DeBat: Cook County borrowers now protected against future home-loan fraud

Don DeBatWith “Operation Malicious Mortgage” in full swing, predatory lenders are now focused in the crosshairs of the Department of Justice and the Federal Bureau of Investigation, government sources say.

The national investigation of mortgage-fraud schemes – the culmination of substantial coordinated efforts in recent months to identify, arrest and prosecute mortgage fraud violators throughout the United States – so far has led to charges being filed against more than 400 defendants.

The FBI estimates that about $1 billion in losses were inflicted by the mortgage fraud schemes employed in these cases.

Locally, Illinois Attorney General Lisa Madigan is suing mortgage lender Countrywide Financial for fraud. The civil lawsuit, filed in Cook County Circuit Court, alleges that Countrywide violated the state’s consumer protection statues by making unaffordable loans and failing to give adequate disclosures to borrowers.

So those greedy predatory lenders – the jackals who caused much of the sub-prime mortgage crisis in Cook County and across the nation – caused thousands of foreclosures and helped create the current real estate recession. Many may soon pay for their actions.

With the real-estate market left in ashes, experts say it may take years for some city neighborhoods and suburbs to recover. But what protection do borrowers have against a future wave of mortgage fraud?

Hopefully, a new Illinois law may help. Under the Anti-Predatory Lending Database pilot program, borrowers applying for a mortgage on one- to four-unit, owner-occupied, residential property in Cook County will be assisted in understanding the terms and conditions of their loan.

“Every mortgage recorded on or after July 1, 2008, in Cook County must have either a Certificate of Mortgage Compliance or a Certificate of Mortgage Exemption attached to it,” said attorney Arden K. Miner, senior manager of underwriting and escrow for Attorney’s Title Guaranty Fund. “The mortgage will not be recordable without the certificate.”

The purpose of the program is to reduce predatory lending practices by assisting the borrower in understanding the terms and conditions of the loan for which he or she has applied. The law, which does not apply to loans on property outside of Cook County, does not prohibit any type of loan, such as adjustable-rate mortgages, or ARMs.

Non-owner occupied property, commercial real estate, residential property containing more than four units and government property is exempt from the law.

As part of the program, mandatory housing counseling by a Department of Housing and Urban Development-certified agency is required in a purchase transaction involving first-time home buyers, or if the borrower is refinancing a primary residence.

Borrower counseling also is required if the mortgage permits interest-only payments, if the loan may result in negative amortization, or the total points and fees payable by the borrower at or before the closing exceed 5 percent of the loan amount.

Counseling also is required if the loan is an ARM which allows adjustments of the interest rate in the first three years, or if the loan includes a prepayment penalty. If counseling is required, the borrower will be notified and given a list of all participating counseling agencies.

Mortgage closers and title companies will generate the certificate of compliance or exemption at closing and be required to enter the information into an online database maintained by the Department of Financial and Professional Regulation.

At the closing, the $200 fee for a Certificate of Mortgage Compliance or the $100 fee for a Certificate of Mortgage Exemption will be split equally between the title company and ether the independent closer or the member closing firm and added to title insurance charges.

Real estate columnist and media consultant Don DeBat has written about Chicago-area housing and mortgage markets since 1968. He is chief executive officer of DeBat Media.

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