Debt Ratio Must Be <= 50%(10440) FAIL
Under the Cook County, Illinois Predatory Lending Ordinance, the borrower’s maximum debt to income ratio must be less than or equal to 50%. (Cook Co. Ord. 34-341)
ANSWER/RESOLUTION:
The Cook County Predatory Lending Ordinance requires that the Lender ascertain the Borrower’s ability to repay a loan. The Borrower is presumed to be able to repay a loan if, at the time the loan is consummated, or at the time of the first rate adjustment in the case of a lower introductory interest rate, the Borrower’s scheduled monthly payments on the loan (including principal, interest, taxes, insurance and assessments), combined with the scheduled payments for all other disclosed debts do not exceed 50% of the Borrower’s monthly gross income.
Note that this provision applies only to borrowers whose income, as reported on the loan application which the lender relied upon in making the credit decision, is no greater than 120% of the median family income for the Chicago Metropolitan Statistical Area. The Encompass Compliance Service is currently not provided with sufficient information to determine whether the borrower’s income is no greater than 120% of the median family income for the Chicago Metropolitan Statistical Area, thus, the Encompass Compliance Service takes a conservative position and applies the 50% debt to income ratio limitation to all threshold loans.
Additionally this regulation only applies to “Threshold” loans, which are:
(1) At the time of the loan’s origination, the annual percentage rate of the loan exceeds by more than six percentage points in the case of a first lien mortgage, or by more than eight percentage points in the case of a junior mortgage, the yield on Treasury securities having comparable periods of maturity to the loan maturity as of the 15th day of the month immediately preceding the month in which the application for the extension of credit is received by the creditor; or
(2) The total points and fees exceed:
a. Five percent of the total loan amount if the loan amount is $16,000.00 or greater; or
b. Eight hundred dollars if the loan amount is less than $16,000.00.
However, the term “threshold loan” shall not include a loan that is made primarily for a business purpose unrelated to the residential real property securing the loan and shall not include a loan with a total loan amount over $250,000.00.
