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Bureau of Residential Finance

To:Illinois Residential Mortgage Licensees

Re: Regulatory Bulletin (WD 99/1)

From:William A. Darr, Commissioner

Date: May 1, 1999

Subject: Default/Foreclosure Rates and Related Issues

Section 4-8 (a) of The Illinois Residential Mortgage License Act of l987 states that " The Commissioner shall obtain from the U.S. Department of Housing and Urban Development (" HUD ") on a semi-annual basis that Department's default claim rates for endorsements issued by that Department." Subparagraph (b) states that an examination shall be conducted of each licensee having a default rate equal to or greater than 5%.

The purpose of this Regulatory Bulletin is to advise all licensees of our new procedures implementing this provision, to notify all licensees of our cooperative efforts with HUD pertinent to their on-site visitation program, and to outline our response to consumer complaints which allege Section 32 violations and related issues.

Section 4-8(a)(b)

Each January and July, the Office will request of HUD the data identified in Section 4-8(a). Those licensees whose default/claim rates are in excess of 5% will be contacted with the following requirements:

a) Those licensees with default/claim rates between 5-7% will participate in a phone conference with my office to outline the underwriting deficiencies, if any, which gave rise to the default.

b) Those licensees with default/claim rates in excess of 7% will be scheduled for an appointment in my office to discuss the underwriting deficiencies, if any, and other factors which may have caused the default/claim rate in excess of 7%.

c) Those licensees with default/claim rates in excess of 10% can expect an on-site examination by the mortgage banking examination staff to review all relevant files in greater detail and depth. A special Report of Examination will be furnished and which will contain a specific plan for remedial action. (The cost of this additional examination will be borne by the licensee.)

Cooperative Effort with HUD

Beginning in April, Ms. Debra Robinson, the Director of Quality Assurance Division for HUD, (Atlanta) has agreed to furnish my office copies of her letters to licensees which summarize the findings of the on-site reviews conducted in licensee offices. Therefore, upon receipt of this correspondence, we will require licensees to:

a) Furnish OBRE with copies of its response to HUD.

b) If either the HUD findings or licensee responses indicate material violations of the Licensing Statute, we will place the licensee on special supervisory status-or in some cases even Probation- until remedial action has occurred.

c) For findings, which do not indicate material violations of the Act or Rules, a telephone conference with the licensee will occur.

Section 32 Complaints

OBRE will take special care when reviewing complaints which contain statements, which we believe, may constitute a violation of RESPA's Section 32 provisions. Additionally, complaints which allege excessive charging of points or rates of interest, churning of refinances to collect origination fees and/or loans with high debt ratios but moderate to low LTV's, will receive special scrutiny for fairness of mortgage banking practices.

Moreover, in those complaints which contain documents with sufficient information to suggest possible patterns of abuse, mortgage banking examiners will conduct on-site reviews of similarly situated loan origination to determine whether or not a pattern of unfair lending exists. If such a pattern is in fact established, OBRE will pursue remedial action outlined at Section at 4-5 of the Licensing Statute, including restitution to the consumer.

Cooperation Requested

I thank you in advance for your cooperation with these new procedures, all of which are designed to ensure that residential mortgage lending in the State of Illinois is conducted honestly, fairly and efficiently as outlined in Section 1-2 of the Residential Mortgage License Act of 1987.

Should you have questions regarding this bulletin, please contact R.J. HARVEY in the Chicago Office (312) 793-1409.

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