IL Predatory Law Raises Privacy Concerns

Delays, more work also among mortgage industry complaints

August 2, 2005

By PATRICK CROWLEY

In a written statement, Kurt Pfotenhauer, vice president of government affairs for the Washington-based Mortgage Bankers Association, said the law “creates a variety of problems for Illinois consumers, service providers and government agencies.”

“It could have unintended consequences for those it’s trying to help by limiting opportunities for consumers to take advantage of competitive prices from legitimate lenders,” Pfotenhauer said.

The bill would create a database that contains personal information about mortgage loan applicants, according to a statement from Blagojevich’s office.

“Under the program, mortgage companies and brokers must enter information about the borrower and the borrower’s loan into the Internet-based database,” the statement said. “This database will be able to automatically analyze the details of each loan and determine if the loan agreement meets (state) credit counseling standards.”

The law will eventually be rolled out statewide, but a pilot program will begin first in Cook County, which includes Chicago. The area has a high foreclosure rate that officials attribute at least partly to predatory lending.

“Too many working families who struggled to own their own home have been hurt by abusive mortgages they can’t afford,” Blagojevich said in the statement. “With this legislation we can save neighborhoods by giving homebuyers the right information to make informed decisions about home loans.”

But the MBA joined a number of other industry associations that called on Blagojevich to veto the bill, which the Illinois legislature passed earlier this year.

“We undeniably denounce predatory lending,” several professional mortgage groups wrote in a June 27 letter to the governor. “However, the creation of the database raises serious consumer privacy concerns. Additionally, it will force lenders, (state regulators), title insurance companies and closing agents to follow extensive, time-consuming and cumbersome procedures that will interfere with, if not completely prevent, the furnishing of home finance products and services.”

The letter was signed by, among others, the MBA, The National Association of Mortgage Brokers, The Illinois Mortgage Brokers Association and the American Financial Services Association.

In the letter, the associations say that within 10 days of taking a mortgage application loan originators and brokers would be required to submit “a wealth of details” to the online predatory lending database.”

The details include information “about the originator/broker and his company, the property being financed, other service providers involved in the transaction, how the broker/originator met the applicant and the name of any referral source, and personal confidential information about the applicant, including credit score.”

“Getting and filing this information will be a major project in every case,” the associations said.

The state then has seven days to sort through the information, compare it to Illinois’s credit counseling standards and determine if credit counseling is warranted.

Counseling can be mandated as a condition of getting a mortgage loan.

“The borrower is not allowed to borrow money until he completes all those steps,” the associations said. “If anything changes at any time in the process, such as the interest rate, loan amount desired by the applicant, etc., the whole process starts all over again,” the associations said.

The associations also raise questions of civil liberties, saying a government employee would have the power to force borrowers “to a face to face credit counseling interview during which they must bare their finances, goals and needs to the counselor.”

“The whole process will be extremely intimidating to most people and will make financing a home even more difficult and stressful than it already is,” the associations said.

But state Sen. Martin A. Sandoval, D-Chicago, said the information gleaned in the process is vital to cracking down on predatory lending.

“It is important to that borrowers understand the true costs of their home loans and made educated decisions about how to finance those costs,” Sandoval, who supported the bill, said in a statement. “With the wide variety of mortgage options available, too many people are being asked to sign away their rights and to put their homes at risk.”

Patrick Crowley is a MortgageDaily.com feature journalist and blogger, and a reporter and columnist for The Cincinnati Enquirer. e-mail Patrick at: PatCrowley@MortgageDaily.com