The Right Place

Hello SB 2349!

By Sally Duros

So long, HB 4050, and hello, SB 2349. The Illinois Predatory Lending Database Pilot Program is gone, but mortgage fraud isn't, so now we have the Mortgage Fraud Rescue Act, which went into
effect Jan. 1.

HB 4050 was smote in the unresolved clash between consumer advocates and lenders: advocates want to flush out the predators and prevent suffering caused by inappropriate sub-prime loans,
while lenders want to preserve the robust cash streams from the legitimate sub-prime market.

Seems there are more flavors of ways to steal people's homes and mortgage money than there are flavors of ice cream. SB 2349, which was sponsored by Sen. Jacqueline Y. Collins (D-Chicago) and Rep. Marlow Colvin (D-Chicago), targets unscrupulous mortgage rescuers, businesses that say they will save homeowners from foreclosure but instead strip equity from their homes and leave the homeowners with
nothing.

"The law's not even a month old," said Tom James, senior assistant attorney general to Illinois Attorney General Lisa Madigan. "We know that the industry is well aware of it. It is being watched by
other law enforcement agencies who are drafting their own versions.

"There's a tremendous amount of this," James said. "We and attorneys general from other states have sued three entities, and recovered $750 million aggregate."

The cases against First Alliance Mortgage Co., Household Beneficial, and the most recent, Ameriquest, involved upselling, the unscrupulous practice of peddling high-cost inappropriate loans
to homeowners.

"In terms of mortgage rescue fraud," James said, "we don't have figures because it is exploding as a result of the mushrooming of foreclosures."

Driving foreclosures is the inappropriate use of subprime loans. A
typical borrower hit with this scam might be house-rich but cash-poor, with some equity in the home, and a lower net income than the average borrower. Seniors are a favorite target for these
scammers.

The new law requires mortgage rescuers to either save the home as promised or pay the homeowner a substantial portion of the home's value.

"The law was carefully tailored for cases where the rescuers says, 'I'm going to keep you in the home and you can buy it back' -- that's the hook they use," James said.

In this scam, when a homeowner falls behind on mortgage payments, a rescuer will promise to buy the house from the homeowner in return for the homeowner paying the rescuer rent. The homeowner and
rescuer agree that the homeowner has the option to buy back the house.

The homeowner doesn't know that the mortgage rescuers have obtained title to the home by paying off the mortgage. The homeowner can't keep up with the rent, and they lose their homes and any equity
they had built in them. Targeted homeowners usually have more equity in their home than they owe in mortgage.

This scheme never works to the homeowner's advantage.

HB 4050 died quietly Jan. 19 when Gov. Blagojevich directed the Illinois Department of Financial and Professional Regulation (IDFPR) to "immediately suspend" the law. "There was a sense that
we were regulating borrowers rather than regulating lenders," said Blagojevich spokesman Gerardo Cardenas. "We want something that works better."

As to SB 2349, "Whether it will be effective remains to be seen," James said. "We have incorporated enough bite there so that we will get them."

sduros@suntimes.com

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