The anti-predatory lending database program, also known as SB1167 went into effect on July 1 of 2008. The purpose of the program, according to the state of IL on the Illinois Department of Financial and Professional Regulation (IDFPR) website, is:
“To reduce predatory lending practices by assisting the borrower in understanding the terms and conditions of the loan for which he or she has applied. The act does not prohibit any type of loan. It is solely the borrower’s decision whether to proceed.”
What this means is that the mortgage loan data is entered into a database. If the loan, borrower, and/or lender meet certain criteria then the borrower must attend ‘housing counseling’. The borrower cannot waive this. The borrower can still obtain any kind of (legally permitted) mortgage, regardless of what the counselor advises, however, he/she must attend the housing counseling.
Initially applicable to Cook County only, the program has grown to include Will, Kane, and Peoria Counties and may expand in the future to include even more Counties.
This means the property has to be in certain counties. Since Chicago finds itself in Cook County, this is a worthwhile refresher if you are a Chicago real estate agent. What else? It has to be an owner-occupied, one- to four-unit property. With most houses and condos fitting the bill, does everyone in one of these Cook County properties getting a mortgage need to go for housing counseling? Actually, no. According to the state, counseling is required if:
A. In a purchase transaction, all borrowers are first time homebuyers or he borrower(s) are refinancing a primary residence,
B. The loan is a mortgage that includes 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 percent
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.
One standard from group A and at least one standard from group B must be present or counseling will not be required.
So, what does all this mean? Your first time homebuyer that wants a three-year ARM mortgage will require housing counseling. If at least one of the buyers is not a first time homebuyer and they want a three-year ARM mortgage, housing counseling would not be required.
2010 was a volume-record year for refinancing. Is the rule any different for your clients when they refinance? Unfortunately, yes! If your client is refinancing a primary residence one- to four-unit, and their new ARM has a pre-payment penalty (very common with Jumbo ARMs), or they are refinancing into a three-year ARM, or they are refinancing into an interest only ARM-still a practical and popular product, they will require housing counseling. Your clients, who are attorneys, CEOs, PHDs, CPAs, MBAs, etc., that fit into the above bucket, have had to attend housing counseling through a state approved counseling agency. If they applied for their mortgage through a company licensed as an Illinois Residential Mortgage Licensee. Most mortgage brokers and mortgage bankers, large and small are licensed by the state and are required by law to participate in the program.
Are any mortgage lenders exempt? Yes! And this is a little-known fact that your loan officer friends may not mention at a cocktail hour; any entity not required to be licensed under the (IL) Residential Mortgage License Act, such as banks and other depository financial institutions. Mortgage companies affiliated with banks, even small community banks, which make the same mortgage loans to the same individuals as some of the local mortgage brokers/bankers, some of which have become household names, are exempt from the act.
So if your clients are refinancing and don’t want to be bothered with the hassle of credit counseling, they may want to get a rate quote from a mortgage lender that’s tied to a bank. At the very least, you may want to advise your client to ask the question of their mortgage professional: Will this loan process require that I attend mortgage counseling? If the answer is ‘Yes’, then let them know that they may want to talk to another mortgage professional that’s exempt, if they don’t want to be bothered with the counseling. If the rates compare and the fees compare, who wants to take time out of their day for housing-counseling?