One law comes and another one goes

By Sally Duros

Chicago Sun-Times Real Estate Editor

Jan. 26. 07 — 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 sub-prime 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

READ MORE ONLINE

For more information, go to www.suntimes.com/webconnect and find
links to:

– The Right Place, our blog

– Illinois Attorney General Lisa Madigan

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