Cook County Predatory Lending Database Program — What is it?

Real estate buyers will soon have to contend with new procedures regarding predatory lending in Cook County. Because of the increasing numbers of homeowners falling behind on mortgage payments and record foreclosure rates, the Illinois legislature has enacted a new measure, Public Act 95-691, aimed to protect the borrower in certain loans that can be considered “high-risk”. This new measure is effective July 1, 2008. Even if the new procedures do not apply to your loan, in order to record a mortgage in Cook County you will still need to file a Certificate of Exemption, stating that the loan is exempt from the requirements of Public Act 95-691. Your attorney and the title company will assist you with this at closing.

So what kind of loans do fall within the purview of the Cook County predatory lending program? Will it affect you as a buyer? It may, if you and/or your loan meet the following criteria:

1) Your mortgage broker or loan originator is subject to the Residential Mortgage License Act, and is licensed by the Illinois Department of Financial and Professional Regulation, AND

2) You are a first-time homebuyer and are purchasing 1-4 unit residential property in Cook County that you will live in. Note that if there is more than one buyer, then the loan is only subject to the predatory lending program if ALL buyers are first-time homebuyers, AND

3) Your loan falls into one or more of the following categories: a) You are allowed to make interest-only payments; and/or b) Your loan could result in negative amortization; and/or c) The fees and points you pay in order to close are greater than 5% of the value of the loan; and/or d) Your loan has a prepayment penalty; and/or e) You are getting an adjustable rate mortgage where the interest rate can change during the first three years.

If you fall into categories 1 and 2 and 3 above, your mortgage broker must enter your loan information into a database maintained by the Illinois Department of Financial and Professional Regulation, and you will be subject to counseling. Your mortgage broker will direct you to an approved counselor in your area, and should also bear the cost of the counseling, if any. If you refuse to attend counseling, you cannot proceed with your purchase if you require a mortgage. If you do obtain counseling, then even if the counselor advises you not to proceed with the loan, the final decision is yours. You may proceed against the counselor’s advice if you wish, althought this is not recommended. If you choose to continue with your purchase, a Certificate of Compliance will be issued at closing, stating that you have met the counseling requirement. Either this document or the Certificate of Exemption, as described above, must be presented in order to record a mortgage in Cook County.

So will there be any practical benefits to the new predatory lending program? Well, theoretically there should be a decrease in predatory loans, leading to a corresponding decrease in missed mortgage payments and foreclosures. Whether or not this actually plays out is yet to be determined!