This is an updated version of the story running on page 6 in todays print edition of the American Banker.
CHICAGO Bankers and regulators in Illinois cut a deal Wednesday to repeal tough predatory-lending rules after lenders agreed to voluntarily report default and foreclosure rates.
The bankers had been trying to kill the controversial rules before onerous reporting requirements kicked in on Feb. 1. The state banking commissioner agreed to rescind the rule, but not before industry leaders pledged to voluntarily report rates of default and foreclosure.
There may be a positive side to this. It is a way to provide documentation to the General Assembly to prove traditional lenders arent part of the problem, said David E. Manning, director of governmental relations for the Community Bankers Association of Illinois, which signed on to the deal Wednesday. The Illinois Bankers Association followed suit later in the afternoon.
Several issues remain to be worked out.
Jay Stevenson, assistant commissioner in the states Office of Banks and Real Estate, said negotiators must work out a format for the data to be collected, including what specific information will be included. They must also decide how the data may be used, and what, if any, enforcement actions may be taken against lenders with high foreclosure rates.
Mr. Stevenson said he expects bankers will first report mortgage default and foreclosure rates in April.
Under the rules, adopted in December, state banking regulators would have had no option but to launch special exams, impose fines, and order remedial action when it found lenders with above-average rates of default. The rules were to have applied to state-chartered banks, savings banks, saving and loans, and residential mortgage licensees, with reports due at the states Office of Banks and Real Estate by Aug. 1 and Feb. 1 each year.
These emergency rules were drafted by state regulators and put in place by Gov. George H. Ryan while the state legislature considered more permanent rules. Both the Illinois Bankers and the Community Bankers sent letters of protest to members of the legislatures Joint Committee on Administrative Rules, which is scheduled to consider the emergency rules on Tuesday and the permanent rules in February.
In the letters, bankers argued there is no statutory basis for the emergency rules, that they are unfair because they only apply to state-chartered institutions, and that there is no emergency. Were getting a lot of calls from bankers asking what this is, and when its explained to them theyre not real happy, said Jeffrey J. Rodman, executive vice president of the Illinois Bankers.
Mr. Manning said his members are even more worried about the sanctions imposed by the permanent rules, which include fines, exams, and regulatory directives designed to reduce foreclosures. He said the rules unfairly single out one group of lenders, a group that is not responsible for predatory lending problems.
The permanent rules encompass everything in the emergency rules, and also would prohibit loans when the borrowers ability to pay is not demonstrated and refinancings that do not benefit the borrower. They also would have barred prepaid insurance, balloon payments, payments to contractors, negative amortization, negative amortization, and negative equity. Finally, the permanent rules would have required lenders to educate their customers and allowed borrowers to get third-party reviews of high-risk home loans.
In light of Wednesdays deal, Mr. Stevenson said the banking agency will ask the Joint Committee to suspend the emergency rules while an alternative is worked out with the industry.