File No. 263

House of Representatives, March 26, 2009

The Committee on Housing reported through REP. GREEN of the 1st Dist., Chairperson of the Committee on the part of the House, that the substitute bill ought to pass.

AN ACT CONCERNING RELIEF FOR FAMILIES FACING FORECLOSURE.

Be it enacted by the Senate and House of Representatives in General Assembly convened:

Section 1. Section 8-265rr of the general statutes is repealed and the following is substituted in lieu thereof (Effective from passage and applicable to loan applications filed on and after July 1, 2008):

(a) As used in this section, "authority" means the Connecticut Housing Finance Authority created under section 8-244.

(b) The authority is authorized to continue to develop and implement a program for home mortgage refinancing for homeowners facing financial hardships affecting their ability to meet their monthly mortgage obligation, including homeowners with adjustable rate mortgages, as an additional purpose pursuant to the provisions of subdivision (32) of section 8-250. Such program shall be undertaken by the authority consistent with and subject to its contractual obligations to its bondholders in an initial amount of forty million dollars under terms and conditions determined by the authority.

Sec. 2. Section 8-265cc of the general statutes is repealed and the following is substituted in lieu thereof (Effective from passage and applicable to loan applications filed on and after July 1, 2008):

As used in sections 8-265cc to 8-265kk, inclusive, as amended by this act:

(1) "Aggregate family income" means the total income of persons residing in the same household as the mortgagor and any other resident of the household declared by the mortgagor as a dependent for federal tax purposes, from whatever source derived, including, but not limited to, pensions, annuities, retirement benefits and Social Security benefits, provided the authority may exclude from income (A) reasonable allowances for dependents, (B) reasonable allowances for medical expenses, (C) all or any part of the earnings of gainfully employed minors or family members other than the chief wage earner, (D) income not regularly received, and (E) such other expenses as the authority may allow;

(2) "Authority" means the Connecticut Housing Finance Authority created under section 8-244;

(3) "Mortgage" means a mortgage deed or other instrument which constitutes a first or second consensual lien on one-to-four family owner-occupied residential real property located in this state, including, but not limited to, a single-family unit in a common interest community;

(4) "Mortgagee" means the original lender under a mortgage, or its agents, successors, or assigns;

(5) "Mortgagor" means the owner-occupant of a one-to-four family residential real property located in this state, including, but not limited to, a single family unit in a common interest community, who is also the borrower under a mortgage encumbering such real property;

(6) "Housing expense" means the sum of the mortgagor's monthly maintenance expense in a common interest community, utility expense, heating expense, hazard insurance payment, taxes and required mortgage payment, including escrows, and uninsured damage to the mortgaged property which affects liveability and necessitates costly repairs;

(7) "Financial hardship due to circumstances beyond the mortgagor's control" means: (A) A significant reduction of at least twenty-five per cent of aggregate family household income which reasonably cannot be or could not have been alleviated by the liquidation of assets by the mortgagor, including, but not limited to, a reduction resulting from (i) unemployment or underemployment of one or more of the mortgagors; (ii) a loss, reduction or delay in receipt of such federal, state or municipal benefits as Social Security, supplemental security income, public assistance and government pensions; (iii) a loss, reduction or delay in receipt of such private benefits as pension, disability, annuity or retirement benefits; (iv) divorce or a loss of support payments; (v) disability, illness or death of a mortgagor; (vi) uninsured damage to the mortgaged property which affects liveability and necessitates costly repairs; or (vii) expenses related to the disability, illness or death of a member of the mortgagor's family, but is not related to accumulation of installment debt incurred for recreational or nonessential items prior to the occurrence of the alleged circumstances beyond the mortgagor's control in an amount that would have caused the mortgagor's total debt service to exceed sixty per cent of aggregate family income at that time; [or] (B) a reduction of less than twenty-five per cent of aggregate family household income accompanied by evidence satisfactory to the authority, in accordance with written procedures adopted under section 8-265ii, as amended by this act, of an unanticipated rise in housing or other expenses that are unrelated to the accumulation of credit or installment debt incurred for recreational or nonessential items; or (C) a significant increase in the dollar amount of the periodic payments required by the mortgage;

(8) "Consumer credit counseling agency" means a nonprofit corporation or governmental agency located in this state which has been designated by the authority to provide homeowners' emergency mortgage assistance program counseling. A qualified consumer credit counseling agency must either be certified as a housing counseling agency by the federal Department of Housing and Urban Development or otherwise determined accepted by the authority;

(9) "Foreclosure mediation program" means the foreclosure mediation program established by section 49-31m; and

(10) "Periodic payments" means principal, interest, taxes, insurance and, if applicable, condominium fees.

Sec. 3. Section 8-265ff of the general statutes is repealed and the following is substituted in lieu thereof (Effective from passage and applicable to loan applications filed on and after July 1, 2008):

(a) Any mortgagor may apply for emergency mortgage assistance payments under sections 8-265cc to 8-265kk, inclusive, as amended by this act, provided such mortgagor (1) has received a notice of intent to foreclose as provided in section 8-265ee, or (2) is sixty days or more delinquent on a mortgage. As part of the application process, the authority may refer the applicant to a counseling agency approved by the United States Department of Housing and Urban Development.

[(a)] (b) If the mortgagor applies for emergency mortgage assistance payments under sections 8-265cc to 8-265kk, inclusive, as amended by this act, the authority shall, no later than eight business days after the date of receipt of such application, notify all of the mortgagees listed on the application holding a mortgage on the mortgagor's real property.

[(b)] (c) The mortgagor shall apply for a loan on the form provided by the authority. The mortgagor shall complete and sign the application subject to the penalty for false statement under section 53a-157b.

[(c)] (d) The mortgagor shall provide the authority with full disclosure of all assets and liabilities, whether singly or jointly held, and all household income regardless of source. For purposes of this subsection, both of the following are included as assets:

(1) The sum of the household's savings and checking accounts, market value of stocks, bonds and other securities, other capital investments, pensions and retirement funds, personal property and equity in real property including the subject mortgage property. Income derived from family assets shall be considered as income. Equity is the difference between the market value of the property and the total outstanding principal of any loans secured by the property and other liens.

(2) Lump-sum additions to family assets such as inheritances, capital gains, insurance payments included under health, accident, hazard or worker's compensation policies and settlements, verdicts or awards for personal or property losses or transfer of assets without consideration within one year of the time of application. Pending claims for such items must be identified by the homeowner as contingent assets.

[(d)] (e) The authority shall make a determination of eligibility for emergency mortgage assistance payments by the date thirty calendar days after the date of receipt of the mortgagor's application. During said thirty-day period no judgment of strict foreclosure or any judgment ordering foreclosure by sale shall be entered in any action for the foreclosure of any mortgage any mortgagee holds on the mortgagor's real property. No emergency mortgage assistance payments may be provided unless the authority finds that:

(1) The real property securing the mortgage is a one-to-four family owner-occupied residence, including, but not limited to, a single family unit in a common interest community, is the principal residence of the mortgagor and is located in this state;

(2) Payments, including amounts required to be paid into escrow or impound accounts as reserves for taxes and insurance payments, including mortgage insurance, or any combination of such payments, owed by the mortgagor under any mortgage on such real property have been contractually delinquent and the mortgagee has indicated to the mortgagor its intention to foreclose;

(3) The mortgage is not insured by the Federal Housing Administration under Title II of the National Housing Act, 12 USC Section 1707 et seq.;

(4) The mortgagor is a resident of this state and is suffering financial hardship which renders the mortgagor unable to correct the delinquency or delinquencies within a reasonable time and make full mortgage payments. For the purposes of subdivision (8) of this subsection, in order to determine whether the financial hardship is due to circumstances beyond the mortgagor's control, the authority may consider information regarding the mortgagor's employment, credit history and current and past household income, assets, total debt service, net worth, eligibility for other types of assistance and any other criteria or related factors it deems necessary and relevant;

(5) There is a reasonable prospect that the mortgagor will be able to resume full mortgage payments within sixty months after the beginning of the period in which emergency mortgage assistance payments are provided in accordance with a written plan formulated or approved by the authority and pay the mortgage in full in level monthly payments of principal and interest, subject only to payment changes as provided in the mortgage, by its maturity date;

(6) The mortgagor has applied to the authority for emergency mortgage assistance payments on an application form prescribed by the authority which includes a financial statement disclosing all assets and liabilities of the mortgagor, whether singly or jointly held, and all household income regardless of source;

(7) Based on the financial statement, the mortgagor has insufficient household income or net worth to correct the delinquency or delinquencies within a reasonable period of time and make full mortgage payments;

(8) There is a reasonable prospect that the mortgagor, as determined by the authority, will be able to repay the emergency mortgage assistance within a reasonable amount of time under the terms of section 8-265hh, as amended by this act, including through a refinancing of the mortgage, and the authority finds that, except for the current delinquency, the mortgagor has had a favorable residential mortgage credit history for the previous two years or period of ownership, whichever is less. For the purposes of this subdivision, if a mortgagor has been more than thirty days in arrears four or more times on a residential mortgage within the previous year, the mortgagor shall be ineligible for emergency mortgage assistance payments unless the mortgagor can demonstrate that the prior delinquency was the result of financial hardship due to circumstances beyond the mortgagor's control. In making a determination under this subsection, the authority may consider information regarding the structure of the mortgage, its repayment schedule and any other relevant factors or criteria it deems appropriate;

(9) The mortgagee is not otherwise prevented by law from foreclosing upon the mortgage;

(10) The mortgagor has not mortgaged the real property for commercial or business purposes;

(11) The mortgagor has not previously received emergency mortgage assistance payments from the authority, provided a mortgagor who has previously received such payments shall be eligible to reapply if the mortgagor has reinstated the mortgage and the mortgagor shall not have been delinquent for at least six consecutive months immediately following such reinstatement;

(12) The mortgagor is not in default under the mortgage except for the monetary delinquency referred to in subdivision (2) of this subsection; and

(13) The mortgagor meets such other procedural requirements as the authority may establish.

Sec. 4. Subsection (a) of section 8-265hh of the general statutes is repealed and the following is substituted in lieu thereof (Effective from passage and applicable to loan applications filed on and after July 1, 2008):

(a) Upon approval of emergency mortgage assistance payments, the authority shall enter into an agreement with the mortgagor for repayment of all such assistance with interest as provided in this section. The agreement shall provide for monthly payments by the mortgagor after emergency mortgage assistance payments have ended and shall be subject to the following provisions:

(1) If the mortgagor's total housing expense is less than or equal to thirty-five per cent of the mortgagor's aggregate family income, the mortgagor shall pay to the authority the difference between thirty-five per cent of such aggregate family income and such total housing expense, unless otherwise determined by the authority after examining the mortgagor's financial circumstances and ability to repay the emergency mortgage assistance payments;

(2) If the mortgagor's total housing expense, including projected repayments for mortgage assistance under this section, is greater than thirty-five per cent of the mortgagor's aggregate family income, repayment of the emergency mortgage assistance payments shall be deferred until such total housing expense, including projected repayments for mortgage assistance under this section, is less than or equal to thirty-five per cent of such aggregate family income;

(3) If repayment of emergency mortgage assistance payments is not made by the date the mortgage is paid in full, the mortgagor shall make monthly payments to the authority in an amount not less than the monthly mortgage payment until such assistance is repaid;

(4) Interest shall accrue on all emergency mortgage assistance payments made by the authority at a rate based upon the cost of funds to the state periodically determined by the State Treasurer in consultation with the authority. Interest shall start to accrue whenever the mortgagor is required to commence repayment under this section.

Sec. 5. Section 8-265ii of the general statutes is repealed and the following is substituted in lieu thereof (Effective from passage and applicable to loan applications filed on and after July 1, 2008):

The Connecticut Housing Finance Authority shall adopt procedures in accordance with section 1-121 to implement the provisions of sections 8-265cc to 8-265hh, inclusive, as amended by this act. Such procedures shall include (1) the establishment of a process for notification to eligible mortgagors of the availability of funds under sections 8-265cc to 8-265kk, inclusive, as amended by this act, and for notification to the mortgagee that an application has been received by or on behalf of the mortgagor and of the authority's determination of eligibility; and (2) specification of criteria for evidence to be submitted by a mortgager to determine a reduction of less than twenty-five per cent of aggregate family household income from an unanticipated rise in housing or other expenses that are unrelated to the accumulation of credit or installment debt incurred for recreational on nonessential items.

Statement of Legislative Commissioners:

In subdivision (7) of section 2 and in section 5, "loss of income below twenty-five per cent" was changed to "reduction of less than twenty-five per cent of aggregate family income" for consistency with the provisions of the general statutes.

The following fiscal impact statement and bill analysis are prepared for the benefit of members of the General Assembly, solely for the purpose of information, summarization, and explanation, and do not represent the intent of the General Assembly or either House thereof for any purpose:

OFA Fiscal Note

State Impact: See Below

Municipal Impact: None

Explanation

The bill expands eligibility requirements for the Connecticut Housing Finance Authority's (CHFA), a quasi-public agency, Emergency Mortgage Assistance Program (EMAP) and CT Families program. PA 08-176, “AAC Responsible Lending and Economic Security,” appropriated $14.0 million from the Banking Fund to CHFA for EMAP, and specified that the CT Families program be undertaken with an initial amount of $40 million in CHFA bonds.

Any increase in the number of eligible applicants will result in additional expenditures of the existing program funding as provided by PA 08-176. As of 2/28/2009, CHFA approved 74 CT Families loans for a total of $14.9 million. As of 3/12/2009, CHFA approved 18 EMAP loans that will provide a total of $11,270 in monthly assistance, totaling $135,240 for the next 12 months (homeowners must recertify each year). In addition to monthly assistance, EMAP pays mortgage arrearages to bring the homeowner's loan current. Twelve applicants will receive assistance totaling $140,354 to bring their loans current.

The Out Years

The annualized ongoing fiscal impact identified above would continue into the future subject to applicant eligibility.

Source: CHFA staff report to Mortgage & Board of Directors, 3/19/2009

OLR Bill Analysis

sHB 6378

AN ACT CONCERNING RELIEF FOR FAMILIES FACING FORECLOSURE.

SUMMARY:

This bill expands eligibility for the Connecticut Housing Finance Authority's (CHFA) Emergency Mortgage Assistance Program (EMAP), changes the timing for program applications, and makes other program modifications. By law, EMAP provides short-term loans to homeowners experiencing financial hardships beyond their control. The loans help them pay their mortgages. The program covers one-to-four family owner-occupied homes, including single-family units in a condominium, cooperative, or other common interest community.

The bill also expands eligibility for a CHFA mortgage refinancing program. Under current law, CHFA's Connecticut Families home mortgage refinancing program is for people with adjustable rate mortgages. The bill expands the program to include all homeowners facing financial hardships that affect their ability to make their monthly payments.

It also makes technical and conforming changes.

EFFECTIVE DATE: Upon passage, applicable to loan applications filed after July 1, 2008

EMAP

Eligibility

Under current law, homeowners are eligible for EMAP if they (1) lose 25% or more of total family income for specific reasons beyond their control (see BACKGROUND) or (2) experience a significant increase in mortgage payments (e.g., adjustable rate mortgage). The bill makes eligible people who lose less than 25% of their income due to an unanticipated rise in housing or other expenses unrelated to credit or installment debt accumulated for recreational or nonessential items.

The bill adds to the definition of “housing expense” uninsured damage to the mortgaged property that affects liveability and necessitates costly repair. Under current law, “housing expense” means the sum of a mortgagor's utility and heating expenses; common interest community costs (if any); monthly hazard insurance payment; taxes; and required mortgage payments, including escrows.

The bill requires (1) an applicant to provide CHFA satisfactory proof of the unanticipated rise in expenses and (2) CHFA to adopt written procedures specifying the criteria for evidence that a mortgager must submit to determine if a reduction of less than 25% is valid.

The law requires homeowners also to meet other eligibility criteria, such as the likelihood of being able to resume full mortgage payments within five years.

Application

Under current law, a person may apply for the program only when a mortgagee has notified a homeowner of its intention to foreclose (see BACKGROUND). The bill also allows a person to apply when he or she is 60 days or more delinquent on mortgage payments. It specifies that CHFA may refer the applicant to a counseling agency approved by the U.S. Department of Housing and Urban Development as part of the application process.

Repayment

By law, eligible applicants may receive an EMAP loan to assist in paying a mortgage until they can afford to repay the EMAP loan based on their housing expenses. Specifically, when a mortgagor's total housing expense (e.g., mortgage and other costs) is less than or equal to 35% of his or her family 's total income, he or she must pay CHFA the difference between 35% aggregate family income and the total housing expense, unless the authority determines otherwise after examining the person's financial circumstances and ability to repay the EMAP loan. But when the mortgagor's total housing expense is greater than 35%, CHFA defers repayment until that expense drops to 35% or less of the family's total income. Under the bill, if the EMAP loan repayment pushes a family's housing expenses above 35%, CHFA must defer repayment.

BACKGROUND

Eligibility for Income Loss of 25% or Greater

By law, a person is eligible for EMAP due to “financial hardship due to circumstances beyond the mortgagor's control.” The threshold for financial hardships is a 25% reduction in a family's total income or a significant increase in the periodic payments for a mortgage (including principal, interest, taxes, insurance, and, if applicable, condo fees.) Under the law, homeowners qualify for EMAP if the hardship cannot be alleviated by selling assets and income reduction is due to:

1. unemployment or underemployment of one or more of the mortgagors;

2. a loss, reduction, or delay in receiving benefits from a government (e.g., Social Security) or private (e.g., pension or retirement) entity;

3. divorce or a loss of support payments;

4. disability, illness, or death of a mortgagor;

5. uninsured damage to the mortgaged property that affects liveability and necessitates costly repairs; or

6. expenses related to the disability, illness or death of a mortgagor's family member.

By law, a homeowner does not qualify for EMAP if (1) the hardship is related to installment debt for recreational or nonessential items accumulated before the alleged circumstances beyond the mortgagor's control occurred and (2) that debt would have caused the mortgagor's total debt service to exceed 60% of aggregate family income at that time.

Notice from Lender

By law, a lender must comply with the EMAP statute if it wants to foreclose on a mortgage on a one-to-four family, owner-occupied residence that is not insured by the Federal Housing Administration (FHA) 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 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 parties reach an agreement but the borrower still cannot pay due to financial hardship, he or she can still apply for emergency assistance after 30 days of any default. 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 lender must file an affidavit confirming the forclosure.

The act provides that EMAP participants can still exercise their rights under the foreclosure mediation program, but the concurrent exercise of those rights cannot delay the EMAP eligibility determination.

COMMITTEE ACTION

Housing Committee

Joint Favorable Substitute