ITEM #4

Submitting a Proposed Ordinance sponsored by

MIKE QUIGLEY and PRESIDENT JOHN H. STROGER, JR., County Commissioners

Co-Sponsored by

JOHN P. DALEY, County Commissioner

WHEREAS, high cost lenders are preying on Cook County residents, aggressively marketing high interest rate and high fee loans to residents of low and moderate-income communities; and

WHEREAS, many of these predatory lenders are engaging in outright fraud and deception in order to swindle people out of their homes; and

WHEREAS, some of the signs of a predatory lender include: a lender who has a record of breaking federal and state laws; a lender who charges fees without relation to the actual costs of services performed; a lender who charges fees out of proportion to the standards of the industry; a lender who charges interest rates substantially higher than those merited by the credit risk represented by borrowers, and especially disproportionate rates to African Americans and Latinos and other members of protected classes; a lender who originates loans without regard for the borrowers actual ability to pay; or a lender who engages in a pattern of fraud and misrepresentation of loan terms and costs; and

WHEREAS, these predatory lenders are stripping hard earned equity from county residents and they are contributing to problems of vacant and abandoned houses by making loans that families cannot repay;

THEREFORE BE IT RESOLVED,

I.									No bidding bank or savings and loan association may be designated as a county depository if it or any of its affiliates is a predatory lender. Every bidding bank and loan association shall, prior to any such designation, submit to the County a certification that neither it, nor any of its affiliates is a predatory lender. The certification shall be in a form prescribed by the Chief Financial Officer and shall be sworn by one or more of the officers of the bank or loan association.
II.									(1) No person or business entity shall be awarded a contract with the County if the person or business entity, or any of its affiliates, is a predatory lender. Nor shall any person or business entity be a collection agent for property taxes within Cook County if the person or business entity, or any of its affiliates, is a predatory lender. Every person or business entity seeking to do business with the County, or to become a collection agent for property taxes within Cook County, shall submit to the County a certification that neither it, nor any of its affiliates is a predatory lender. The certification shall be in a form prescribed by the Chief Financial Officer and shall be sworn by the person or one or more of the officers of the business. Nothing in this section shall affect the validity of any contract entered into in connection with any debt obligations issued by or on behalf of the County, regardless of whether the contract is awarded in compliance with this Section. Any other contract awarded in violation of this Section shall be voidable at the option of the County.

(2) The Purchasing Agent may suspend the ineligibility of a person or business entity in order to allow execution of a contract with the person or entity, upon written application by the head of a County agency or department affected by the proposed contract, setting forth facts sufficient in the judgement of the purchasing agent to establish:

a.

that the public health, safety or welfare of the county requires the goods or services of the person or business entity; and

b.

that the County is unable to acquire the goods or services at comparable price and quality, and in sufficient quantity from other sources.

I.									As used herein, the following terms shall mean:

(1) "Affiliate", any company that controls, is controlled by or is under common control with another company, as set forth in the Bank Holding Company Act of 1956, 12 U.S.C. 1841 et seq., as amended from time to time;

(2) "Annual percentage rate", the annual percentage rate for the loan calculated according to the provisions of the federal Truth-in-Lending Act, 15 U.S.C. 1601, et seq., and the regulations promulgated thereunder by the Federal Reserve Board, as said act and regulations are amended from time to time;

(3) "Bona fide loan discount points", loan discount points knowingly paid by the borrower for the purpose of reducing, and which in fact result in a bona fide reduction of, the interest rate or time-price differential applicable to the loan, provided the amount of the interest rate reduction purchased by the discount points is reasonably consistent with established industry norms and practices for secondary mortgage market transactions;

(4) "Flipping", means the refinancing, and charging of additional points, charges or other costs, on any loan secured by residential real estate within a two year period after the original loan was made, unless the refinancing results in a demonstrable net economic benefit to the borrower;

(5) "High-cost loan", a loan in which the terms of the loan meet one or more of the following thresholds:

(a)

The annual percentage rate of the loan at consummation exceeds by five or more percentage points the weekly average yield on United States Treasury securities adjusted to a comparable length of maturity, as made available by the Federal Reserve Board, as of the week immediately preceding the week in which the interest rate for the loan is established; or

(b)

The loan is a variable rate loan in which the annual percentage rate can reasonably be expected to increase beyond the threshold established in paragraph (a) of this subdivision; or

(c)

Potential or scheduled increases in the annual percentage rate of the loan are not directly tied to future increases in a widely used federal or private market measurement that reflects the cost of borrowing money, such as the interest rate yield on United States Treasury securities, the federal funds rate, or the prime interest rate; or

(d)

The total points and fees on the loan exceed:

a.

Three percent of the total loan amount if the total loan amount is twenty thousand dollars or more;

b.

Four percent of the total loan amount if the total loan amount is twenty thousand dollars or more and the loan is a purchase money loan guaranteed by the Federal Housing Administration or the Veterans Administration; or

c.

The lesser of five percent of the total loan amount or eight hundred dollars, if the total loan amount is less than twenty thousand dollars. The following discount points shall be excluded from the calculation of the total points and fees:

(i) Up to and including two bona fide loan discount points payable by the borrower in connection with the loan transaction, but only if the interest rate from which the loan's interest rate will be discounted does not exceed by more than one percentage point the required net yield for a ninety-day standard mandatory delivery commitment for a reasonably comparable loan from either the Federal National Mortgage Association or the Federal Home Loan Mortgage Corporation, whichever is greater; (ii) Up to and including one bona fide loan discount point payable by the borrower in connection with the loan transaction, but only if the interest rate from which the loan's interest rate will be discounted does not exceed by more than two percentage points the required net yield for a ninety-day standard mandatory delivery commitment for a reasonably comparable loan from either the Federal National Mortgage Association or the Federal Home Loan Mortgage Corporation, whichever is greater;

(6) "Lender", any entity which originated more than five home loans within the past twelve-month period or acted as an intermediary between originators and borrowers on more than five home loans within the past twelve-month period;

(7) "Points and fees":

(a)

All items required to be disclosed pursuant to Sections 226.4(a) and 226.4(b) of Title 12 of the Code of Federal Regulations, as amended from time to time, except interest or the time-price differential;

(b)

All charges for items listed under section 226.4(c)(7) of Title 12 of the Code of Federal Regulations, as amended from time to time, but only if the lender receives direct or indirect compensation in connection with the charge or the charge is paid to an affiliate of the lender, otherwise, the charges are not included within the meaning of the points and fees;

(c)

All compensation paid directly or indirectly to a mortgage broker, including a broker that originates a loan in its own name in a table-funded transaction, not otherwise included in paragraph (a) or (b) of this subdivision;

(d)

"Points and fees" shall not include:

a.

Taxes, filing fees, recording and other charges and fees paid or to be paid to public officials for determining the existence of or for perfecting, releasing or satisfying a security interest; and

b.

Fees paid to a person other than a lender or an affiliate of the lender or to the mortgage broker or an affiliate of the mortgage broker for the following: fees for flood certification; fees for pest infestation and flood determinations; appraisal fees; fees for inspections performed prior to closing; credit reports; surveys; attorney's fees, if the borrower has the right to select the attorney from an approved list or otherwise; notary fees; escrow charges, so long as not otherwise included under paragraph (a) of this subdivision; title insurance premiums; and fire insurance and flood insurance premiums, provided that the conditions in Section 226.4(d)(2) of Title 12 of the Code of Regulations are met;

(8) "Predatory lender" means a business entity that has made, within the previous 24 month period, predatory loans that comprise the lesser of:

(a)

5% of the total number of loans made, or

(b)

25 individual loans

Each lender and affiliate shall be considered separately for the purposes of these calculations, and only loans secured by residential real estate that is located within the County of Cook shall be considered. The term "predatory lender" shall not include a business entity that has demonstrated to the satisfaction of the Chief Financial Officer that it has discontinued the practice of making predatory loans and has taken steps to ensure that it does not make such loans in the future.

(9) "Predatory loan" means a high-cost loan that is secured by residential real estate that is located within the County, including but not limited to home purchase, home refinance and home equity loans, that exhibits one or more of the following characteristics:

(a)

Prepayment fees or penalties;

(b)

A payment schedule with regular periodic payments that result in an increase in the principal balance, a practice known as negative amortization;

(c)

Flipping;

(d)

The borrower's scheduled monthly payments exceed fifty percent of the borrower's monthly gross income at the time the loan is consummated, or at the time of the first rate adjustment in the case of a lower introductory interest rate. This provision shall not apply if the borrower has seasonal or irregular income which is expected to exceed twice the total payments due in the first twelve months following loan consummation, or the twelve months following the first rate adjustment in the case of a lower introductory interest rate. Monthly payments shall be presumed to exceed fifty percent of the borrowers monthly income, if the lender has failed to verify the borrower's income through the credit application, the borrower's financial statement, a credit report, financial information provided to the lender by or on behalf of the borrower, or by other reasonable means;

(e)

The Illinois Office of Banks and Real Estate, or a court of law, has found that the lender has made or caused to make, directly or indirectly, any false, deceptive or misleading statement or representation, including, without limitation, a false, deceptive or misleading statement or representation regarding the borrower's ability to qualify for any mortgage product. A statement or representation is deceptive or misleading if it has the capacity or tendency to deceive or mislead a borrower or potential borrower;

(f)

The lender has financed, directly or indirectly, any credit life, credit disability, or credit unemployment insurance, or any other life or health insurance premiums through a home loan. Insurance premiums calculated and paid on a monthly basis shall not be considered financed by the lender;

(g)

The loan contains a scheduled payment that is more than twice as large as the average of earlier scheduled payments. This provision does not apply when the payment schedule is adjusted to the seasonal or irregular income of the borrower;

(h)

The loan includes terms under which more than two periodic payments required under the loan are consolidated and paid in advance from the loan proceeds provided to the borrower;

(i)

The loan contains a provision that increases the interest rate after default. This provision does not apply to interest rate changes in a variable rate loan otherwise consistent with the provisions of the loan documents, provided the change in the interest rate is not triggered by the event of default or the acceleration of the indebtedness;

(j)

The loan contains a provision which permits the lender, in its sole discretion, to increase the indebtedness. This provision does not apply when repayment of the loan has been accelerated by default, pursuant to a due-on-sale provision, or pursuant to some other provision of the loan documents unrelated to the payment schedule;

(k)

The loan contains provisions which permit the lender to charge a borrower any fees or other charges to modify, renew, extend or amend a high-cost home loan or to defer any payment due under the terms of a high-cost home loan;

(l)

The loan is subject to a mandatory arbitration clause that limits in any way the right of the borrower to seek relief through the judicial process;

(m)

The lender has paid a contractor under a home-improvement contract from the proceeds of a high-cost home loan other than by an instrument payable to the borrower or jointly to the borrower and the contractor, or at the election of the borrower, through a third-party escrow agent in accordance with terms established in a written agreement signed by the borrower, the lender and the contractor prior to the disbursement.

(10) "Total loan amount", the same as the term is used in Section 226.32 of Title 12 of the Code of Federal Regulations, and the same shall be calculated in accordance with the Federal Reserve Board's Official Staff Commentary thereto.

IV.									This ordinance shall take effect 90 days after its passage.

Commissioner Daley, seconded by Commissioner Lechowicz, moved to suspend the rules so that this matter may be considered. The motion carried unanimously.

Commissioner Quigley, seconded by Commissioner Moran, moved that the Proposed Ordinance be referred to the Committee on Finance. (Comm. No. 236034). The motion carried unanimously.

Copyright © 2000 Cook County Clerk David Orr All rights reserved.