Are we required to complete a “net tangible benefit/anti-flipping” worksheet, on top of our other tests for compliance with HPML, HOEPA, HRHLA, QM, etc.?

While there are no Illinois laws that expressly require you to use a net tangible benefit worksheet, we still would advise that you complete some sort of tangible net benefit analysis when refinancing mortgage loans secured by a borrower’s principal residence, in order to avoid a violation of the Illinois Fairness in Lending Act or the Illinois High Risk Home Loan Act. While the other tests that you mentioned will catch high loan fees and other risk factors, none of them squarely addresses the issue of whether borrowers are receiving a tangible net benefit from refinancing their mortgage loans.

The Illinois Fairness in Lending Act prohibits any lender from engaging in the practice of “loan flipping,” which presupposes a “tangible benefit” test. Loan flipping occurs when a loan that is secured by a principal residence is refinanced for the “primary purpose of receiving fees related to the refinancing when (i) the refinancing of the loan results in no tangible benefit to the person and (2) at the time the loan is made, the financial institution does not reasonably believe that the refinancing of the loan will result in a tangible benefit to the person.”

Another “tangible net benefit” test applies to loans that qualify as “high risk” under the Illinois High Risk Home Loan Act. The Act prohibits lenders from refinancing a “high risk” loan if: (1) the refinancing occurs within a year of the original loan closing, and (2) additional points and fees are charged, unless the refinancing results in a “tangible net benefit” to the borrower.

For resources related to our guidance, please see:

Illinois Fairness in Lending Act, 815 ILCS 120/2(e) (Loan flipping means “to assist a person in refinancing a loan secured by the person’s principal residence for the primary purpose of receiving fees related to the refinancing when (i) the refinancing of the loan results in no tangible benefit to the person and (ii) at the time the loan is made, the financial institution does not reasonably believe that the refinancing of the loan will result in a tangible benefit to the person.”)

High Risk Home Loan Act, 815 ILCS 137/45 (“No lender shall refinance any high risk home loan where such refinancing charges additional points and fees within a 12-month period after the original loan agreement was signed, unless the refinancing results in a tangible net benefit to the borrower.”)