IBA Compliance Connection

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Does the predatory lending database program in Cook County apply to a loan secured by investment real estate? What about the Illinois High Risk Home Loan Act (HRHLA)? Also, does the predatory lending database points and fees test include more charges than the HRHLA? The predatory lending database program test for points and fees sets a threshold at 5%; does that rise to 8% for smaller loans, as under the HRHLA?

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No, the predatory lending database program would not apply to a mortgage secured by investment property. The Cook County predatory lending database program was established under the Residential Real Property Disclosure Act, which applies only to mortgages secured by residential real properties, defined as one-to-four family properties, units in residential cooperatives and condominium units. It exempts mortgages secured by “non-owner occupied property, commercial property, residential property consisting of more than 4 units, and government property.” Similarly, the HRHLA would not apply. That law applies only to consumer credit transactions “secured by the consumer’s principal dwelling.”

The Residential Real Property Disclosure Act defines “points and fees” with reference to HRHLA’s definition. As a result, both the predatory lending database and the HRHLA tests have identical definitions of “points and fees.” However, as your question suggests, the two laws impose different thresholds for points and fees. The Residential Real Property Disclosure Act imposes a flat 5% threshold for its points and fees test, and this threshold does not adjust with the size of the loan (as it does under the HRHLA).

For resources related to our guidance, please see:

  • Residential Real Property Disclosure Act, 765 ILCS 77/78 (“Mortgages secured by non-owner occupied property, commercial property, residential property consisting of more than 4 units, and government property are exempt but require a certificate of exemption for recording.”)
  • Illinois High Risk Home Loan Act, 815 ILCS 137/10 (“‘High risk home loan’ means a consumer credit transaction, other than a reverse mortgage, that is secured by the consumer’s principal dwelling . . . .”)
  • Residential Real Property Disclosure Act, 765 ILCS 77/70 (“‘Points and fees’ has the meaning ascribed to that term in Section 10 of the High Risk Home Loan Act.”)
  • Residential Real Property Disclosure Act, 765 ILCS 77/72 (The Act requires banks and other mortgagors to report, among other information, “(16) Whether the total points and fees payable by the borrowers at or before closing will exceed 5%.”)