After the failure of IL HB 4050 (See: How will Illinois HB 4050 affect you?) the Illinois General Assembly went to work to revamp the law and revise some of its rules. The result of this was IL SB1167 also known as the Anti Predatory Lending Database Program.For all applications dated July 1, 2008 or later lenders will have to enter all borrower(s) pertinent information along with information on the mortgage applied for into a database with the State of Illinois. Depending on the information entered, the borrower(s) may have to attend counseling paid for by the mortgage company and provided by housing counselors approved by the State of Illinois.
How do we know if we need to go to counseling?
Counseling will be required on a purchase transaction only if the borrowers are first-time home buyers and the mortgage applied for contains one or more of the following:
1) The loan permits interest-only payments
2) The loan may result in negative-amortization
3) The total points and fees payable by the borrower at or before closing will exceed 5%
4) The loan includes a prepayment penalty
5) The loan is an adjustable rate mortgage which allows adjustments of the interest rate in the first three years.
Counseling will be required for all refinance transactions that contain one or more of the above-mentioned features.
Investment properties are exempt from this law as are reverse mortgage transactions.
This sounds like a good idea, why are so many people against it?
Most of us in the mortgage industry agree that the intentions of the law are good – make sure people understand the mortgages they are getting and are able to afford them. However, as often happens when the government gets involved, they are going about it the wrong way.
The first try at this law was a disaster. In fact, the University of Illinois studies this law and the impact it had on the affected neighborhoods. In December 2006 a report from the University of Illinois reported that the law was not achieving its goals. It showed that the neighborhoods in which the law was active were negatively impacted. The home sales in the affected zip codes declined by over 50% while other similar zip codes not affected by the law only saw a decline in home sales of 20% in the same time period. It also went on to say, in addition to other things, that the law does not offer borrower’s additional consumer protection. You can read the report in its entirety at http://www.sal.uiuc.edu/sparc/research/workingpapers/pdf/bates_vanzandt_revised_0131.pdf.
If I meet the criteria listed above, will I be subject to counseling regardless of the lender I choose?
No. The only lenders that are covered by this law are those mortgage lenders and brokers who are subject to the licensing requirements of the State of Illinois. This excludes Federally-chartered banks and their respective subsidiaries. As a subsidiary of a federally-chartered bank, WestAmerica Mortgage is exempt from this law.
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