According to a report issued by a task force convened by Governor M. Jodi Rell, sub-prime mortgage lending increased dramatically in Connecticut between 2001 and 2006, as it did throughout the nation. Significant defaults of these sub-prime loans, many of which were originated in 2005 and 2006, led to financial turmoil in the industry and a tightening of credit standards for sub-prime borrowers.

Now, many homeowners who planned to refinance before their initially low-interest mortgages reset at higher rates are finding that they cannot. Their mortgage payments are going up, and those who cannot afford the higher payments face possible foreclosure. According to the Governor’s task force, about eight percent of the approximately 71,000 active sub-prime mortgages in Connecticut are seriously delinquent, and the outstanding loan balances exceed $15 billion. It is expected that thousands more sub-prime adjustable rate mortgages will reset to higher interest rates by October 2009.

So, what is the state doing to address this situation? Earlier this year, Governor Rell announced enhancements to the relatively new CT FAMLIES (Connecticut Fair Alternative Mortgage Lending Initiative and Education Service) program, which is administered by the Connecticut Housing Financing Authority (CHFA). CT FAMLIES was initially designed to help first-time buyers who purchased their property with sub-prime adjustable rate mortgages to refinance into 30-year fixed rate mortgages.

The Governor has modified that program in order to provide more direct assistance to families facing foreclosure. Recent program changes include eliminating the first-time homebuyer requirement and expanding eligibility to those who refinanced their original sub-prime adjustable mortgages into other adjustable rate loans; offering the same interest rate under CT FAMLIES refinanced loans as the prevailing CHFA rate, which should be lower than what the borrower would find in the marketplace; and expanding the number of lenders eligible to originate CT FAMLIES mortgages.

Families looking for help might want to consider attending one of the Connecticut Housing Fairs that CHFA has scheduled through the end of May. Those looking for information about the fairs or the CT FAMLIES program should call CHFA at 860-571-3500.

The General Assembly is also considering a number of bills intended to address this situation. Although there are several bills pending relating to this issue, the bill that has emerged as the primary proposal to do so is HB 5577, An Act Concerning Responsible Lending and Economic Security. This bill would create two new mortgage assistance programs and expand a third one, and create a 10-member mortgage assistance program committee to develop standards and implementing procedures for these assistance programs.

The three programs - REAL (Refinance To An Affordable Loan), HERO (Homeowners’ Equity Recovery Opportunity) program, and an expanded version of the existing EMAP (Emergency Mortgage Assistance Program) – would be administered by the state Department of Economic Development (DECD). Eligibility for these programs would vary but relate generally to factors such as income, credit rating, the nature of the mortgage the consumer has, and the extent of a consumer’s delinquency under an existing mortgage. In general, these programs would provide assistance to qualified borrowers in the form of the ability to refinance their mortgages at more favorable rates and some type of mortgage payment assistance. The legislation calls for financing these programs by transferring $40 million in unused bond proceeds from CHFA to DECD.

As I consider this legislation, and others like it, my goal will be to find a way to help deserving people and families, especially those who were victimized by unscrupulous sub prime lenders, in a way that does not require the state to make commitments that it cannot afford.

As always, I want to know what you think about this issue, and any others facing out state. Please feel free to contact me at my legislative office in Hartford at 1-800-842-1421, or via e-mail at Sam.Caligiuri@cga.ct.gov.