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Thursday, January 25, 2007

BIG NEWS REGARDING HB4050, THE PREDATORY LENDING DATABASE:

it may have just been effectively repealed!

As we detailed in a previous article, a new law establishing a “predatory lending database” was signed into law last year by Gov. Blagojevich and went into effect on September 1, 2006. Known as “HB4050,” the law was designated as a “pilot program” and applied to only 10 zip codes, designated by the Department of Financial and Professional Regulation, located within the Southwest corner of Cook County.

The idea was that high foreclosure rates in economically unstable neighborhoods was largely the result of predatory lending. Among other things, HB4050 sought to curb predatory lending by putting onerous reporting and documentation burdens on lenders. It also interposed counseling requirements that were designed to educate borrowers but that would also substantially slow the lending process.

The law was viewed by lenders, brokers, and almost anyone else with a stake in the system, as being overly burdensome and fraught with pitfalls and traps for the unweary. Enactment of the law was preceded by predictions that it would create more problems than it would solve for residents of the affected zip codes. For example, many predicted lenders would simply pull out of affected areas.

Whether or not those predictions came to fruition remains to be seen, but HB4050 appears to have been effectively repealed via an administrative maneuver. Following is the text of a letter from the Department of Financial and Professional Regulation, which oversees implementation of HB4050, which was published January 19, 2007:

The Secretary of the Department of Financial and Professional Regulation (the “Secretary”) is making this designation of the “Pilot Program Area” as directed in 765 ILCS 77 (HB4050 from the 94th General Assembly). In making this designation, the Secretary received and reviewed information that suggests that the prior designation may be detrimental to the Pilot Program’s purpose, namely, to curb predatory lending practices in areas with high rates of foreclosure on residential home mortgages. Based on this review, the Secretary hereby withdraws the designation made on January 27, 2006, and designates the Pilot Program Area as no zip codes or areas whatsoever.
Emphasis added. The letter is signed by Dean Martinez, Secretary of the Department of Financial and Professional Regulation.

In coming weeks and months we will be watching with interest to see if any new area is designated as a Pilot Program Area or whether this effectively marks the end of HB4050. If this marks the end, the explanation will be very interesting. Did lenders pull out as predicted? Did residents complain? Whatever the reason, it had to be enough to convince Governor Blagojevich that implementation of HB4050 was politically untenable, if in fact this is the end of HB4050. It will be equally interesting to see how the above affects legal challenges to HB4050 that are currently pending in Federal court.

We will keep you posted.

Prepared by: Douglas Oliver © 2006. Staff Attorney
Freedman, Anselmo, Lindberg & Rappe, LLC.
Thomas Anselmo, Real Estate Practice Partner