The Predatory Lending Database Pilot Program: Another Hurdle for Mortgage Brokers and Title Companies

By: Dean J. Lurie

The Predatory Lending Database Pilot Program (the “Program”) was implemented by the Department of Financial and Professional Regulation on September 1, 2006. The Program, mandated by Article 3 of the Residential Real Property Disclosure Act (the “Act”) requires all mortgage brokers and loan originators licensed under the Residential Mortgage License Act of 1987 to enter loan application information in the Predatory Lending Database (the “Database”) if the mortgage loan is secured by residential real estate and is located in the designated area of Cook County as identified by the Division of Banking. Pursuant to the Act, the Banking Division will compare the loan information entered into the Database with standards established under Banking Division Rules related to mandatory housing counseling. Based upon a comparison of these standards to the information submitted to the Database, the Banking Division issues a determination whether mandatory housing counseling is recommended for the particular borrower or borrowers.

If the Banking Division recommends mandatory housing counseling, the borrower or borrowers must complete an interview with a counselor affiliated with a certified counseling agency. Following the interview with the borrower, the housing counselor must provide and submit additional information to the Database. When the residential real estate loan proceeds to closing, additional information must be submitted to the Database by either a title insurance company or a closing agent in accordance with the Act.

Since its implementation, the Program has been problematic to borrowers, mortgage brokers, attorneys and title companies. Firstly, a loan that falls under the Program will not be able to close in the 2-4 weeks that has been customary in the past for residential real estate. The borrower must schedule a counseling session, which causes additional delays. Further, there are additional costs borne by both the borrower and mortgage broker. There is typically a $300 flat fee that must be paid to the housing counselor. This is usually paid by the mortgage broker who is then reimbursed by the borrower at closing. However, if the housing counselor denies the borrower’s loan, or the loan does not close for any other reason, the mortgage broker absorbs the cost of the counseling session. Finally, title companies charge anywhere from $100-$200 to enter the required information into the Database. This charge is also borne by the borrower.