Illinois Bill Exempts Reverse Mortgages From High Risk Loan Act, Brokers Gain

Brokers say they will have a more level playing field if a new bill becomes law in Illinois: The state legislature recently passed a bill changing the state’s high-risk loan act definition in move that will make it easier to originate lower-value loans and help even the playing field for reverse mortgage brokers. 

SB 1692 exempts reverse mortgages from being included under the definition of high-cost loans under the High Risk Home Loan Act of 2003. Unless Governor Pat Quinn (D-Ill.) vetoes the bill within the next 60 days, it will automatically become law. 

The act was originally written “as a wide net” to protect consumers against predatory lenders in a time when most people probably didn’t even know about reverse mortgages, says Mike Wyrostek, branch manager at Mortgage Services III’s Reverse Mortgage Division, based in Oak Brook Terrace, Ill. 

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Under the act, a mortgage transaction where borrowers paid origination fees exceeding the greater amount of 5% of the total loan amount, or $800 were considered “high risk home loans.” 

For some lenders who were able to waive or lower origination fees, it was easier to make sure closing costs remained under that 5% threshold, says Wyrostek, but for brokers originating lower-cost loans, it was almost impossible.

“The law became lopsided,” he says, and put brokers at a disadvantage.

With brokers disclosing fees upfront, the 2% origination fee, 2% mortgage insurance premium, and other initial closing costs would often put the fees over 5% right off the bat, making it difficult for some to do business. Some lenders stopped doing high-cost loans altogether, says Wyrostek. 

“Reverses should have been exempt, period, from that law to begin with,” he says. “It evens the playing field now for brokers and it’s good for seniors, too, because there are more people they can go to.” 

Indications that the bill with become a law, so far, are favorable. “It did pass both Houses, and it’s a good bill all the way around,” says Wyrostek. 

View SB 1692

Written by Alyssa Gerace