence of the | ||||||
24 | income or resources when verifying the reasonable ability to | ||||||
25 | pay. |
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1 | (205 ILCS 635/5-7 new) | ||||||
2 | Sec. 5-7. Broker agency relationship. | ||||||
3 | (a) A mortgage broker shall be considered to have created | ||||||
4 | an agency relationship with the borrower in all cases and shall | ||||||
5 | comply with the following duties: | ||||||
6 | (1) mortgage brokers shall act in the borrower's best | ||||||
7 | interest and in the utmost good faith toward borrowers, and | ||||||
8 | shall not compromise a borrower's right or interest in | ||||||
9 | favor of another's right or interest, including a right or | ||||||
10 | interest of the mortgage broker. A mortgage broker shall | ||||||
11 | not accept, give, or charge any undisclosed compensation or | ||||||
12 | realize any undisclosed remuneration, either through | ||||||
13 | direct or indirect means, that inures to the benefit of the | ||||||
14 | mortgage broker on an expenditure made for the borrower; | ||||||
15 | (2) mortgage brokers shall carry out all lawful | ||||||
16 | instructions given by borrowers; | ||||||
17 | (3) mortgage brokers shall disclose to borrowers all | ||||||
18 | material facts of which the mortgage broker has knowledge | ||||||
19 | which might reasonably affect the borrower's rights, | ||||||
20 | interests, or ability, or both, to receive the borrower's | ||||||
21 | intended benefit from the residential mortgage loan, but | ||||||
22 | not facts which are reasonably susceptible to the knowledge | ||||||
23 | of the borrower; | ||||||
24 | (4) mortgage brokers shall use reasonable care in | ||||||
25 | performing duties; and | ||||||
26 | (5) mortgage brokers shall account to a borrower for |
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1 | all the borrower's money and
property received as agent. | ||||||
2 | (b) Nothing in this Section prohibits a mortgage broker | ||||||
3 | from contracting for or collecting a fee for services rendered | ||||||
4 | and which had been disclosed to the borrower in advance of the | ||||||
5 | provision of those services. | ||||||
6 | (c) Nothing in this Section requires a mortgage broker to | ||||||
7 | obtain a loan containing terms or conditions not available to | ||||||
8 | the mortgage broker in the mortgage broker's usual course of | ||||||
9 | business, or to obtain a loan for the borrower from a mortgage | ||||||
10 | lender with whom the mortgage broker does not have a business | ||||||
11 | relationship. | ||||||
12 | (205 ILCS 635/5-8 new) | ||||||
13 | Sec. 5-8. Prepayment penalties. | ||||||
14 | (a) No licensee may make, provide, or arrange a mortgage | ||||||
15 | loan with a prepayment
penalty unless the licensee offers the | ||||||
16 | borrower a loan without a prepayment penalty, the
offer is in | ||||||
17 | writing, and the borrower initials the offer to indicate that | ||||||
18 | the borrower has
declined the offer. In addition, the licensee | ||||||
19 | must disclose the discount in rate received in
consideration | ||||||
20 | for a mortgage loan with the prepayment penalty. | ||||||
21 | (b) If a borrower declines an offer required under | ||||||
22 | subsection (a) of this Section, the licensee may include a | ||||||
23 | prepayment penalty that extends no longer than three years or | ||||||
24 | the first change date or rate adjustment of a variable rate | ||||||
25 | mortgage, whichever comes earlier, provided that, if a |
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1 | prepayment is made during the fixed rate period, the licensee | ||||||
2 | shall receive an amount that is no more than: | ||||||
3 | (1) 3% of the total loan amount if the prepayment is | ||||||
4 | made within the first 12-month period following the date | ||||||
5 | the loan was made; | ||||||
6 | (2) 2% of the total loan amount if the prepayment is | ||||||
7 | made within the second
12-month period following the date | ||||||
8 | the loan was made; or | ||||||
9 | (3) 1% of the total loan amount if the prepayment is | ||||||
10 | made within the third 12-month period following the date | ||||||
11 | the loan was made, if the fixed rate period
extends 3 | ||||||
12 | years. | ||||||
13 | (c) Notwithstanding any provision in this Section, | ||||||
14 | prepayment penalties are prohibited in connection with the sale | ||||||
15 | or destruction of a dwelling secured by a residential mortgage | ||||||
16 | loan.
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17 | (d) This Section applies to loans made, refinanced, | ||||||
18 | renewed, extended, or modified on or after the effective date | ||||||
19 | of this amendatory Act of the 95th General Assembly. | ||||||
20 | (205 ILCS 635/5-9 new) | ||||||
21 | Sec. 5-9. Notice of change in loan terms. | ||||||
22 | (a) No licensee may fail to do either of the following: | ||||||
23 | (1) Provide timely notice to the borrower of any | ||||||
24 | material change in the terms of the residential mortgage | ||||||
25 | loan prior to the closing of the loan. For purposes of this |
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1 | Section, a "material change means" any of the following: | ||||||
2 | (A) A change in the type of loan being offered, | ||||||
3 | such as a fixed or variable rate loan or a loan with a | ||||||
4 | balloon payment. | ||||||
5 | (B) A change in the term of the loan, as reflected | ||||||
6 | in the number of monthly payments due before a final | ||||||
7 | payment is scheduled to be made. | ||||||
8 | (C) An increase in the interest rate of more than | ||||||
9 | 0.15%, or an equivalent
increase in the amount of | ||||||
10 | discount points charged. | ||||||
11 | (D) An increase in the regular monthly payment of | ||||||
12 | principal and interest of more than 5%. | ||||||
13 | (E) A change regarding the requirement or amount of | ||||||
14 | escrow of taxes or insurance. | ||||||
15 | (F) A change regarding the requirement or payment, | ||||||
16 | or both, of private mortgage insurance. | ||||||
17 | (2) Timely inform the borrower if any fees payable by | ||||||
18 | the borrower to the licensee increase by more than 10% or | ||||||
19 | $100, whichever is greater. | ||||||
20 | (b) The disclosures required by this Section shall be | ||||||
21 | deemed timely if the licensee provides the borrower with the | ||||||
22 | revised information not later than 3 days after learning of the | ||||||
23 | change or 24 hours before the residential mortgage loan is | ||||||
24 | closed, whichever is earlier. If the licensee discloses a | ||||||
25 | material change more than the 3 days after learning of the | ||||||
26 | change but still 24 hours before the residential mortgage loan |
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1 | is closed, it will not be liable for penalties or forfeitures | ||||||
2 | if the licensee cures in time for the borrower to avoid any | ||||||
3 | damage. | ||||||
4 | (c) If an increase in the total amount of the fee to be | ||||||
5 | paid by the borrower to the lender or broker is not disclosed | ||||||
6 | in accordance with this Section, the lender or broker, whoever | ||||||
7 | received the increased fee, shall refund to the borrower the | ||||||
8 | amount by which the fee was increased. If the fee is financed | ||||||
9 | into the residential mortgage loan, the lender or broker shall | ||||||
10 | also refund to the borrower the interest charged to finance the | ||||||
11 | fee.
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12 | (205 ILCS 635/5-10 new) | ||||||
13 | Sec. 5-10. Comparable monthly payment quotes. When | ||||||
14 | comparing different loans, the licensee must not state or imply | ||||||
15 | that monthly loan payments, if they include amounts escrowed | ||||||
16 | for payment of property taxes and homeowner's insurance, are | ||||||
17 | comparable with monthly loan payments that do not include these | ||||||
18 | amounts. | ||||||
19 | (205 ILCS 635/5-11 new) | ||||||
20 | Sec. 5-11. Requirement to provide borrower with a copy of | ||||||
21 | all appraisals. Licensees must provide to the borrower a | ||||||
22 | complete copy of any appraisal, including any appraisal | ||||||
23 | generated using the Automated Valuation Model, obtained by the | ||||||
24 | lender for use in underwriting the residential mortgage loan |
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1 | within 3 business days of receipt by the licensee, but in no | ||||||
2 | event less than 24 hours prior to the day of closing. The | ||||||
3 | appraisal may be sent via first class mail, commercial carrier, | ||||||
4 | by facsimile or by e-mail, if the borrower has supplied an | ||||||
5 | email address. | ||||||
6 | (205 ILCS 635/5-12 new) | ||||||
7 | Sec. 5-12. Disclosure of refinancing options. If the | ||||||
8 | subject of a future loan is discussed by a licensee making, | ||||||
9 | providing, or arranging a mortgage loan, the licensee shall | ||||||
10 | disclose the circumstances under which a new loan could be | ||||||
11 | considered. Such disclosure shall clearly state that it is not | ||||||
12 | a contract and that the licensee is not representing or | ||||||
13 | promising that a new loan could or would be made at any time in | ||||||
14 | the future. | ||||||
15 | (205 ILCS 635/5-14 new) | ||||||
16 | Sec. 5-14. Prohibition on equity stripping and loan | ||||||
17 | flipping. No licensee may engage in equity stripping or loan | ||||||
18 | flipping, as those terms are defined in the Illinois Fairness | ||||||
19 | in Lending Act. | ||||||
20 | (205 ILCS 635/5-15 new) | ||||||
21 | Sec. 5-15. Prohibition on financing certain insurance | ||||||
22 | premiums. No licensee may make, provide, or arrange for a | ||||||
23 | residential mortgage loan that finances, directly or |
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1 | indirectly, any credit life, credit disability, or credit | ||||||
2 | unemployment insurance; however, insurance premiums calculated | ||||||
3 | and paid on a monthly basis shall not be considered to be | ||||||
4 | financed by the lender. | ||||||
5 | (205 ILCS 635/5-16 new) | ||||||
6 | Sec. 5-16. Prohibition on encouraging default. A licensee | ||||||
7 | may not recommend or encourage default or the failure to make | ||||||
8 | timely payments on an existing residential mortgage loan or | ||||||
9 | other debt prior to and in connection with the closing or | ||||||
10 | planned closing of a residential mortgage loan that refinances | ||||||
11 | all or any portion of the existing loan or debt. | ||||||
12 | (205 ILCS 635/5-17 new) | ||||||
13 | Sec. 5-17. Severability. If any provision of this Act or | ||||||
14 | its application to any person or circumstance is held invalid, | ||||||
15 | the invalidity of that provision or application does not affect | ||||||
16 | other provisions or applications of this Act that can be given | ||||||
17 | effect without the invalid provision or application. | ||||||
18 | Section 10. The Interest Act is amended by changing Section | ||||||
19 | 4.1a as follows:
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20 | (815 ILCS 205/4.1a) (from Ch. 17, par. 6406)
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21 | Sec. 4.1a. Charges for and cost of the following items paid | ||||||
22 | or
incurred by any lender in connection with any loan shall not |
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1 | be deemed
to be charges for or in connection with any loan of | ||||||
2 | money referred to in
Section 6 of this Act, or charges by the | ||||||
3 | lender as a consideration for
the loan referred to in this | ||||||
4 | Section:
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5 | (a) hazard, mortgage or life insurance premiums, | ||||||
6 | survey, credit
report, title insurance, abstract and | ||||||
7 | attorneys' fees, recording
charges, escrow and appraisal | ||||||
8 | fees, and similar charges.
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9 | (b) in the case of construction loans, in addition to | ||||||
10 | the matters
referred to in clause (a) above, the actual | ||||||
11 | cost incurred by the lender
for services for making | ||||||
12 | physical inspections, processing payouts,
examining and | ||||||
13 | reviewing contractors' and subcontractors' sworn
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14 | statements and waivers of lien and the like.
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15 | (c) in the case of any loan made pursuant to the | ||||||
16 | provisions of the
Emergency Home Purchase Assistance Act of | ||||||
17 | 1974 (Section 313 of the
National Housing Act, Chapter B of | ||||||
18 | Title 12 of the United States Code),
in addition to the | ||||||
19 | matters referred to in paragraphs (a) and (b) of this
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20 | Section all charges required or allowed by the Government | ||||||
21 | National
Mortgage Association, whether designated as | ||||||
22 | processing fees, commitment
fees, loss reserve and | ||||||
23 | marketing fees, discounts, origination fees or
otherwise | ||||||
24 | designated.
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25 | (d) in the case of a single payment loan, made for a | ||||||
26 | period of 6 months
or less, a regulated financial |
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1 | institution or licensed lender may contract
for and receive | ||||||
2 | a maximum charge of $15 in lieu of interest. Such charge
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3 | may be collected when the loan is made, but only one such | ||||||
4 | charge may be
contracted for, received, or collected for | ||||||
5 | any such loan, including any
extension or renewal thereof.
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6 | (e) if the agreement governing the loan so provides, a | ||||||
7 | charge not to
exceed the rate permitted under Section 3-806 | ||||||
8 | of the Uniform Commercial
Code-Commercial Paper for any | ||||||
9 | check, draft or order for the payment of
money submitted in | ||||||
10 | accordance with said agreement which is unpaid or not
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11 | honored by a bank or other depository institution.
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12 | (f) if the agreement governing the loan so provides, | ||||||
13 | for each loan
installment in default for a period of not | ||||||
14 | less than 10 days, a charge in
an amount not in excess of | ||||||
15 | 5% of such loan installment. Only one
delinquency charge | ||||||
16 | may be collected on any such loan installment regardless
of | ||||||
17 | the period during which it remains in default. Payments | ||||||
18 | timely received
by the lender under a written extension or | ||||||
19 | deferral agreement shall not be
subject to any delinquency | ||||||
20 | charge.
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21 | Notwithstanding items (k) and (l) of subsection (1) of | ||||||
22 | Section 4 of this Act, the lender, in the case of any nonexempt | ||||||
23 | residential mortgage loan, as defined in Section 1-4 of the | ||||||
24 | Residential Mortgage License Act of 1987, shall have the right | ||||||
25 | to include a prepayment penalty that extends no longer than the | ||||||
26 | fixed rate period of a variable rate mortgage provided that, if |
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1 | a prepayment is made during the fixed rate period and not in | ||||||
2 | connection with the sale or destruction of the dwelling | ||||||
3 | securing the loan, the lender shall receive an amount that is | ||||||
4 | no more than: | ||||||
5 | (1) 3% of the total loan amount if the prepayment is | ||||||
6 | made within the first 12-month period following the date | ||||||
7 | the loan was made; | ||||||
8 | (2) 2% of the total loan amount if the prepayment is | ||||||
9 | made within the second
12-month period following the date | ||||||
10 | the loan was made; or | ||||||
11 | (3) 1% of the total loan amount if the prepayment is | ||||||
12 | made within the third 12-month period following the date | ||||||
13 | the loan was made, if the fixed rate period
extends 3 | ||||||
14 | years.
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15 | This subsection applies to loans made, refinanced, | ||||||
16 | renewed, extended, or modified on or after the effective date | ||||||
17 | of this amendatory Act of the 95th General Assembly.
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18 | Where there is a charge in addition to the stated rate of | ||||||
19 | interest
payable directly or indirectly by the borrower and | ||||||
20 | imposed directly or
indirectly by the lender as a consideration | ||||||
21 | for the loan, or for or in
connection with the loan of money, | ||||||
22 | whether paid or payable by the
borrower, the seller, or any | ||||||
23 | other person on behalf of the borrower to
the lender or to a | ||||||
24 | third party, or for or in connection with the loan of
money, | ||||||
25 | other than as hereinabove in this Section provided, whether
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26 | denominated "points," "service charge," "discount," |
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1 | "commission," or
otherwise, and without regard to declining | ||||||
2 | balances of principal which
would result from any required or | ||||||
3 | optional amortization of the principal
of the loan, the rate of | ||||||
4 | interest shall be calculated in the following
manner:
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5 | The percentage of the principal amount of the loan | ||||||
6 | represented by all
of such charges shall first be computed, | ||||||
7 | which in the case of a loan
with an interest rate in excess of | ||||||
8 | 8% per annum secured by residential
real estate, other than | ||||||
9 | loans described in paragraphs (e) and (f) of
Section 4, shall | ||||||
10 | not exceed 3% of such principal amount. Said
percentage shall | ||||||
11 | then be divided by the number of years and fractions
thereof of | ||||||
12 | the period of the loan according to its stated maturity. The
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13 | percentage thus obtained shall then be added to the percentage | ||||||
14 | of the
stated annual rate of interest.
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15 | The borrower in the case of nonexempt loan shall have the | ||||||
16 | right to
prepay the loan in whole or in part at any time, but, | ||||||
17 | except as may
otherwise be provided by Section 4, the lender | ||||||
18 | may require payment of
not more than 6 months' advance interest | ||||||
19 | on that part of the aggregate
amount of all prepayments on a | ||||||
20 | loan in one year, which exceeds 20% of
the original principal | ||||||
21 | amount of the loan.
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22 | (Source: P.A. 87-496 .)
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