Approved by the Legislative Commissioner

May 2, 2012

AN ACT CONCERNING THE ELIMINATION OF THE INTEREST RATE FLOOR FOR TAX AND INSURANCE ESCROW ACCOUNTS.

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

Section 1. Subsection (a) of section 49-2a of the general statutes is repealed and the following is substituted in lieu thereof (Effective October 1, 2012):

(a) On and after July 1, 1993, each state bank and trust company, national banking association, state or federally chartered savings and loan association, savings bank, insurance company and other mortgagee or mortgage servicing company holding funds of a mortgagor in escrow for the payment of taxes and insurance premiums with respect to mortgaged property located in this state shall pay interest on such funds, except as provided in section 49-2c, at a rate of not less than the average rate paid, as of December 30, 1992, on savings deposits by insured commercial banks as published in the Federal Reserve Board Bulletin and rounded to the nearest one-tenth of one percentage point, except in no event shall the rate be less than one and one-half per cent. On and after January 1, 1994, until September 30, 2012, the rate for each calendar year shall be not less than the deposit index as defined in subsection (c) of this section for that year and rounded to the nearest one-tenth of one percentage point, except in no event shall the rate be less than one and one-half per cent. On and after October 1, 2012, the rate for each calendar year shall be not less than the deposit index as defined in subsection (c) of this section for that year and rounded to the nearest one-tenth of one percentage point. Interest payments shall be credited on the thirty-first day of December annually toward the payment of taxes or insurance premiums as the case may be, on such mortgaged property in the ensuing year. If the mortgage debt is paid prior to December thirty-first in any year, the interest to the date of payment shall be paid to the mortgagor. The provisions of this section shall apply only with respect to mortgages on owner-occupied residential property consisting of not more than four living units and housing cooperatives occupied solely by the shareholders thereof. Any mortgagee or mortgage servicing company violating the provisions of this section shall be fined not more than one hundred dollars for each offense.

The following Fiscal Impact Statement and Bill Analysis are prepared for the benefit of the members of the General Assembly, solely for purposes of information, summarization and explanation and do not represent the intent of the General Assembly or either chamber thereof for any purpose. In general, fiscal impacts are based upon a variety of informational sources, including the analyst's professional knowledge. Whenever applicable, agency data is consulted as part of the analysis, however final products do not necessarily reflect an assessment from any specific department.

OFA Fiscal Note

State Impact: None

Municipal Impact: None

Explanation

The bill results in no fiscal impact to the state although it alters the financial responsibilities of mortgage holding entities, it does not change the duties of the Department of Banking.

House “A” (LCO 3071) is technical/clarifying and results in no fiscal impact.

The Out Years

State Impact: None

Municipal Impact: None

OLR Bill Analysis

HB 5414 (as amended by House "A")*

AN ACT CONCERNING THE ELIMINATION OF THE INTEREST RATE FLOOR FOR TAX AND INSURANCE ESCROW ACCOUNTS.

SUMMARY:

Current law requires the interest rate on tax and insurance escrow accounts to be at least the average savings deposit interest rate paid by insured commercial banks published in the Federal Reserve Board Bulletin in November of the previous year (i.e., deposit index) but not less than 1.5%. This bill retains the deposit index method for calculating the interest rate but eliminates the minimum 1.5% interest rate. (The 2012 deposit index is 0.16%.)

By law, state banks and trust companies, national banking associations, state or federally chartered savings and loan associations, savings banks, insurance companies, and other mortgagee or mortgage servicing companies must pay interest on these accounts.

*House Amendment “A” explicitly applies the interest rate change to accounts on and after October 1, 2012.

EFFECTIVE DATE: October 1, 2012

COMMITTEE ACTION

Banks Committee

Joint Favorable