On september 1st, House Bill 4050 was passed in Illinois. This bill really makes it tough for deals to get closed in 10 specific Chicago Zip Codes. These zip codes for the last 5 years have seen a lot of good with development, property rehab, and a lot of bad with predatory lending… Any idea long term what affects this 4 year pilot is going to have on the areas included in the pilot. These are the only 10 zipcodes in the country that are participating in the program and here in Chicago it has a lot of people fuming. I have included the link for those of you that may not be familiar with it and make sure to check with your local city council men to see if a similar bill is being passed in your area. Over 25 lenders, since september 1st have either suspended or cancelled taking loan apps in this area. People with bad credit in crappy current loans are in for a long struggle…Check out the link and let me know what you think. This bill has truly transformed the way deals are dones in Chicago. At least on the city’s South Side where 8 of the 10 zipcodes are located
http://www.themortgagereports.com/2006/01/hb_4050_everyth.html
http://www.themortgagereports.com/illinois_house_bill_4050/
Many of you have asked me just to update the post so you don’t have to click the link. Well here is a cut and paste direct from the website. Hope this info is valuable
HB 4050 is a pilot program in Cook County (Illinois) designed to protect mortgage applicants from unscrupulous loan originators.
The pilot program lasts four years.
HB 4050 was passed in July 2005 and became Illinois state law January 1, 2006. It will not be implemented and enforced until the physical database to compile and store data is completed, however.
HB 4050 applies to state-chartered loan originators (i.e. mortgage brokers and local mortgage bankers). Therefore, federally-chartered banks are exempt (i.e. Chase, National City, Fifth Third, Bank of America) from the law.
HB 4050 requires “High Risk” individuals to receive financial advice from federally-approved financial counselors before completing a mortgage transaction.
The definition of “High Risk” is stated in the rules of the law. These are summarized as follows:
* Applicant FICO score is less than 620, or
* Applicant FICO score is between 621-650 and any one of these conditions is true:
o Subject property was financed within the last 12 months
o Mortgage product has an Interest Only feature
o Mortgage product is an ARM with an initial fixed period of 3 years or less
o Mortgage application does not require the verification of applicant's income
* Mortgage product contains a prepayment penalty
* Mortgage product contains a negative amortization feature (i.e. Option ARM)
* Total points and fees payable by borrower at, or before, closing exceeds 5% of the loan size
Some industry parties are concerned about Illinois House Bill 4050:
* Title companies are concerned about their ability to navigate HB 4050 in order to provide a clean title policy. They have asked the state for "Safe Harbor" (i.e. "we'll do our very best to comply with the law in good faith, but please don't hold us responsible for other companies' errors, omissions and falsehoods"). That request was denied.
* Lenders are concerned that title companies cannot provide clean title. That means that a lender will forgo its right to foreclose on a non-performing loan. In other words, a homeowner has no incentive to pay the mortgage because the lender won't legally be able to take the home back. No right to foreclose = no money lent to homeowners.
* Consumer Rights Advocates are concerned that employees of the state, of brokers, of lenders and of title companies will have access to a single database that stores every detail about a mortgage applicant's life -- social security number, credit history, income, address, date of birth, assets, employment and more.
* Realtors are concerned that the difficulty in acquiring mortgage financing will depress, or halt, home buying in impacted areas.
* Community leaders are concerned that the pilot program will extend the mortgage approval process and will add "time costs" for the homeowner. It is more expensive to lock a loan for 60 days than for 30 days, as an example.
* The Illinois Association of Mortgage Brokers is concerned on a number of fronts, mostly raising questions to the practicality of the law.
* This author is concerned that federally-chartered banks are in the business of collecting deposits, not the business of assessing risk of and lending money for mortgages. Therefore, these banks tend not to lend money to folks with FICO scores lower than 650 (although some will on a case-by-case basis) -- it's too much risk for the bank. So, if federally-chartered banks won't lend below 650 FICO score, homeowners may be left without any options for mortgages whatsoever. This problem is exacerbated for sub-620 FICO homeowners.
Read the complete rules of Illinois House Bill 4050 if you want to see the law in print (Download HB4050Rules.txt).
If you’d like to read all of the HB 4050 stories on The Mortgage Reports, they are summarized neatly by category.
January 28, 2006 in Illinois House Bill 4050 | Permali