September 9, 2008
FORECLOSURE PREVENTION PROGRAMS IN
By: Soncia Coleman, Associate Legislative Analyst
You asked for a summary of the foreclosure prevention programs in recently passed Connecticut and federal laws and how borrowers can access them.
On July 30, 2008, the President of the United States signed Public Law 110-289, known as the Housing and Economic Recovery Act of 2008. The law, among other things, creates the HOPE for Homeowners program. The program is administered by the Federal Housing Administration (FHA) and allows certain borrowers facing difficulty with their mortgage to refinance into FHA-insured mortgages they can afford. The program will be implemented on October 1, 2008. The law also provides additional mortgage protection for service members, including the establishment of a counseling program, interest rate caps, and delays on foreclosure actions. The Congressional Research Service's full summary of the law can be found at http://assets.opencrs.com/rpts/RL34623_20080819.pdf.
During the 2008 session, the Connecticut legislature passed Public Act 08-176, which authorizes several foreclosure prevention programs. The Connecticut Fair Alternative Mortgage Lending Initiative and Education Services (CT FAMILIES) program and the Homeowner's Equity Recovery Opportunity (HERO) program provide refinancing opportunities for qualified borrowers. The Emergency Mortgage Assistance program provides temporary loans for mortgage payments. All three programs are administered by the Connecticut Housing Finance Authority (CHFA). Interested homeowners may contact the CHFA Call Center located at 999 West Street, Rocky Hill, CT 06067 via telephone from 8:30 a.m. to 5:00 p.m. at 860-571-3500 or 877-571-CHFA (2432) or via e-mail at CTFAMLIES@chfa.org, HEROinfo@chfa.org, or EMAPinfo@chfa.org.
The act also requires the WorkPlace, Inc., in conjunction with the other regional workforce development boards and one-stop centers, to establish a mortgage crisis job training program. Those interested can call 1-866-683-1682. Finally, the act requires Connecticut's chief court administrator, by July 1, 2008, to establish a foreclosure mediation program in each judicial district. Borrowers must be notified about the program in their foreclosure notices. Additional information on the foreclosure mediation program can be found at http://www.jud.ct.gov/foreclosure/.
The Office of Legislative Research's full public act summary can be found at http://www.cga.ct.gov/2008/SUM/2008SUM00176-R02HB-05577-SUM.htm
PUBLIC LAW 110-289- HOUSING AND ECONOMIC RECOVERY ACT OF 2008
Hope for Homeowners Program
The law establishes a new FHA program to reduce principal and interest payments for eligible borrowers by allowing them to refinance into fixed rate 30-year FHA-insured loans that are based on current property values. Participation by lenders is voluntary. Eligible mortgages must have been originated by January 1, 2008. Borrowers must certify that they:
1. have a mortgage debt-to-income of at least 31%;
2. are unable to afford their current loan;
3. have not intentionally missed mortgage payments;
4. do not own second homes; and
5. have not been convicted of mortgage fraud.
Additionally they must certify that the mortgaged property is their primary residence, and it is a single-family home (1-4 units).
Original lenders must agree to:
1. pay a 3% one-time insurance fee to FHA;
2. write down the mortgage to achieve a 90% loan-to-value ratio, if necessary;
3. waive prepayment penalties on the existing mortgage; and
4. release all existing claims, such as second mortgages.
The new loan may not exceed 90% of current appraised value of the property. The maximum loan amount is 132% of the Freddie Mac limit. The program will last from October 1, 2008 through September 30, 2011.
Foreclosure Prevention for Service Members
The law requires the Department of Defense to develop and implement
foreclosure counseling for service members returning from active duty abroad. Additionally, the law prevents lenders from foreclosing on a veteran's home within nine months, rather than 90 days, after the end of military service. Finally, the law provides that the interest rate on a mortgage created before entering military service can be no higher than 6% during the term of military service and one year thereafter (formerly 90 days).
PUBLIC ACT 08-176- AN ACT CONCERNING RESPONSIBLE LENDING AND ECONOMIC SECURITY
CT FAMILIES Program
Public Act 08-176 specifically authorizes CHFA to continue to develop and implement its program for adjustable rate home mortgage refinancing for homeowners, known as the CT FAMILIES program. Eligible homeowners may qualify for a fixed rate 30 year CT FAMLIES loan if they have an adjustable rate mortgage (ARM) whether current or delinquent, or a fixed rate mortgage that is current, but their mortgage is no longer suitable for their financial situation. Delinquency must result from interest rate and payment increases.
The act also authorizes CHFA to develop and implement the HERO loan. Under the program, CHFA must, within available funds, purchase mortgages directly from lenders and place eligible borrowers on an affordable repayment plan.
Under the act, borrowers are eligible for the program if the HERO loan is in the first lien position and borrowers have:
1. made an effort to meet their financial obligations to the best of their ability;
2. sufficient and stable income to support timely repayment of a HERO loan;
3. legal title to the mortgaged property and reside in them as a permanent residence; and
4. the ability to account for cash flow if they have stopped making monthly payments by showing how the funds were escrowed, saved, or redirected.
Borrowers must give CHFA full disclosure of all assets and liabilities, whether singly or jointly held, and all household income regardless of source. The act specifies what counts as assets.
CHFA must make an eligibility determination within 30 days of receiving the borrower's application. All approved borrowers must attend in-person financial counseling at a CHFA-approved agency. HERO loans must be a mortgage of up 30 years, as determined by CHFA, and include property taxes and insurance in the borrower's monthly payment amount. CHFA determines the interest rate and services the loan. The newly adopted Federal insurance program, HOPE for Homeowners, will be used as the model for the Connecticut HERO Program, which establishes income limits and other eligibility requirements.
Emergency Mortgage Assistance Program
The act amends the existing Emergency Mortgage Assistance Program (EMAP) statutes. The program, which provides emergency mortgage assistance payments to eligible homeowners, was previously unfunded. The act makes participation in the program mandatory, rather than voluntary, as under prior law. It also expands its scope to cover more borrowers. Starting July 1, 2008, the act requires a lender to comply with the EMAP statute if it wants to foreclose on a mortgage on a one-to-four family owner-occupied residence where the property is not FHA insured and the borrower (1) has not mortgaged the property for commercial or business purposes, (2) has not previously received EMAP assistance (except if the person has reinstated the mortgage and has not been delinquent for six consecutive months since the reinstatement), and (3) is not in default under the mortgage except for the monetary delinquency.
This means the lender must send a notice to the borrower stating that he or she has 60 days to (1) have a conference with the lender or a face-to-face meeting with a credit counseling agency to attempt to resolve the default and (2) contact CHFA about EMAP if they are unsuccessful in doing so. If the borrower fails to comply with the deadlines or CHFA fails to approve the EMAP application within 30 days of its filing, the foreclosure proceeding can continue. The act provides that EMAP participants can still exercise their rights under the foreclosure mediation program the act creates, but the concurrent exercise of those rights cannot delay the EMAP eligibility determination.
As EMAP is not available for FHA-insured loans, CHFA directs homeowners who have FHA-insured loans to contact the HUD Counseling and Referral Line at 800-569-4287.
The Workplace, Inc. Mortgage Crisis Job Training
The act requires The WorkPlace, Inc., in conjunction with the other regional workforce development boards and one-stop centers, to establish a mortgage crisis job training program. The WorkPlace is southwestern Connecticut's regional workforce development board. One-stop centers provide services to employers and job seekers across the state. The WorkPlace, Inc. and Capital Workforce Partners must manage the teams, which, in cooperation with the regional workforce development boards and one-stop centers, must ensure the provision of rapid, customized employment services, job training, repair training, and job placement assistance to borrowers who are unemployed, underemployed, or in need of a second job. The WorkPlace, Inc. must arrange with CHFA for financial literacy and credit counseling for program participants.
Borrowers are eligible for the program if they are at least 60 days delinquent on their mortgages and (1) are referred by their CHFA lender or (2) demonstrate an imminent need to increase earnings in order to avoid delinquency or foreclosure. Borrowers can also access the program through the one-stop centers.
The act requires the chief court administrator, by July 1, 2008, to establish a foreclosure mediation program in each judicial district. The program is available to owner-occupants of one-to-four family residential real property in Connecticut who are also borrowers under a mortgage encumbering the property and who use the property as their primary residence. The program must address all issues of foreclosure and be conducted by trained foreclosure mediators.
Under the act, until July 1, 2010, if a lender starts a foreclosure action on a one-to-four family dwelling occupied as a residence by a borrower with a return date on or after July 1, 2008, it must give notice of the foreclosure mediation program to the borrower by attaching to the front of the foreclosure complaint (1) a notice of the availability of the foreclosure mediation program and (2) a foreclosure mediation request form. This applies to a lender, including the original lender or servicer under a mortgage or its successors or assigns.
Borrowers can request mediation by submitting the form to the court and filing an appearance within 15 days of the return date. No requests can be accepted on or after July 1, 2010, and the program ends when mediation for applications submitted prior to that date have concluded. A court cannot enter a judgment of strict foreclosure or foreclosure by sale if a borrower has submitted a timely request for mediation and the mediation period has not expired.
The act specifies that it does not require the lender to modify the mortgage or change the terms of payment without its consent. Additionally, determinations issued by mediators cannot form the basis of an appeal of any foreclosure judgment.