Illinois Passes Predatory Lending Laws

The month of August has been a tipping point for the stock market. Sparked by worries associated with subprime lending practices and rising home foreclosures, Wall Street investors and analysts have spent the entire month in a tizzy waiting to see how big the bubble bursting will be when the shakeout is complete. At the same time, families are losing their homes at record numbers and financial institutions are developing stricter guidelines for mortgages in a time when subprime mortgages are going the way of the wind. With all of this chaos, states are beginning to step in and develop policies to protect home buyers who have been the victim of predatory lending practices and watching their homes and dreams go out to the dogs.

After a failed policy move earlier this year that saw an uprising in cries of racism, the Illinois state legislature moved again this summer to write a policy that will in effect be educational in nature, but with the hope that education will lead to better decisions about mortgage undertaking. The old statute which was only in effect for a couple of months, was modified, having consumer counseling agencies invest at least an hour, possibly two with anyone seeking an unconventional mortgage loan. These loans are those that are geared towards people with higher credit risk or financial instability. The loans with such concerns as upfront payment penalties and interest-only payment options have been a major part of the foreclosure debate as people with the highest credit risk are defaulting at alarming rates.

The point of contention in Illinois is similar to one heard across the country. By instituting safeguards they are also making it more difficult for minorities to secure home loans or to see their homes sold. The new law focuses on loans in the Chicagoland community. It is this area of the state that has seen the most dramatic increase in defaults and thus is the focus of the state legislature. The talk of racism is well-founded. While not the intent of the legislature, minorities do carry a higher percentage of nontraditional loans and are the victims of predatory lending practices than their non-minority counterparts. This tension cannot be solved by legislation but the new law is a step in the right direction.

The bill uses the Chicagoland area, that includes the metropolis and its surrounding areas as a pilot center. The area has about 5.3 million residents inside of it. The measure would have all those borrowers whose loans contain certain parameters such as a rate that changes within a certain timeframe or additional charges if the homebuyer wants to pay their loan off or faster than the agreed upon terms. It is believed that almost 20,000 loans would be put up for review and counseling annually. That number has made those agencies assigned to do the counseling nervous because of the increased workload. With the number of counseling sessions pushing counselors to do three to four a day, counselors have to bump other sessions in order to serve the increased number of mortgage loans being reviewed.

Some agencies are having to higher new staff in order to curb the workload that has sprung up because of the increased counseling sessions involved. The Housing and Urban Development (HUD) approved agencies must also follow strict guidelines in their counseling, believing that good education will help to solve a problem that has forced thirty states to invoke predatory lending practice legislation. While some have been able to make claims of being misled the growing problem with predatory lending will continue as long as the American dream is woefully out of reach of a growing population and they remain the victim waiting to happen in the mortgage loan debate.

The legislation enacted by Illinois will be a model if it works the brunt of jokes if it does not. The former legislation was touted until the mounting pressure of racism forced the legislature to table the matter. Consider the matter on the table again and under review.