A few weeks ago Bank of America said that after reviewing policies and procedures as they relate to the Illinois High Risk Home Loan Act (HRHLA), it was suspending the fixed rate HECM in the state.
For the purposes of the HRHLA, the bank said closing costs which exceed 5% of the principal limit are considered high-cost. However, this was an interesting number that they pulled from somewhere since no where in the HRHLA does it state 5%. The number actually comes from the IL High Cost Lending Act of 2003 which states:
A "high risk home loan" is defined as the total points and fees payable by the consumer at or before closing will exceed the greater of 5% of the total loan amount or $800.
Earlier this week, Bank of America sent a notice to correspondents which stated it’s resuming the fixed rate product in the Land of Lincoln. All loans which were previously declined due to the suspension can be resubmitted for approval as long as they meet the following requirements:
- Closing costs, defined as all costs paid by the borrower directly or indirectly, do not exceed 5% of the total loan amount.
- Bank of America’s high cost worksheet must be completed.
- Bank of America’s high cost worksheet must be submitted to fulfillment and indicate that the loan has “passed” the high cost test.
I spoke with a handful of other lenders who are looking at Bank of America’s new approach to offering fixed rate products in Illinois and are considering following their lead to start offering it in the state.