Illinois Mortgage Reforms Move Ahead, Under Scrutiny
Illinois moved ahead this week with a new version of a controversial predatory lending law, but the revision came under fire immediately from both the home mortgage industry and some community groups who support it in principle.
The proposed revision, Gov. Rod Blagojevich announced Wednesday, will require that first-time home buyers and others in Cook County who take out certain kinds of home mortgages, including interest-only mortgage loans and some adjustable-rate loans, undergo counseling to assure they understand the obligations involved.
According to the Chicago Tribune, this would replace an earlier version, which required financial counseling for some mortgage borrowers in 10 Chicago ZIP codes, that took effect in October and was suspended by Blagojevich in January.
That program, popularly known as HB 4050, was attacked as racist because it singled out home buyers in predominantly minority neighborhoods, and as a plan that would ultimately mean depressing the real estate market.
“The new rules will help protect our consumers by focusing scrutiny on the lenders and their home loans, rather than the consumers and their credit history,” according to a statement issued by the governor’s office.
This means they could affect thousands more consumers, though the state is not sure how many. The loan types involved were once considered exotic, but the lending industry has made them increasingly popular options for home buyers trying to stretch their ability to borrow.
Many mortgage industry representatives said the new rules would sweep in consumers who probably do not need the counseling and would cause home mortgage lenders to flee Cook County.
“You’re going to have doctors and lawyers who are going to be affected by it,” said Bill McNamee, president of the Illinois Association of Mortgage Brokers. “There are going to be people who are inconvenienced by this who really don’t need it.”
The law revision, first reported by the Tribune, is being considered at a time of mounting concerns about rising foreclosures, many involving subprime loans, typically offered at higher mortgage rates to less-credit-worthy customers.
Questions were immediately raised about the availability of enough counselors to cover the program’s expansion.
“We’re really concerned that there’s capacity among the housing counselors to provide this kind of countywide program,” said Bob Palmer, a spokesman for Housing Action Illinois, which trained the HUD-certified counselors for 11 organizations in the first phase of the law.
Palmer suggested another problem: Because most of the program counselors were city-based, suburban home buyers could meet delays and inconvenience in getting their Illinois mortgage deals to close.
“We are encouraged by the governor’s decision to reimplement HB 4050,” said Jeff Bartow, executive director of the Southwest Organizing Project, which includes several of the counseling groups.
“Given the number of impending [bad credit mortgage] failures on a countywide basis, we also understand wanting to make this a countywide program. But expansion of the area will make sense only if increased resources and time are available to hire and train housing counselors to address the increase in the volume of reviews that will take place.”
To give an idea of the possible scope of this plan, Casey Griffin, deputy recorder of deeds for Cook County, said last year that his office recorded about 423,000 property transactions.
To file the deeds the agency must obtain documentation showing that home buyers have had the required mortgage loan counseling or are exempt.
He said on Wednesday that his office did not know the state was planning to revive the 4050 program and was uncertain about its ramifications.
“We will have to sort this out,” Griffin said.
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