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from Local Attorney, Michael H. Wasserman

Thursday, July 1, 2010

Welcome to the Machine: the Illinois Anti-Predatory Lending Database Now Playing in Peoria. Kane & Will Counties, Too

Two years ago today, the Illinois Department of Financial and Professional Regulation initiated the Illinois Anti-Predatory Lending Database (IAPLD) project. Since then, details of most every Cook County mortgage transaction have been manually entered into the State's super computers, not once, but twice, sometimes even three times.... all at additional expense to the borrowers the process aims to protect. Closing are taking longer too. Predatory lending, while "discouraged," remains legal.

Today, the program expands to three neighboring counties, Kane, Will and Peoria. As with Cook, all three have been hit hard by foreclosures, many the result of those too-good-to-be-true loans we saw so much of  back in those go-go days before the bubble burst.  

The APLD law requires loan originators to enter details of proposed loans into a state database. The state computer screens the loan and - where appropriate - mandates that would-be borrowers attend  loan counseling from a HUD approved agency before proceeding to a closing. This (theoretically) reduces  the number of foreclosures resulting from unfair loans. The counselors cannot stop borrowers from taking high risk loans, but at least buyers are alerted to risks associated with inappropriate loan programs.

Title company closing agents must also enter loan details into the system to assure that the loan being closed has similar characteristics to the loan entered by the originator (and counselor). Whenever a closing agent discovers material changes to the terms of the loan, the closing must be called off until further re-counseling takes place. 

In my experience thus far, I have had many, many closings delayed while data is entered into the system by loan originators and title companies. I have not yet seen a single closing called off due to a change in the terms of the loan. 


Here is a quick refresher to see just what loans trigger the counseling requirements: 

> The rules apply to one to four unit, owner occupied residential properties.

> Non-owner occupied, commercial, government, and multi-unit (5 or more) properties are exempt.

Counseling is requires if ALL of the borrowers are first time home-buyers or the loan is refinancing a primary residence. AND
  • The loan permits interest-only payments, OR
  • the loan allows for 'negative amortization," OR
  • the borrower must pay 5% or more in total points and origination fees, OR
  • there is any pre-payment penalty, OR
  • the loan has an interest rate that can change (adjust) within three years of closing.