SB3522 EngrossedLRB097 19115 JLS 64356 b

1    AN ACT concerning business.
 
2    Be it enacted by the People of the State of Illinois,
3represented in the General Assembly:
 
4    Section 5. The Residential Mortgage License Act of 1987 is
5amended by changing Section 5-8 as follows:
 
6    (205 ILCS 635/5-8)
7    Sec. 5-8. Prepayment penalties.
8    (a) No licensee may make, provide, or arrange a mortgage
9loan with a prepayment penalty unless the licensee offers the
10borrower a loan without a prepayment penalty, the offer is in
11writing, and the borrower initials the offer to indicate that
12the borrower has declined the offer. In addition, the licensee
13must disclose the discount in rate received in consideration
14for a mortgage loan with the prepayment penalty.
15    (b) If a borrower declines an offer required under
16subsection (a) of this Section, the licensee may include,
17except as prohibited by Section 30 of the High Risk Home Loan
18Act, a prepayment penalty that extends no longer than three
19years or the first change date or rate adjustment of a variable
20rate mortgage, whichever comes earlier, provided that, if a
21prepayment is made during the fixed rate period, the licensee
22shall receive an amount that is no more than:
23        (1) 3% of the total loan amount if the prepayment is

 

 

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1    made within the first 12-month period following the date
2    the loan was made;
3        (2) 2% of the total loan amount if the prepayment is
4    made within the second 12-month period following the date
5    the loan was made; or
6        (3) 1% of the total loan amount if the prepayment is
7    made within the third 12-month period following the date
8    the loan was made, if the fixed rate period extends 3
9    years.
10    (c) Notwithstanding any provision in this Section,
11prepayment penalties are prohibited in connection with the sale
12or destruction of a dwelling secured by a residential mortgage
13loan.
14    (d) This Section applies to loans made, refinanced,
15renewed, extended, or modified on or after the effective date
16of this amendatory Act of the 95th General Assembly.
17(Source: P.A. 95-691, eff. 6-1-08.)
 
18    Section 10. The High Risk Home Loan Act is amended by
19changing Sections 10, 30, 55, 80, and 145 and by adding
20Sections 35, 35.5, 80.5, 80.6, and 90.5 as follows:
 
21    (815 ILCS 137/10)
22    Sec. 10. Definitions. As used in this Act:
23    "Approved credit counselor" means a credit counselor
24approved by the Director of Financial Institutions.

 

 

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1    "Bona fide discount points" means loan discount points that
2are knowingly paid by the consumer for the purpose of reducing,
3and that in fact result in a bona fide reduction of, the
4interest rate or time price differential applicable to the
5mortgage.
6    "Borrower" means a natural person who seeks or obtains a
7high risk home loan.
8    "Commissioner" means the Commissioner of the Office of
9Banks and Real Estate.
10    "Department" means the Department of Financial
11Institutions.
12    "Director" means the Director of Financial Institutions.
13    "Good faith" means honesty in fact in the conduct or
14transaction concerned.
15    "High risk home loan" means a consumer credit transaction,
16other than a reverse mortgage, that is secured by the
17consumer's principal dwelling if: home equity loan in which (i)
18at the time of origination, the annual percentage rate exceeds
19by more than 6 percentage points in the case of a first lien
20mortgage, or by more than 8 percentage points in the case of a
21junior mortgage, the average prime offer rate, as defined in
22Section 129C(b)(2)(B) of the federal Truth in Lending Act, for
23a comparable transaction as of the date on which the interest
24rate for the transaction is set, yield on U.S. Treasury
25securities having comparable periods of maturity to the loan
26maturity as of the fifteenth day of the month immediately

 

 

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1preceding the month in which the application for the loan is
2received by the lender or (ii) the loan documents permit the
3creditor to charge or collect prepayment fees or penalties more
4than 36 months after the transaction closing or such fees
5exceed, in the aggregate, more than 2% of the amount prepaid,
6or (iii) the total points and fees payable in connection with
7the transaction, other than bona fide third-party charges not
8retained by the mortgage originator, creditor, or an affiliate
9of the mortgage originator or creditor, by the consumer at or
10before closing will exceed (1) the greater of 5% of the total
11loan amount in the case of a transaction for $20,000 or more or
12(2) the lesser of 8% of the total loan amount or $1,000 (or
13such other dollar amount as prescribed by federal regulation
14pursuant to the federal Dodd-Frank Act) in the case of a
15transaction for less than $20,000, except that, with respect to
16all transactions, bona fide loan discount points may be
17excluded as provided for in Section 35 of this Act. or $800.
18The $800 figure shall be adjusted annually on January 1 by the
19annual percentage change in the Consumer Price Index for All
20Urban Consumers for all items published by the United States
21Department of Labor. "High risk home loan" does not include a
22loan that is made primarily for a business purpose unrelated to
23the residential real property securing the loan or to an
24open-end credit plan subject to 12 CFR 226 (2000, no subsequent
25amendments or editions are included).
26    "Home equity loan" means any loan secured by the borrower's

 

 

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1primary residence where the proceeds are not used as purchase
2money for the residence.
3    "Lender" means a natural or artificial person who
4transfers, deals in, offers, or makes a high risk home loan.
5"Lender" includes, but is not limited to, creditors and brokers
6who transfer, deal in, offer, or make high risk home loans.
7"Lender" does not include purchasers, assignees, or subsequent
8holders of high risk home loans.
9    "Office" means the Office of Banks and Real Estate.
10    "Points and fees" means all items considered required to be
11disclosed as points and fees under 12 CFR 226.32 (2000, or as
12initially amended pursuant to Section 1431 of the federal
13Dodd-Frank Act with no subsequent amendments or editions
14included, whichever is later); the premium of any single
15premium credit life, credit disability, credit unemployment,
16or any other life or health insurance that is financed directly
17or indirectly into the loan; and compensation paid directly or
18indirectly by a consumer or creditor to a mortgage broker from
19any source, including a broker that originates a loan in its
20own name in a table-funded transaction, not otherwise included
21in 12 CFR 226.4; the maximum prepayment fees and penalties that
22may be charged or collected under the terms of the credit
23transaction; all prepayment fees or penalties that are incurred
24by the consumer if the loan refinances a previous loan made or
25currently held by the same creditor or an affiliate of the
26creditor; and premiums or other charges payable at or before

 

 

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1closing or financed directly or indirectly into the loan for
2any credit life, credit disability, credit unemployment,
3credit property, other accident, loss of income, life, or
4health insurance or payments directly or indirectly for any
5debt cancellation or suspension agreement or contract, except
6that insurance premiums or debt cancellation or suspension fees
7calculated and paid in full on a monthly basis shall not be
8considered financed by the creditor. "Points and fees" does not
9include any insurance premium provided by an agency of the
10federal government or an agency of a state; any insurance
11premium paid by the consumer after closing; and any amount of a
12premium, charge, or fee that is not in excess of the amount
13payable under policies in effect at the time of origination
14under Section 203(c)(2)(A) of the National Housing Act (12
15U.S.C. 1709(c)(2)(A)), provided that the premium, charge, or
16fee is required to be refundable on a pro-rated basis and the
17refund is automatically issued upon notification of the
18satisfaction of the underlying mortgage loan.
19    "Reasonable" means fair, proper, just, or prudent under the
20circumstances.
21    "Servicer" means any entity chartered under the Illinois
22Banking Act, the Savings Bank Act, the Illinois Credit Union
23Act, or the Illinois Savings and Loan Act of 1985 and any
24person or entity licensed under the Residential Mortgage
25License Act of 1987, the Consumer Installment Loan Act, or the
26Sales Finance Agency Act who is responsible for the collection

 

 

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1or remittance for, or has the right or obligation to collect or
2remit for, any lender, note owner, or note holder or for a
3licensee's own account, of payments, interest, principal, and
4trust items (such as hazard insurance and taxes on a
5residential mortgage loan) in accordance with the terms of the
6residential mortgage loan, including loan payment follow-up,
7delinquency loan follow-up, loan analysis, and any
8notifications to the borrower that are necessary to enable the
9borrower to keep the loan current and in good standing.
10    "Total loan amount" has the same meaning as that term is
11given in 12 CFR 226.32 and shall be calculated in accordance
12with the Federal Reserve Board's Official Staff Commentary to
13that regulation.
14(Source: P.A. 93-561, eff. 1-1-04.)
 
15    (815 ILCS 137/30)
16    Sec. 30. No prepayment Prepayment penalty. A high risk home
17loan may not contain terms under which a consumer must pay a
18prepayment penalty for paying all or part of the principal
19before the date on which the principal is due. For purposes of
20this Section, any method of computing a refund of unearned
21scheduled interest is a prepayment penalty if it is less
22favorable to the consumer than the actuarial method as that
23term is defined by Section 933(d) of the federal Housing and
24Community Development Act of 1992, 15 U.S.C. 1615(d). For any
25loan that is subject to the provisions of this Act and is not

 

 

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1subject to the provisions of the Home Ownership and Equity
2Protection Act of 1994, no lender shall make a high risk home
3loan that includes a penalty provision for payment made: (i)
4after the expiration of the 36-month period following the date
5the loan was made; or (ii) that is more than:
6        (1) 3% of the total loan amount if the prepayment is
7    made within the first 12-month period following the date
8    the loan was made;
9        (2) 2% of the total loan amount if the prepayment is
10    made within the second 12-month period following the date
11    the loan was made; or
12        (3) 1% of the total loan amount if the prepayment is
13    made within the third 12-month period following the date
14    the loan was made.
15(Source: P.A. 93-561, eff. 1-1-04.)
 
16    (815 ILCS 137/35 new)
17    Sec. 35. Bona fide discount points. For the purposes of
18determining whether the amount of points and fees meets the
19definition of "high risk home loan" under this Act, either the
20amounts described in paragraph (1) or (2) of this Section, but
21not both, shall be excluded:
22        (1) Up to and including 2 bona fide discount points
23    payable by the consumer in connection with the mortgage,
24    but only if the interest rate from which the mortgage's
25    interest rate will be discounted does not exceed by more

 

 

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1    than one percentage point:
2            (A) the average prime offer rate, as defined in
3        Section 129C of the federal Truth in Lending Act (15
4        U.S.C. 1639); or
5            (B) if secured by a personal property loan, the
6        average rate on a loan in connection with which
7        insurance is provided under Title I of the National
8        Housing Act (12 U.S.C. 1702 et seq.).
9        (2) Unless 2 bona fide discount points have been
10    excluded under paragraph (1), up to and including one bona
11    fide discount point payable by the consumer in connection
12    with the mortgage, but only if the interest rate from which
13    the mortgage's interest rate will be discounted does not
14    exceed by more than 2 percentage points:
15            (A) the average prime offer rate, as defined in
16        Section 129C of the federal Truth in Lending Act (15
17        U.S.C. 1639); or
18            (B) if secured by a personal property loan, the
19        average rate on a loan in connection with which
20        insurance is provided under Title I of the National
21        Housing Act (12 U.S.C. 1702 et seq.).
22    Paragraphs (1) and (2) shall not apply to discount points
23used to purchase an interest rate reduction unless the amount
24of the interest rate reduction purchased is reasonably
25consistent with established industry norms and practices for
26secondary mortgage market transactions.
 

 

 

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1    (815 ILCS 137/35.5 new)
2    Sec. 35.5. No balloon payments. No high risk home loan may
3contain a scheduled payment that is more than twice as large as
4the average of earlier scheduled payments. This Section does
5not apply when the payment schedule is adjusted to the seasonal
6or irregular income of the consumer.
 
7    (815 ILCS 137/55)
8    Sec. 55. Financing of points and fees. No lender shall
9transfer, deal in, offer, or make a high risk home loan that
10finances, directly or indirectly, any points and fees. No
11lender shall transfer, deal in, offer, or make a high risk home
12loan that finances any prepayment fee or penalty payable by the
13consumer in a refinancing transaction if the creditor or an
14affiliate of the creditor is the noteholder of the note being
15refinanced in excess of 6% of the total loan amount.
16(Source: P.A. 93-561, eff. 1-1-04.)
 
17    (815 ILCS 137/80)
18    Sec. 80. Late payment fee. A lender shall not transfer,
19deal in, offer, or make a high risk home loan that provides for
20a late payment fee, except under the following conditions:
21        (1) the late payment fee shall not be in excess of 4%
22    5% of the amount of the payment past due;
23        (2) the late payment fee shall only be assessed for a

 

 

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1    payment past due for 15 days or more;
2        (3) the late payment fee shall not be imposed more than
3    once with respect to a single late payment;
4        (4) a late payment fee that the lender has collected
5    shall be reimbursed if the borrower presents proof of
6    having made a timely payment; and
7        (5) a lender shall treat each payment as posted on the
8    same business day as it was received by the lender,
9    servicer, or lender's agent or at the address provided to
10    the borrower by the lender, servicer, or lender's agent for
11    making payments.
12(Source: P.A. 93-561, eff. 1-1-04.)
 
13    (815 ILCS 137/80.5 new)
14    Sec. 80.5. Coordination with subsequent late fees. If a
15payment is otherwise a full payment for the applicable period,
16is paid on its due date or within an applicable grace period,
17and the only delinquency or insufficiency of payment is
18attributable to any late fee or delinquency charge assessed on
19any earlier payment, no late fee or delinquency charge may be
20imposed on the payment.
 
21    (815 ILCS 137/80.6 new)
22    Sec. 80.6. Failure to make installment payment. If, in the
23case of a loan agreement the terms of which provide that any
24payment shall first be applied to any past principal balance,

 

 

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1the consumer fails to make an installment payment and the
2consumer subsequently resumes making installment payments but
3has not paid all past due installments, the creditor may impose
4a separate late payment charge or fee for any principal due
5(without deduction due to late fees or related fees) until the
6default is cured.
 
7    (815 ILCS 137/90.5 new)
8    Sec. 90.5. Modification and deferral fees prohibited. A
9lender, successor in interest, assignee, or any agent of any of
10the foregoing may not charge a consumer any fee to modify,
11renew, extend, or amend a high risk home loan or to defer any
12payment due under the terms of the loan.
 
13    (815 ILCS 137/145)
14    Sec. 145. Subterfuge prohibited. No lender, with the intent
15to avoid the application or provisions of this Act, shall (i)
16divide a loan transaction into separate parts, or (ii)
17structure a loan transaction as an open-end credit plan or
18another form of loan, or (iii) perform any other subterfuge.
19(Source: P.A. 93-561, eff. 1-1-04.)
 
20    Section 15. The Interest Act is amended by changing Section
214.1a as follows:
 
22    (815 ILCS 205/4.1a)  (from Ch. 17, par. 6406)

 

 

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

 

 

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1        (d) in the case of a single payment loan, made for a
2    period of 6 months or less, a regulated financial
3    institution or licensed lender may contract for and receive
4    a maximum charge of $15 in lieu of interest. Such charge
5    may be collected when the loan is made, but only one such
6    charge may be contracted for, received, or collected for
7    any such loan, including any extension or renewal thereof.
8        (e) if the agreement governing the loan so provides, a
9    charge not to exceed the rate permitted under Section 3-806
10    of the Uniform Commercial Code-Commercial Paper for any
11    check, draft or order for the payment of money submitted in
12    accordance with said agreement which is unpaid or not
13    honored by a bank or other depository institution.
14        (f) if the agreement governing the loan so provides,
15    for each loan installment in default for a period of not
16    less than 10 days, a charge in an amount not in excess of
17    5% of such loan installment. Only one delinquency charge
18    may be collected on any such loan installment regardless of
19    the period during which it remains in default. Payments
20    timely received by the lender under a written extension or
21    deferral agreement shall not be subject to any delinquency
22    charge.
23    Notwithstanding items (k) and (l) of subsection (1) of
24Section 4 of this Act, the lender, in the case of any nonexempt
25residential mortgage loan, as defined in Section 1-4 of the
26Residential Mortgage License Act of 1987, other than a high

 

 

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

 

 

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1third party, or for or in connection with the loan of money,
2other than as hereinabove in this Section provided, whether
3denominated "points," "service charge," "discount,"
4"commission," or otherwise, and without regard to declining
5balances of principal which would result from any required or
6optional amortization of the principal of the loan, the rate of
7interest shall be calculated in the following manner:
8    The percentage of the principal amount of the loan
9represented by all of such charges shall first be computed,
10which in the case of a loan with an interest rate in excess of
118% per annum secured by residential real estate, other than
12loans described in paragraphs (e) and (f) of Section 4, shall
13not exceed 3% of such principal amount. Said percentage shall
14then be divided by the number of years and fractions thereof of
15the period of the loan according to its stated maturity. The
16percentage thus obtained shall then be added to the percentage
17of the stated annual rate of interest.
18(Source: P.A. 95-691, eff. 6-1-08.)
 
19    Section 99. Effective date. This Act takes effect January
201, 2013.