One More Step for Cook County Mortgages - Anti-Predatory Lending Database Goes Online Today
1st July 2008
Mortgage loans in Cook County just got a little more complicated. The new anti-predatory lending bill, SB1167, goes
into affect today, July 1st. One of the provisions of the bill was to set up a database to keep track of all loans originated in Cook County. Borrowers who fall into certain risk categories will need to get counseling before they can close on their mortgage.
According to SB1167, all loans recorded in Cook County after 7/1/2008 are going to require either a Certificate of Exemption, or a Certificate of Compliance attached to the mortgage. The certificates will be printed from the Anti Predatory Lending Database web site set up by Cook County. Mortgage brokers and mortgage bankers who handle mortgages in Chicago and throughout Cook County are now required to enter the loan in the data base at the start of the transaction. This only applies to owner-occupied 1-4 unit residential properties.
Not every borrower needs the counseling though. The conditions that will trigger the counseling requirement are:
- Any purchase transaction where all borrowers are first time home buyers OR Any primary residence refinance where the loan has one of the features below.
- The loan has an interest only feature
- The loan has a prepayment penalty
- The loan has a negative amortization feature
- Total points and fees exceed 5%.
- The loan is an ARM with an interest rate adjustment within the first 3 years. (We’ve been informed by the IAMP that 3/1 ARMs WILL require counseling, even though you may think that the rate adjustments are not “within the first 3 years, but occur after 3 years.)
The following loans are exempt from the counseling requirement: Reverse mortgages, Non-owner occupied (investment), Commercial and multi-family over 4 units.
Predatory lending has been the cause of a lot of foreclosures and a lot of ruined lives. Anything that can put a stop to it is worth doing. But like so many laws this solution isn’t going to have the impact that it is hoping for. For one thing, the real estate market has slowed down and mortgage guidelines have tightened. It’s not as easy to commit fraud when people are paying attention so a lot of the quick-buck sharks and sleazy operators have moved on. The other factor is that the market is ahead of the curve on a lot of these provisions. The loan features that trigger counseling are all features of sub-prime loans, mortgages for borrowers who couldn’t fit into the normal conventional guidelines. Sub-prime loans were the first casualty in the mortgage melt down last year, and no one is making those loans anymore. There will be some sophisticated borrowers who may be forced into counseling because they chose to refinance with an interest only mortgage for the cash-flow benefits, but if first time home buyers are taking on loans with these features they need to know exactly what they are getting into. The law will mean some loans will take a little longer, and it will add an extra step to the process. But who knows, maybe it will even help some people.
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FHA is a government backed loan which is designed to help more people buy homes. FHA doesn’t loan the money themselves, they set up the guidelines and insure the lenders against loss through their mortgage insurance premiums. The goal of FHA isn’t to make a profit, like the private mortgage insurance companies, but to encourage more home ownership which makes a more stable society. This means they are willing to take on borrowers who are considered higher risk due to low down payments, lower credit scores, and those who haven’t built up traditional credit. This is still their mission, but now the riskier borrowers will end up paying a little more to make sure the program stays solvent.


starting an addition to their current home or buying a vacation home. I’m still doing a fair amount of new purchases, but a lot of my calls now are about cash out refinances to consolidate debt. It always makes sense to make sure your mortgage is in line with your overall finances, but it is especially important when money is tight. A debt consolidation loan can help you to restructure your debt in a way that puts more money in your pocket and gives you a plan to actually pay down your debts.
and the money to set up your escrow accounts. The truth is, real estate is a high cost transaction. Even with out the down payment a typical real estate purchase will cost you thousands. So what happens if you are ready to buy now, but your pockets are empty and your wallet is still a little light? There are a couple of ways to buy with no money out of your pocket, but you need to plan ahead.
Why would the seller go along with this? Sellers are concerned with how much they will net, not how the loan is structured. So let’s say you were buying a home listed for $300,000. One way you could do this is offer a purchase price 3% ($9,000) below the list price. This means the seller is selling the home for $291,000. Another way you could do it is by offering the seller the full asking price of $300,000, but conditional on the seller donating the 3% to the DPA. Either way he nets the same amount, $291,000. (This is simplified because the administrative fee needs to be in there too). The important thing is to do this when you are first negotiating the offer. If you are negotiating on the same $300,000 home and the seller agrees to sell it for $290,000, you are going to have a hard time coming back later and asking him for more of a concession to pay for your down payment.
These are other just a few of the advantages of FHA financing. There are other advantages of FHA financing which help some individual needs. One of the biggest things to keep in mind is the pricing. FHA pricing is as competitive as conventional financing –and much lower if you are buying with a low down payment or if your credit scores aren’t the absolute best. If you would like to see how FHA could work with your situation, give me a call or 
FHA is not credit score based – this means you can qualify for an FHA mortgage with credit scores in the upper 500s – without any price hits. With low down payment conventional mortgages the rates go up if your FICO score is below 680. FHA uses a common sense underwriting approach. It understands that credit problems can happen to anyone. Their concern is that the problem has been addressed and isn’t likely to occur again.
taking on an ARM, you are taking a risk that rates may be higher down the road, and if you are still in your home, and still in your mortgage, your payments would then move up.