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CHAPTER 815 BUSINESS TRANSACTIONS
High Risk Home Loan Act.

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    (815 ILCS 137/1)
    Sec. 1. Short title. This Act may be cited as the High Risk Home Loan Act.
(Source: P.A. 93-561, eff. 1-1-04.)



    (815 ILCS 137/5)
    Sec. 5. Purpose and construction. The purpose of this Act is to protect borrowers who enter into high risk home loans from abuse that occurs in the credit marketplace when creditors and brokers are not sufficiently regulated in Illinois. This Act is to be construed as a borrower protection statute for all purposes. This Act shall be liberally construed to effectuate its purpose.
(Source: P.A. 93-561, eff. 1-1-04.)



    (815 ILCS 137/10)
    Sec. 10. Definitions. As used in this Act:
    "Approved credit counselor" means a credit counselor approved by the Director of Financial Institutions.
    "Borrower" means a natural person who seeks or obtains a high risk home loan.
    "Commissioner" means the Commissioner of the Office of Banks and Real Estate.
    "Department" means the Department of Financial Institutions.
    "Director" means the Director of Financial Institutions.
    "Good faith" means honesty in fact in the conduct or transaction concerned.
    "High risk home loan" means a home equity loan in which (i) at the time of origination, the annual percentage rate exceeds by more than 6 percentage points in the case of a first lien mortgage, or by more than 8 percentage points in the case of a junior mortgage, the yield on U.S. Treasury securities having comparable periods of maturity to the loan maturity as of the fifteenth day of the month immediately preceding the month in which the application for the loan is received by the lender or (ii) the total points and fees payable by the consumer at or before closing will exceed the greater of 5% of the total loan amount or $800. The $800 figure shall be adjusted annually on January 1 by the annual percentage change in the Consumer Price Index for All Urban Consumers for all items published by the United States Department of Labor. "High risk home loan" does not include a loan that is made primarily for a business purpose unrelated to the residential real property securing the loan or to an open-end credit plan subject to 12 CFR 226 (2000, no subsequent amendments or editions are included).
    "Home equity loan" means any loan secured by the borrower's primary residence where the proceeds are not used as purchase money for the residence.
    "Lender" means a natural or artificial person who transfers, deals in, offers, or makes a high risk home loan. "Lender" includes, but is not limited to, creditors and brokers who transfer, deal in, offer, or make high risk home loans. "Lender" does not include purchasers, assignees, or subsequent holders of high risk home loans.
    "Office" means the Office of Banks and Real Estate.
    "Points and fees" means all items required to be disclosed as points and fees under 12 CFR 226.32 (2000, no subsequent amendments or editions included); the premium of any single premium credit life, credit disability, credit unemployment, or any other life or health insurance that is financed directly or indirectly into the loan; and compensation paid directly or indirectly to a mortgage broker, including a broker that originates a loan in its own name in a table-funded transaction, not otherwise included in 12 CFR 226.4.
    "Reasonable" means fair, proper, just, or prudent under the circumstances.
    "Servicer" means any entity chartered under the Illinois Banking Act, the Savings Bank Act, the Illinois Credit Union Act, or the Illinois Savings and Loan Act of 1985 and any person or entity licensed under the Residential Mortgage License Act of 1987, the Consumer Installment Loan Act, or the Sales Finance Agency Act who is responsible for the collection or remittance for, or has the right or obligation to collect or remit for, any lender, note owner, or note holder or for a licensee's own account, of payments, interest, principal, and trust items (such as hazard insurance and taxes on a residential mortgage loan) in accordance with the terms of the residential mortgage loan, including loan payment follow-up, delinquency loan follow-up, loan analysis, and any notifications to the borrower that are necessary to enable the borrower to keep the loan current and in good standing.
    "Total loan amount" has the same meaning as that term is given in 12 CFR 226.32 and shall be calculated in accordance with the Federal Reserve Board's Official Staff Commentary to that regulation.
(Source: P.A. 93-561, eff. 1-1-04.)



    (815 ILCS 137/15)
    Sec. 15. Ability to repay. A creditor or broker shall not transfer, deal in, offer, or make a high risk home loan if the creditor or broker does not believe at the time the loan is consummated that the borrower will be able to make the scheduled payments to repay the obligation based upon a consideration of his or her current and expected income, current obligations, employment status, and other financial resources (other than the borrower's equity in the dwelling that secures repayment of the loan). A borrower shall be presumed to be able to repay the loan if, at the time the loan is consummated, or at the time of the first rate adjustment, in the case of a lower introductory interest rate, the borrower's scheduled monthly payments on the loan (including principal, interest, taxes, insurance, and assessments), combined with the scheduled payments for all other disclosed debts, do not exceed 50% of the borrower's monthly gross income.
(Source: P.A. 93-561, eff. 1-1-04.)



    (815 ILCS 137/20)
    Sec. 20. Verification of ability to repay loan. The lender shall verify the borrower's ability to repay the loan in the case of a high risk home loan. The verification shall require, at a minimum, the following:
        (1) That the borrower prepare and submit to the

    

lender a personal income and expense statement in a form prescribed by the Commissioner or the Director, who may permit the use of other forms such as the URLA (Fannie Mae Form 1003 (10/92), available from Fannie Mae, 3900 Wisconsin Avenue, NW, Washington, D.C. 20016-2892, and Freddie Mac Form 85 (10/92), available from Freddie Mac at 1101 Pennsylvania Avenue, NW, Suite 950, P.O. Box 37347, Washington, D.C. 20077-0001, no subsequent amendments or editions) and Transmittal Summary (Fannie Mae Form 1077 (3/97), available from Fannie Mae, 3900 Wisconsin Avenue, NW, Washington, D.C. 20016-2892, and Freddie Mac Form 1008 (3/97), available from Freddie Mac at 1101 Pennsylvania Avenue, NW, Suite 950, P.O. Box 37347, Washington, D.C. 20077-0001, no subsequent amendments or editions).

        (2) That the borrower's income is verified by means

    

of tax returns, pay stubs, accounting statements, or other prudent means.

        (3) That a credit report is obtained regarding the

    

borrower.

(Source: P.A. 93-561, eff. 1-1-04.)



    (815 ILCS 137/25)
    Sec. 25. Good faith dealings; fraudulent or deceptive practices. A lender must act in good faith in all relations with a borrower, including but not limited to, transferring, dealing in, offering, or making a high risk home loan.
    No lender shall employ fraudulent or deceptive acts or practices in the making of a high risk home loan, including deceptive marketing and sales efforts.
(Source: P.A. 93-561, eff. 1-1-04.)



    (815 ILCS 137/30)
    Sec. 30. Prepayment penalty. For any loan that is subject to the provisions of this Act and is not subject to the provisions of the Home Ownership and Equity Protection Act of 1994, no lender shall make a high risk home loan that includes a penalty provision for payment made: (i) after the expiration of the 36-month period following the date the loan was made; or (ii) that is more than:
        (1) 3% of the total loan amount if the prepayment is

    

made within the first 12-month period following the date the loan was made;

        (2) 2% of the total loan amount if the prepayment is

    

made within the second 12-month period following the date the loan was made; or

        (3) 1% of the total loan amount if the prepayment is

    

made within the third 12-month period following the date the loan was made.

(Source: P.A. 93-561, eff. 1-1-04.)



    (815 ILCS 137/40)
    Sec. 40. Pre-paid insurance products and warranties. No lender shall transfer, deal in, offer, or make a high risk home loan that finances a single premium credit life, credit disability, credit unemployment, or any other life or health insurance, directly or indirectly. Insurance calculated and paid on a monthly basis shall not be considered to be financed by the lender.
(Source: P.A. 93-561, eff. 1-1-04.)



    (815 ILCS 137/45)
    Sec. 45. Refinancing prohibited in certain cases. No lender shall refinance any high risk home loan where such refinancing charges additional points and fees within a 12-month period after the original loan agreement was signed, unless the refinancing results in a tangible net benefit to the borrower.
(Source: P.A. 93-561, eff. 1-1-04.)



    (815 ILCS 137/55)
    Sec. 55. Financing of points and fees. No lender shall transfer, deal in, offer, or make a high risk home loan that finances points and fees in excess of 6% of the total loan amount.
(Source: P.A. 93-561, eff. 1-1-04.)



    (815 ILCS 137/60)
    Sec. 60. Payments to contractors. No lender shall make a payment of any proceeds of a high risk home loan directly to a contractor under a home improvement contract other than:
        (1) by instrument payable to the borrower or payable

    

jointly to the borrower and contractor; or

        (2) at the election of the borrower, by a

    

third-party escrow agent in accordance with the terms established in a written agreement that is signed by the borrower, the lender, and the contractor before the date of payment.

(Source: P.A. 93-561, eff. 1-1-04.)



    (815 ILCS 137/65)
    Sec. 65. Negative amortization. No lender shall transfer, deal in, offer, or make a high risk home loan, other than a loan secured only by a reverse mortgage, with terms under which the outstanding balance will increase at any time over the course of the loan because the regular periodic payments do not cover the full amount of the interest due, unless the negative amortization is the consequence of a temporary forbearance sought by the borrower.
(Source: P.A. 93-561, eff. 1-1-04.)



    (815 ILCS 137/70)
    Sec. 70. Negative equity. No lender shall transfer, deal in, offer, or make a high risk home loan where the loan amount exceeds the value of the property securing the loan.
(Source: P.A. 93-561, eff. 1-1-04.)



    (815 ILCS 137/80)
    Sec. 80. Late payment fee. A lender shall not transfer, deal in, offer, or make a high risk home loan that provides for a late payment fee, except under the following conditions:
        (1) the late payment fee shall not be in excess of

    

5% of the amount of the payment past due;

        (2) the late payment fee shall only be assessed for

    

a payment past due for 15 days or more;

        (3) the late payment fee shall not be imposed more

    

than once with respect to a single late payment;

        (4) a late payment fee that the lender has collected

    

shall be reimbursed if the borrower presents proof of having made a timely payment; and

        (5) a lender shall treat each payment as posted on

    

the same business day as it was received by the lender, servicer, or lender's agent or at the address provided to the borrower by the lender, servicer, or lender's agent for making payments.

(Source: P.A. 93-561, eff. 1-1-04.)



    (815 ILCS 137/85)
    Sec. 85. Payment compounding. No lender shall transfer, deal in, offer, or make a high risk home loan that includes terms under which more than 2 periodic payments required under the loan are consolidated and paid in advance from the loan proceeds provided to the borrower.
(Source: P.A. 93-561, eff. 1-1-04.)



    (815 ILCS 137/90)
    Sec. 90. Call provision. No lender shall transfer, deal in, offer, or make a high risk home loan that contains a provision that permits the lender, in its sole discretion, to accelerate the indebtedness, provided that this provision does not prohibit acceleration of a loan in good faith due to a borrower's failure to abide by the material terms of the loan.
(Source: P.A. 93-561, eff. 1-1-04.)



    (815 ILCS 137/95)
    Sec. 95. Disclosure prior to making a high risk home loan. A lender shall not transfer, deal in, offer, or make a high risk home loan unless the lender has given the following notice or a substantially similar notice in writing, to the borrower, acknowledged in writing and signed by the borrower not later than the time the notice is required under the notice provision contained in 12 CFR 226.31(c):
NOTICE TO BORROWER
YOU SHOULD BE AWARE THAT YOU MIGHT BE ABLE TO OBTAIN A LOAN AT A LOWER COST. YOU SHOULD SHOP AROUND AND COMPARE LOAN RATES AND FEES. LOAN RATES AND CLOSING COSTS AND FEES VARY BASED ON MANY FACTORS, INCLUDING YOUR PARTICULAR CREDIT AND FINANCIAL CIRCUMSTANCES, YOUR EMPLOYMENT HISTORY, THE LOAN-TO-VALUE REQUESTED, AND THE TYPE OF PROPERTY THAT WILL SECURE YOUR LOAN. THE LOAN RATE AND FEES COULD ALSO VARY BASED ON WHICH LENDER OR BROKER YOU SELECT. IF YOU ACCEPT THE TERMS OF THIS LOAN, THE LENDER WILL HAVE A MORTGAGE LIEN ON YOUR HOME. YOU COULD LOSE YOUR HOME AND ANY MONEY YOU PUT INTO IT IF YOU DO NOT MEET YOUR PAYMENT OBLIGATIONS UNDER THE LOAN. YOU SHOULD CONSULT AN ATTORNEY-AT-LAW AND AN APPROVED CREDIT COUNSELOR OR OTHER EXPERIENCED FINANCIAL ADVISOR REGARDING THE RATE, FEES, AND PROVISIONS OF THIS LOAN BEFORE YOU PROCEED. A LIST OF APPROVED CREDIT COUNSELORS IS AVAILABLE BY CONTACTING EITHER THE ILLINOIS DEPARTMENT OF FINANCIAL INSTITUTIONS OR THE ILLINOIS OFFICE OF BANKS AND REAL ESTATE. YOU ARE NOT REQUIRED TO COMPLETE THIS LOAN AGREEMENT MERELY BECAUSE YOU HAVE RECEIVED THIS DISCLOSURE OR HAVE SIGNED A LOAN APPLICATION. ALSO, YOUR PAYMENTS ON EXISTING DEBTS CONTRIBUTE TO YOUR CREDIT RATINGS. YOU SHOULD NOT ACCEPT ANY ADVICE TO IGNORE YOUR REGULAR PAYMENTS TO YOUR EXISTING LENDERS.
(Source: P.A. 93-561, eff. 1-1-04.)



    (815 ILCS 137/100)
    Sec. 100. Counseling prior to perfecting foreclosure proceedings.
    (a) If a high risk home loan becomes delinquent by more than 30 days, the servicer shall send a notice advising the borrower that he or she may wish to seek approved credit counseling.
    (b) The notice required in subsection (a) shall, at a minimum, include the following language:
    "YOUR LOAN IS OR WAS MORE THAN 30 DAYS PAST DUE. YOU MAY BE EXPERIENCING FINANCIAL DIFFICULTY. IT MAY BE IN YOUR BEST INTEREST TO SEEK APPROVED CREDIT COUNSELING. A LIST OF APPROVED CREDIT COUNSELORS MAY BE OBTAINED FROM EITHER THE ILLINOIS DEPARTMENT OF FINANCIAL INSTITUTIONS OR THE ILLINOIS OFFICE OF BANKS AND REAL ESTATE."
    (c) If, within 15 days after mailing the notice provided for under subsection (b), a lender, servicer, or lender's agent is notified in writing by an approved credit counselor and the approved credit counselor advises the lender, servicer, or lender's agent that the borrower is seeking approved credit counseling, then the lender, servicer, or lender's agent shall not institute legal action under Part 15 of Article XV of the Code of Civil Procedure for 30 days after the date of that notice. Only one such 30-day period of forbearance is allowed under this Section per subject loan.
    (d) If, within the 30-day period provided under subsection (c), the lender, servicer, or lender's agent, the approved credit counselor, and the borrower agree to a debt management plan, then the lender, servicer, or lender's agent shall not institute legal action under Part 15 of Article XV of the Code of Civil Procedure for as long as the debt management plan is complied with by the borrower.
    The agreed debt management plan must be in writing and signed by the lender, servicer, or lender's agent, the approved credit counselor, and the borrower. No modification of an approved debt management plan can be made without the mutual agreement of the lender, servicer, or lender's agent, the approved credit counselor, and the borrower.
    Upon written notice to the lender, servicer, or lender's agent, the borrower may change approved credit counselors.
    (e) If the borrower fails to comply with the agreed debt management plan, then nothing in this Section shall be construed to impair the legal right of the lender, servicer, or lender's agent to enforce the contract.
(Source: P.A. 93-561, eff. 1-1-04.)



    (815 ILCS 137/105)
    Sec. 105. Right to cure.
    (a) Before an action is filed to foreclose or collect money due pursuant to a high risk home loan or before other action is taken to seize or transfer ownership of property subject to a high risk home loan, the lender or lender's assignee of the loan shall deliver to the borrower a notice of the right to cure the default, informing the borrower of all of the following:
        (1) The nature of the default.
        (2) The borrower's right to cure the default by

    

paying the sum of money required, provided that a lender or assignee shall accept any partial payment made or tendered in response to the notice. If the amount necessary to cure the default will change within 30 days of the notice due to the application of a daily interest rate or the addition of late fees, as allowed by the Act, the notice shall give sufficient information to enable the borrower to calculate the amount at any point within the 30-day period.

        (3) The date by which the borrower may cure the

    

default to avoid a court action, acceleration and initiation of foreclosure, or other action to seize the property, which date shall not be less than 30 days after the date the notice is delivered, and the name, address, and telephone number of a person to whom the payment or tender shall be made.

        (4) That if the borrower does not cure the default

    

by the date specified, the lender or assignee may file an action for money due or take steps to terminate the borrower's ownership in the property by requiring payment in full of the high risk home loan and commencing a foreclosure proceeding or other action to seize the property.

        (5) The name, address, and telephone number of a

    

person whom the borrower may contact if the borrower disagrees with the assertion that a default has occurred or the correctness of the calculation of the amount required to cure the default.

    (b) If a lender or assignee asserts that grounds for acceleration exist and requires the payment in full of all sums secured by the high risk home loan, the borrower or anyone authorized to act on the borrower's behalf may, at any time before the title is transferred by means of foreclosure, by judicial proceeding and sale, or other means, cure the default, and reinstate the high risk home loan. Cure of the default shall reinstate the borrower to the same position as if the default had not occurred and shall nullify, as of the date of the cure, an acceleration of any obligation under the high risk home loan arising from the default.
    (c) To cure a default under this Section, a borrower shall not be required to pay any charge, fee, or penalty attributable to the exercise of the right to cure a default, other than the fees specifically allowed by this subsection. The borrower shall not be liable for any attorney fees relating to the default that are incurred by the lender or assignee prior to or during the 30-day period set forth in subsection (a) of this Section, nor for any such fees in excess of $100 that are incurred by the lender or assignee after the expiration of the 30-day period but before the lender or assignee files a foreclosure or other judicial action or takes other action to seize or transfer ownership of the real estate. After the lender or assignee files a foreclosure or other judicial action or takes other action to seize or transfer ownership of the real estate, the borrower shall only be liable for attorney fees that are reasonable and actually incurred by the lender or assignee, based on a reasonable hourly rate and a reasonable number of hours.
    (d) If a default is cured prior to the initiation of any action to foreclose or to seize the residence, the lender or assignee shall not institute a proceeding or other action for that default. If a default is cured after the initiation of any action, the lender or assignee shall take such steps as are necessary to terminate the action.
    (e) A lender or a lender's assignee of a high risk home loan that has the legal right to foreclose shall use the judicial foreclosure procedures provided by law. In such a proceeding, the borrower may assert the nonexistence of a default and any other claim or defense to acceleration and foreclosure, including any claim or defense based on a violation of the Act, though no such claim or defense shall be deemed a compulsory counterclaim.
(Source: P.A. 93-561, eff. 1-1-04.)



    (815 ILCS 137/110)
    Sec. 110. Mortgage Awareness Program.
    (a) The Mortgage Awareness Program is a counseling and educational component that must be provided by the Director and the Commissioner.
    (b) The core curriculum of the Mortgage Awareness Program shall include all of the following:
        (1) Explanation of the amount financed.
        (2) Explanation of the finance charge.
        (3) Explanation of the annual percentage rate.
        (4) Explanation of the total payments.
        (5) Explanation of the loan costs, including

    

broker's fees, finance charges, points, and origination fees.

        (6) Explanation of the right of rescission.
        (7) Explanation of foreclosure procedures.
        (8) Explanation of the significant debt ratios,

    

including total debt to income, loan debt to income, and loan debt to value of residence.

        (9) Explanation of adjustable rate mortgage.
        (10) Explanatio