New Illinois Housing Law Draws 2nd Suit

Two law suits have been filed against a controversial Illinois law that mandates financial counseling for certain consumers obtaining mortgages or refinancing loans in 10 ZIP code areas in Chicago. The suits — filed by eight consumers and the real estate community — seek to halt the implementation of Illinois House Bill 4050, which took effect September 1.

"It's a discriminatory law," said Julie Santos, a Chicago Realtor and co-chair of the Coalition to Rescind HB 4050, a group formed from several community organizations who are collecting signatures in an attempt to repeal the law. "If the law is good, then make the law apply to all, not just the South Side of Chicago."

The mortgage counseling law is generating a rising chorus of critics — from homeowners, lenders, realtors, investors, consumer rights advocates, title companies and others — who are concerned that the new law could destroy property values in selected minority communities and add an extra layer of bureaucratic red tape.

Limited to just 10 selected zip codes in Southern Chicago, the law targets minority communities where many Black and Latino residents live. Under the law, if a borrower’s FICO credit score is 620 or less, a borrower must get financial counseling sessions from a U.S. Housing and Urban Development-approved counselor to make sure the would-be homeowner knows what he’s getting into. Moreover, the law requires that borrowers give their private information to a state government database.

The suits charge that the law unfairly singles out residents of those zip codes, applies only to state-chartered lenders and disproportionately affects African-Americans and Hispanics, who make up the majority of residents in those areas. Critics allege that the law amounts to state-sanctioned redlining, the illegal practice of refusing to extend credit to borrowers because of their ethnic background or where they live.

Already, the law has chilled the housing market in the predominantly Black and Latino areas, where homeowners in the neighborhood saw a 45 percent drop in home sales in September. The law is also driving out mortgage lenders who fear litigation over the implementation of Chicago law.

RealtyTrac is monitoring the Illinois law because it could have broader implications for real estate buyers, investors and agents. Although the intent of the law was to protect consumers from predatory lenders, it appears to be having the unintended effect of driving down housing sales instead. We want to hear from you. Send us an e-mail to editor@foreclosurepulse.com.