CHICAGO – Governor Rod R. Blagojevich today moved to protect homebuyers from predatory lending in Cook County’s at-risk communities and reduce the incidence of foreclosures by signing into law a bill that provides borrowers with critical information on home loans and helps state regulators and law enforcement track and crack down on dishonest lenders.
Joined by House Speaker Michael J. Madigan (D-Chicago) and State Senator Martin A. Sandoval (D-Chicago), Gov. Blagojevich signed into law House Bill 4050, which will allow the state to develop a pilot program designed to increase homebuyers’ knowledge about the loans they are considering and to reduce the number of foreclosures resulting from overly expensive home loans.
“Too many working families who struggled to own their own home have been hurt by abusive mortgages they can’t afford. Many end up defaulting on their loans and are forced to abandon their homes. When they do, they leave behind scarred communities. With this legislation, we can save neighborhoods by giving homebuyers the right information to make informed decisions about home loans and about where they want to live,” said Gov. Blagojevich who signed the bill in front of a foreclosed property in Chicago’s Southwest Side. “I wish to congratulate House Speaker Madigan and State Senator Sandoval for their vision and leadership on this issue. Foreclosures are down in Cook County, but we need to do more to protect homebuyers and this law will help us achieve that.”
“There is ample evidence that communities with a large proportion of sub-prime mortgages have significantly higher foreclosure rates. Whole neighborhoods suffer when foreclosure rates go up. In 2004 there were 900 foreclosures in only two zip codes in my district. Hardworking families lose their life savings, and their neighbors face lower property values and less safe communities when homes stay shuttered and vacant,” said Speaker Madigan.
“It is important that borrowers understand the true costs of their home loans and make educated decisions about how to finance those costs,” said Sen. Sandoval. “With the wide variety of mortgage options available, too many people are being asked to sign away their rights and to put their homes at risk.”
The law directs the state’s Department of Financial and Professional Regulation to create a database for mortgage loan applications in a pilot area in Cook County. The communities most affected by high foreclosure rates will be among those designated as ‘pilot’ regions for the new program.
The database will collect information on all mortgage loans, including refinance and home equity loans issued by mortgage companies and brokers in the pilot regions of Cook County. Under the program, mortgage companies and brokers must enter information about the borrower and the borrower’s loan into the Internet-based database. This database will be able to automatically analyze the details of each loan and determine if the loan agreement meets credit counseling standards set by the Department.
If the review determines that a loan has potentially abusive characteristics, the borrower must attend HUD certified credit counseling paid for by the lender. The credit counselor must enter a recommendation about the loan and the borrower into the database. Before the mortgage is closed, the title company must also enter further information into the database. The database will then produce a certificate of compliance that will either say that all the information is consistent with previous information, or that there is inconsistent information which may indicate there is a problem with the loan. When the mortgage is closed, the certificate of compliance must be recorded with the mortgage. The information recorded in the database will be kept strictly confidential and stored on a secure platform controlled exclusively by IDFPR.
“Predatory lending produces more victims than the borrower. Neighbors loose hard-earned equity as their homes depreciate when homebuyers faced with board-ups exit the market. This law, for the first time anywhere, allows the State to scrutinize every detail of the activity of those responsible for these foreclosures and serves to inform potential victims of the danger before them, ” said James Capraro, Executive Director, Greater Southwest Development Corporation
“The program will make a major difference in the lives of the many people in our neighborhoods by providing them with better quality information regarding the lending process and ensure that they are getting a good loan,” said Betty Gutierrez, Co-Chair, Southwest Organizing Project. “Keeping track of who is making these loans and providing loan counseling to consumers will really address key problems related to predatory lending.”
In August 2003, the Governor signed the High Risk Home Loan Act to protect consumers from predatory mortgage lending practices. As a result of the Act, the state has seen both a reduction in the number of high-risk home loans and a change in lenders’ business practices so they are no longer offering high-risk loans as defined in the Act.
Home foreclosure proceedings in Chicago fell by 10 percent from 2003 to 2004, from 8,189 to 7,374, according to data from the National Training and Information Center (NTIC). The numbers were significant for sub-prime and high-cost loans, usually taken by borrowers with poorer credit history. Foreclosures in those categories went down 13 percent and 39 percent respectively, according to NTIC.
The High Risk Home Loan Act expanded the definition of a high cost home loan, restricted the amount of fees that could be charged on high risk home loans, prohibited some of the most abusive lending practices, gave borrowers additional time to resolve delinquencies and avoid foreclosure, and expanded the Office of Banks and Real Estate’s power to regulate and investigate predatory lenders.
Last month, Governor Blagojevich took another decisive step against predatory lending by signing into law the Payday Loan Reform Act that for the first time regulates the payday loan industry in Illinois and strengthens protections to consumers. The groundbreaking legislation limits the interest that can be charged for each loan to $15.50 per $100, sets caps on total loans amounts, and prevents borrowers from having more than two loans at a time, among other provisions.
HB 4050 becomes effective on January 1, 2006. IDFPR has one month after that to designate the pilot areas for this program. The pilot program lasts for four years.