Context on ARMs and HB4050
Here’s some excellent reporting from Business Week that provides useful context on the big picture nationwide related to the controversial use of adjustable rate mortgages (ARMs) by individuals and the real estate industry. The cover story ran Sept. 11, 2006.
Business Week’s "Map of Misery," shows the percentage of new and refinanced mortgages carrying loans with payment options. The map shows that 7.8% of Chicago’s loans appear to carry these kinds of payment options. This is a low percentage compared with the much higher percentages in other areas nationwide, such as 27.5% in Los Angeles/Long Beach.
The use and abuse of ARMs is front and center in the reasons why the HB4050 law was passed.
The HB4050 pilot in ten Chicago zip codes requires mortgage counseling for individuals with FICO credit scores below 620 and for those considering mortgage loans with prepayment penalties or with fees in excess of 5% of the loan amount.
The counseling identifies whether there are discrepencies between the individual's perception of the terms of the loan and the actual terms of the loan. The counseling also seeks to ensure that the borrower fully understands the financial implications of what he or she is signing.
Information collected through the pilot is entered into a database that the state hopes will help identify patterns of predatory mortgage lending.
