Recent State Law Changes
The state of Illinois has recently enacted S.B. 1167 amends the Residential Mortgage License Act of 1987 and the provisions relating to the Predatory Lending Database. Loans closed on or after June 1, 2008, must comply with the Act. Applications taken on or after July 1, 2008 must comply with the Predatory Lending Database. Highlights of the Act include:
Residential Mortgage License Act
Ability to Repay
The Act makes it unlawful to provide for or arrange a mortgage loan without verifying the borrower's ability to repay. The property taxes and anticipated insurance costs (regardless of whether these payments are impounded) must be considered. In addition, for adjustable-rate mortgage loans the payment used to qualify must be based on the fully indexed rate, assuming a fully amortizing repayment schedule. The ability to repay to a mortgage must be verified at the minimum for each of the following types of borrowers:
- Non-Self-Employed
- 2 years W-2's
- Most recent 30 days of Paystub(s)
- Self-Employed
- 2 years of Tax Returns
Prepayment Penalties
Licensees are prohibited from assessing a prepayment penalty that exceeds any of the following criteria:
- No prepayment penalty may be assessed unless the borrower is offered a loan without prepayment penalty in writing, and the borrower has initialed declining the offer.
- No prepayment penalty may be assessed unless the discount in rate received in consideration for obtaining a loan with a prepayment penalty is disclosed.
- No prepayment penalty may be assessed following the third anniversary date of the mortgage.
- No prepayment penalty shall exceed three percent the first year, two percent the second year, or one percent the third year.
Material Change Disclosure
If there is a "material change" the lender is required to provide the borrower with revised information no later than three days after learning of the change or 24 hours before loan closing, whichever is earlier.
Predatory Lending Database
The amendments to the Predatory Lending Database require lenders and brokers to submit additional information to the database. In addition, the criteria for determining when credit counseling is required are revised.
- The amendments apply to all loans secured by properties in Cook County.
- When an affected loan is submitted for underwriting, a copy of the counseling determination and proof of counseling, if required, must be included in the loan file. If the loan is exempt from the requirements, a certificate of exemption must be included in the loan file.
Maryland Properties
Maryland has enacted restrictions similar requirements to Illinois for a borrowers ability to repay. The Act makes it unlawful to provide for or arrange a mortgage loan without verifying the borrower's ability to repay. The property taxes and anticipated insurance costs (regardless of whether these payments are impounded) must be considered. In addition, for adjustable-rate mortgage loans the payment used to qualify must be based on the fully indexed rate, assuming a fully amortizing repayment schedule. The ability to repay to a mortgage must be verified at the minimum for each of the following types of borrowers:
- Non-Self-Employed
- 2 years W-2's
- Most recent 30 days of Paystub(s)
- 1 months Bank statements
- Self-Employed
- 2 years of Tax Returns
- 1 months Bank statements
North Carolina, Minnesota, and Ohio Restrictions
Maryland has enacted restrictions similar requirements for a borrowers ability to repay to North Carolina, Minnesota and Ohio. All loans closing beginning June 2nd, For loans that have been submitted with AUS findings that does not require income verification we will require the loan to be fully documented with at least 30 days of Pay Stubs and one year W-2 or, a standard VOE, or two years of Tax Returns for self-employed borrowers (including commissioned borrowers)
Please feel free to contact your VP of Wholesale Lending or the Commitment Desk for further clarification if needed.
Thank you for your continued business!!