Governor Signs Housing Counseling Bill

By Ed Finkel on Saturday, November 3, 2007

Mortgage brokers will be required to send certain Cook County clients to federally approved housing counseling – and pay the $300 fee – under legislation signed by Gov. Blagojevich on Nov. 2 that amends the Home Equity Assurance Act.

The law will take effect in July 2008, according to Kristen Komara, director of financial services at The Resurrection Project, one of two NCP lead agencies to advocate for its passage.

The legislation applies to mortgages originated through a broker, where the borrower is seeking an adjustable rate of three years or less, has closed-end interest only, faces a pre-payment penalty, or anticipates negative amortization, said Livia Villareal, director of counseling services for NCP lead agency Greater Southwest Development Corp. in Chicago Lawn.

This map shows that foreclosures were most heavily concentrated in certain West and South Side neighborhoods.

The city of Chicago has 11 agencies certified to handle such counseling by the U.S. Department of Housing and Urban Development, Villareal says, including TRP and Greater Southwest.

Counselors will not be able to stop a deal from happening; they will simply review documents and advise people of the wisdom of their choices. Supporters believe this will guard against future problems like the ongoing sub-prime lending meltdown.

"It's our job to explain what's on paper. It's not our job to say whether [clients] should go through with it," Komara says. "We absolutely think something has to be done [legislatively]. Sub-prime lending truly is tearing our communities apart."

 The legislation also clearly assigns fiduciary responsibility for mortgage integrity to brokers and contains other provisions to tighten up and enforce broker regulation, Komara says. Villareal adds the law also contains a "safe harbor" provision so counselors can't be sued.

A pilot version of the law passed in 2005 applied only to 10 ZIP codes on the Southwest Side of Chicago and affected only those with credit scores below a certain cutoff. Villareal says Greater Southwest handled 222 counseling sessions during the 20-week pilot in 2006, half of which concerned people taking out mortgages at least 45 percent debt-to-income.

Under the bill, counselors would weigh on the wisdom of mortgage terms, although they could not prevent the deal from going through.

Given such numbers, counselors at LISC's Center for Working Families say they will need more resources to implement such an effort countywide. "We were up to our gills" during the pilot, Komara says. "There aren't enough counselors to meet the demand that will come with a countywide program."

Villareal says her agency and others advocated for changes to the pilot parameters, which  included brokers paying both the $300 counseling fee plus a second $300 fee that would have helped provide funding to hire counselors and to set up a predatory lending database.

The latter provision ended up on the legislative cutting-room floor, but Villareal says she believes advocates made an impact. "We lobbied for those kinds of changes," she says. "There were certain things they did incorporate."

For information about the City of Chicago's programs to help those seeking to avoid foreclosure, including the current series of "borrower outreach" meetings and the ongoing Homeowner Preservation Initiative, please click here.

The state of Illinois also plans to hold Homeowner Outreach Days starting Nov. 15 in Chicago, Blagojevich announced when signing the legislation. For a press release detailing both the new law and the outreach days, please click here.