Mortgage Daily

Published On: January 20, 2006
Chicago Law a Disaster for Loan Applicants

Mandated counseling is hampering mortgage lending

September 20, 2006


photo of Patrick Crowley
A new Illinois law was supposed to rid Chicago neighborhoods of predatory lenders, provide inner-city residents with legitimate home buying opportunities and provide more oversight to state regulators.But mortgage brokers and industry representatives say the law known as House Bill 4050 is having the opposite effect.

Lenders, citing the stringent requirements of the legislation, are fleeing the very communities the law was intended to help.

“The law has its heart in the right place,” broker Dan Green of Mobium Mortgage in Chicago told “But the way it was actually written has resulted in some pretty dramatic consequences.”

The problem, Green and others say, is that in 10 Chicago zip codes that have been hit especially hard by predatory lenders, qualified buyers must now receive credit counseling before their loans are approved.

But rather than helping buyers avoid the legal and financial pitfalls of being preyed upon by an unscrupulous lender the law — which took affect Sept. 1 – is frustrating lenders by adding time and cumbersome counseling sessions to the loan process.

It is also slowing the approval process and adding up to $300 in costs to some loans, said Green, who has written extensively about the law and its impact on his blog,

“What the law was intended to do was help folks who wouldn’t otherwise have the opportunity get an education about mortgages before making a decision,” Green said. “The education is terrific … but the way it is worded there are so many steps that have to happen before a mortgage can be funded that lenders are walking away.”

Green said by his latest count, 26 companies had stopped originating and brokering loans in the impacted zip codes.

“The lenders are just saying forget it,” he said.

There have also been concerns raised about discrimination because the targeted areas are predominately African-American and Hispanic neighborhoods.

The Illinois Mortgage Brokers Association, which unsuccessfully lobbied for changes in the law before it was passed earlier this year, is considering legal action and a media campaign to battle the impact of the legislation.

“Some people are indicating to me they are having problems selling their home because they can’t find any buyers now,” said Marve Stockert, the association’s executive director, said in an interview.

“Others are telling me they feel like idiots because the state says they need this counseling,” Stockert said. “The whole thing is blowing up. It’s turned into the biggest disaster in Illinois right now.”

Stockert said there are also privacy concerns about the buyers’ personal financial and other information being logged into state databases.

Because the law is a pilot program, it will operate for four years before the legislature would consider radical changes.

The measure had the support of Illinois Gov. Rob Blagojevich, who signed it in to law in July, and powerful House Speaker Michael Madigan, a Chicago Democrat.

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

Community development groups that work in the impacted zip codes also praised the law.

“The program will make a major difference in the lives of the many people in our neighborhoods by providing them with better quality information regarding the lending process and ensure that they are getting a good loan,” Betty Gutierrez, co-chairwoman of the Southwest Organizing Project development group, said in the governor’s statement.

But the Chicago Association of Realtors is considering a lawsuit to fight the bill, according to the association’s Web site.

The association’s board of directors “is requesting of all members who have experienced problems with HB 4050 to supply information to us directly in writing so we can collect information for possible litigation,” the association said.

“We believe this program wrongly subjects borrowers to a cumbersome government-imposed bureaucratic maze based on the neighborhood they live,” it said. “We also believe that this program is not practical or workable, and will cause significant disruptions in the targeted and surrounding areas.”

Patrick Crowley is a feature journalist and blogger for He is also a reporter, blogger and columnist for The Cincinnati Enquirer.
e-mail Patrick at: [email protected]

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