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PA 95-691 - EFFECTIVE JUNE 1, 2008

• The provisions apply only to licensees under the Residential Mortgage License Act which includes mortgage brokers and mortgage bankers.

• Mortgage licensees must verify the borrower's "reasonable ability to repay" and

a. Must include PITI in making calculation;
b. For ARMs, must qualify at the fully amortized, fully indexed rate;
c. For negative amortization loans, the principal amount is to be calculated by including the maximum amount that the principal may increase due to negative amortization under the terms of the loan;
d. Documentation of income and/or financial resources is required-a statement of income or resources alone will not be sufficient. "Stated income" can only be used if there are mitigating factors that will minimize the risk.

• Establishes an agency relationship between the mortgage broker and the borrower and certain agency responsibilities of the licensee are specified in the law.

• Limitations on pre-payment penalties:

a. Can offer a loan with a penalty only if a loan without a penalty is offered, in writing, and the borrower initials that he declines;
b. Must disclose the discount in the loan rate that coincides with the penalty;

c. Limits duration and amount of penalty:

- Limited to 3 yrs., or date of first change if an ARM, whichever earlier;
- Amount is limited to 3% if prepayment within first 12 months; 2% if prepayment within second 12 months; 1% if prepayment within third 12 months;
- There can be NO pre-payment penalty, regardless of above, if due to sale or destruction.

• It will be required to give timely notice of material changes to the loan within 3 days of knowledge of change, or at least 24 hours before closing.

• The new law establishes penalties and remedies through the Consumer Fraud Act, establishes a private right of action and the Residential Mortgage License Act.

• Other notable provisions of the new law include:

a. Requirements on monthly payment quotes;
b. Copies of all appraisals must be provided;
c. A verbal promise to refinance is banned;
d. A cap is placed on delinquency charges;
e. Equity stripping/loan flipping is banned;
f.  Financing certain insurance premiums is banned;
g. Encouraging default is banned;
h. Illinois' Interest Act is amended to make pre-payment penalty language consistent.

- from Illinois Association of Realtors®