(205 ILCS 635/Art. V heading)
ARTICLE V
LENDING PROCEDURES

    (205 ILCS 635/5‑1) (from Ch. 17, par. 2325‑1)
    Sec. 5‑1. The Commissioner may promulgate rules with respect to brokering and lending procedures of residential mortgage licensees as necessary to accomplish the purposes of this Act.
(Source: P.A. 85‑735.)

    (205 ILCS 635/5‑5)
    Sec. 5‑5. Reverse mortgages; disclosure; good faith dealings, fraudulent or deceptive practices.
    (a) At the time a reverse mortgage loan is made or brokered, a licensee must provide to the mortgagor a separate document that informs the mortgagor that by obtaining the reverse mortgage the mortgagor's eligibility to obtain a tax deferral under the Senior Citizens Real Estate Tax Deferral Act may be adversely affected. The mortgagor must sign the disclosure document as part of the reverse mortgage transaction.
    (b) A licensee must act in good faith in all relations with a borrower, including but not limited to, transferring, dealing in, offering, or making a reverse mortgage loan. No licensee shall employ fraudulent or deceptive acts or practices in the making of a reverse mortgage loan, including deceptive marketing and sales efforts.
(Source: P.A. 92‑577, eff. 6‑26‑02; 93‑863, eff. 8‑5‑04.)

    (205 ILCS 635/5‑6)
    Sec. 5‑6. Verification of borrower's ability to repay.
    (a) No licensee may make, provide, or arrange for a residential mortgage loan without verifying the borrower's reasonable ability to pay the principal and interest on the loan, real estate taxes, homeowner's insurance, assessments, and mortgage insurance premiums, if applicable.
    For residential mortgage loans in which the interest rate may vary, the reasonable ability to pay the principal and interest on the loan shall be determined based on a fully indexed rate, which rate shall be calculated by using the index rate prevailing at the time of origination of the loan plus the margin that will apply when calculating the adjustable rate under the terms of the loan, assuming a fully amortizing repayment schedule based on the term of the loan.
    For loans that allow for negative amortization, the principal amount of the loan shall be calculated by including the maximum amount the principal balance may increase due to negative amortization under the terms of the loan.
    (b) For all residential mortgage loans made by a licensee, the borrower's income and financial resources must be verified by tax returns, payroll receipts, bank records, or other reasonably reliable methods, based upon the circumstances of the proposed loan. Nothing in this Section shall be construed to limit a licensee's ability to rely on criteria other than the borrower's income and financial resources to establish the borrower's reasonable ability to repay a residential mortgage loan; however, such other criteria must be verified through reasonably reliable methods and documentation. A statement by the borrower to the licensee of the borrower's income and resources is not sufficient to establish the existence of the income or resources when verifying the reasonable ability to pay. Stated income should be accepted only if there are mitigating factors that clearly minimize the need for direct verification of ability to repay.
(Source: P.A. 95‑691, eff. 6‑1‑08.)

    (205 ILCS 635/5‑7)
    Sec. 5‑7. Broker agency relationship.
    (a) A mortgage broker shall be considered to have created an agency relationship with the borrower in all cases and shall comply with the following duties:
        (1) A mortgage broker shall act in the borrower's
     best interest and in good faith toward the borrower. A mortgage broker shall not accept, give, or charge any undisclosed compensation or realize any undisclosed remuneration, either through direct or indirect means, that inures to the benefit of the mortgage broker on an expenditure made for the borrower;
        (2) mortgage brokers shall carry out all lawful
     instructions given by borrowers;
        (3) mortgage brokers shall disclose to borrowers all
     material facts of which the mortgage broker has knowledge which might reasonably affect the borrower's rights, interests, or ability to receive the borrower's intended benefit from the residential mortgage loan, but not facts which are reasonably susceptible to the knowledge of the borrower;
        (4) mortgage brokers shall use reasonable care in
     performing duties; and
        (5) mortgage brokers shall account to a borrower for
     all the borrower's money and property received as agent.
    (b) Nothing in this Section prohibits a mortgage broker
     from contracting for or collecting a fee for services rendered and which had been disclosed to the borrower in advance of the provision of those services.
    (c) Nothing in this Section requires a mortgage broker to
     obtain a loan containing terms or conditions not available to the mortgage broker in the mortgage broker's usual course of business, or to obtain a loan for the borrower from a mortgage lender with whom the mortgage broker does not have a business relationship.
(Source: P.A. 95‑691, eff. 6‑1‑08.)

    (205 ILCS 635/5‑8)
    Sec. 5‑8. Prepayment penalties.
    (a) No licensee may make, provide, or arrange a mortgage loan with a prepayment penalty unless the licensee offers the borrower a loan without a prepayment penalty, the offer is in writing, and the borrower initials the offer to indicate that the borrower has declined the offer. In addition, the licensee must disclose the discount in rate received in consideration for a mortgage loan with the prepayment penalty.
    (b) If a borrower declines an offer required under subsection (a) of this Section, the licensee may include a prepayment penalty that extends no longer than three years or the first change date or rate adjustment of a variable rate mortgage, whichever comes earlier, provided that, if a prepayment is made during the fixed rate period, the licensee shall receive an amount that is no more than:
        (1) 3% of the total loan amount if the prepayment is
     made within the first 12‑month period following the date the loan was made;
        (2) 2% of the total loan amount if the prepayment is
     made within the second 12‑month period following the date the loan was made; or
        (3) 1% of the total loan amount if the prepayment is
     made within the third 12‑month period following the date the loan was made, if the fixed rate period extends 3 years.
    (c) Notwithstanding any provision in this Section, prepayment penalties are prohibited in connection with the sale or destruction of a dwelling secured by a residential mortgage loan.
    (d) This Section applies to loans made, refinanced, renewed, extended, or modified on or after the effective date of this amendatory Act of the 95th General Assembly.
(Source: P.A. 95‑691, eff. 6‑1‑08.)

    (205 ILCS 635/5‑9)
    Sec. 5‑9. Notice of change in loan terms.
    (a) No licensee may fail to do either of the following:
        (1) Provide timely notice to the borrower of any
     material change in the terms of the residential mortgage loan prior to the closing of the loan. For purposes of this Section, a "material change means" any of the following:
            (A) A change in the type of loan being offered,
         such as a fixed or variable rate loan or a loan with a balloon payment.
            (B) A change in the term of the loan, as
         reflected in the number of monthly payments due before a final payment is scheduled to be made.
            (C) An increase in the interest rate of more than
         0.15%, or an equivalent increase in the amount of discount points charged.
            (D) An increase in the regular monthly payment of
         principal and interest of more than 5%.
            (E) A change regarding the requirement or amount
         of escrow of taxes or insurance.
            (F) A change regarding the requirement or
         payment, or both, of private mortgage insurance.
        (2) Timely inform the borrower if any fees payable by
     the borrower to the licensee increase by more than 10% or $100, whichever is greater.
    (b) The disclosures required by this Section shall be deemed timely if the licensee provides the borrower with the revised information not later than 3 days after learning of the change or 24 hours before the residential mortgage loan is closed, whichever is earlier. If the licensee discloses a material change more than the 3 days after learning of the change but still 24 hours before the residential mortgage loan is closed, it will not be liable for penalties or forfeitures if the licensee cures in time for the borrower to avoid any damage.
    (c) If an increase in the total amount of the fee to be paid by the borrower to the broker is not disclosed in accordance with this Section, the broker shall refund to the borrower the amount by which the fee was increased. If the fee is financed into the residential mortgage loan, the broker shall also refund to the borrower the interest charged to finance the fee.
    (d) Licensees limited to soliciting residential mortgage loan applications as approved by the Director under Title 38, Section 1050.2115(c)(1) of the Illinois Administrative Code are not required to provide the disclosures under this Section as long as the solicitor does not discuss the terms and conditions with the potential borrower.
(Source: P.A. 95‑691, eff. 6‑1‑08.)

    (205 ILCS 635/5‑10)
    Sec. 5‑10. Comparable monthly payment quotes. When comparing different loans, the licensee must not state or imply that monthly loan payments, if they include amounts escrowed for payment of property taxes and homeowner's insurance, are comparable with monthly loan payments that do not include these amounts.
(Source: P.A. 95‑691, eff. 6‑1‑08.)

    (205 ILCS 635/5‑11)
    Sec. 5‑11. Requirement to provide borrower with a copy of all appraisals. Licensees must provide to the borrower a complete copy of any appraisal, including any appraisal generated using the Automated Valuation Model, obtained by the lender for use in underwriting the residential mortgage loan within 3 business days of receipt by the licensee, but in no event less than 24 hours prior to the day of closing. The appraisal may be sent via first class mail, commercial carrier, by facsimile or by e‑mail, if the borrower has supplied an e‑mail address.
(Source: P.A. 95‑691, eff. 6‑1‑08.)

    (205 ILCS 635/5‑12)
    Sec. 5‑12. Disclosure of refinancing options. If the subject of a future loan is discussed by a licensee making, providing, or arranging a mortgage loan, the licensee shall disclose the circumstances under which a new loan could be considered. Such disclosure shall clearly state that it is not a contract and that the licensee is not representing or promising that a new loan could or would be made at any time in the future.
(Source: P.A. 95‑691, eff. 6‑1‑08.)

    (205 ILCS 635/5‑14)
    Sec. 5‑14. Prohibition on equity stripping and loan flipping. No licensee may engage in equity stripping or loan flipping, as those terms are defined in the Illinois Fairness in Lending Act.
(Source: P.A. 95‑691, eff. 6‑1‑08.)

    (205 ILCS 635/5‑15)
    Sec. 5‑15. Prohibition on financing certain insurance premiums. No licensee may make, provide, or arrange for a residential mortgage loan that finances, directly or indirectly, any credit life, credit disability, or credit unemployment insurance; however, insurance premiums calculated and paid on a monthly basis shall not be considered to be financed by the lender.
(Source: P.A. 95‑691, eff. 6‑1‑08.)

    (205 ILCS 635/5‑16)
    Sec. 5‑16. Prohibition on encouraging default. A licensee may not recommend or encourage default or the failure to make timely payments on an existing residential mortgage loan or other debt prior to and in connection with the closing or planned closing of a residential mortgage loan that refinances all or any portion of the existing loan or debt.
(Source: P.A. 95‑691, eff. 6‑1‑08.)

    (205 ILCS 635/5‑17)
    Sec. 5‑17. Severability. If any provision of this Act or its application to any person or circumstance is held invalid, the invalidity of that provision or application does not affect other provisions or applications of this Act that can be given effect without the invalid provision or application.
(Source: P.A. 95‑691, eff. 6‑1‑08.)