February 15, 2007
By: Joseph Holstead, Associate Analyst
You asked (1) for a brief history of the Connecticut Housing Finance Authority's (CHFA) Emergency Mortgage Assistance Program, (2) for information about Pennsylvania's mortgage assistance program, (3) for data on the recent increase in foreclosure rates, and (4) about Connecticut's foreclosure prevention law.
CHFA ran an emergency mortgage assistance program in 1994 and 1995 to help people who fell behind on their mortgage payments due to financial circumstances beyond their control. The program focused on underemployed people, although it was not limited to such individuals. The Department of Economic and Community Development provided $4 million in initial funding for the program from an existing bond authorization. People receiving mortgage assistance under the program had to repay it when their financial condition improved. By law, the repayments went into the General Fund (CGS § 8-265cc et seq.). However, CHFA stopped taking applications after the program ran out of money in 1995.
Pennsylvania's program provides financial assistance to homeowners to help prevent widespread mortgage foreclosures and distressed home sales due to default for reasons beyond homeowners' control. The program is funded by state appropriations and repayment of its existing loans.
In the several years before 2006, foreclosure rates were at historic lows, according to an April 2006 Wall Street Journal article. More recently, however, rates have been increasing as the housing market tightens across the country, with foreclosures up 42% in 2006 over 2005.
Connecticut law (CGS §§ 49-31d to g) allows unemployed and underemployed homeowners to apply for a court-ordered six-month protection from mortgage foreclosure and to restructure their mortgage payments. Additionally, the federal department of Housing and Urban Development (HUD) has a list of agencies it approves to provide housing counseling to help homeowners avoid foreclosures. We have attached the list, or visit the HUD website: http://www.hud.gov/offices/hsg/sfh/hcc/hcs.cfm?webListAction=search&searchstate=ct. The United Way of Connecticut's Infoline 211 website also provides resources to help homeowners avoid foreclosure: http://www.infoline.org/focus/housing.asp.
The balance of this report provides more detail about recent Pennsylvania's program foreclosure rates, and Connecticut's law.
Pennsylvania has operated its Homeowners' Emergency Mortgage Assistance Program (HEMAP) since 1983 (Penn. Code 12 §§ 31.201 et seq.).
When approved for HEMAP assistance, the Pennsylvania Housing Finance Agency facilitates the creation of a loan (secured by a mortgage on the property being threatened by foreclosure) to make current the delinquent payments. Two types of assistance are available to homeowners, depending on their income and financial situation: (1) continuing mortgage assistance loans and (2) non–continuing mortgage assistance loans, according to the program's website: http://www.phfa.org/consumers/homeowners/hemap.aspx.
If a homeowner qualifies for a non–continuing mortgage assistance loan, his or her mortgage is made current to a specified date and the homeowner is responsible for making all subsequent monthly mortgage payments to their lender along with a monthly payment to HEMAP. The homeowner may also be required to make a cash contribution toward the mortgage delinquency at the time the HEMAP loan closes.
If a homeowner qualifies for a continuing mortgage assistance loan, his or her mortgage is brought current to a specified date and then HEMAP subsidizes the monthly mortgage payment to the lender. All HEMAP loans, continuing or non–continuing, are limited to a maximum of 24 months from the date of the mortgage delinquency, or to a maximum of $60,000, whichever comes first, according to the website. We have attached additional information.
In December 2006, foreclosures were above 100,000 for the fifth consecutive month of increased rates over the same period in 2005, according to a January 27, 2007 www.CNNMoney.com article. The article stated that the number of homeowners entering into some stage of the foreclosure process in December 2006 was 109,652, up 35% from December 2005. The article says that adjustable-rate mortgages, especially sub-prime adjustable rate mortgages (ARMs), continued to drive the spike in foreclosures. The article quoted RealtyTrac, Inc. chief executive officer, James J. Saccacio, as saying, “the combination of slower home sales and rising interest rates on ARMs continues to drive foreclosures at significantly higher numbers than a year ago.” (RealtyTrac is a real estate website featuring foreclosure, auction, bank-owned, for-sale-by-owner, resale, MLS, and new construction properties, according to its website: http://www.realtytrac.com/.)
More than 1.2 million foreclosure filings were reported nationwide in 2006, a rate of one foreclosure filing for every 92 households, according to RealtyTrac, Inc., and foreclosures were up 42% for all of 2006 above 2005, as reported in a January 25, 2007 CNNMoney.com article. We have attached copies of both articles.
Connecticut law allows unemployed and underemployed homeowners to apply for a court-ordered six-month protection from mortgage foreclosure and the restructuring of their mortgage payments. The court has broad discretion in determining whether a homeowner is eligible. The law allows it to consider any relevant fact. But it requires the court to consider certain facts, such as the likelihood the homeowner will be able to make timely payments when the mortgage is restructured. For purposes of this law, a person is underemployed if his earned income during the 12-month period immediately preceding the beginning of the foreclosures action is (1) less than $50,000 and (2) less that 75% of his average annual earned income during the two years immediately preceding such 12 month period (CGS §§ 49-31d to g).
Specifically, the law permits a person against whom a foreclosure action is brought to apply to the court having jurisdiction over the foreclosure for protection from foreclosure if he had (1) a mortgage on residential real estate which served as his principle residence for a period of at least two years, (2) no foreclosure action was brought against him in the preceding seven years, and (3) not received an emergency mortgage assistance loan and had not applied for one for two years before applying for foreclosure protection.
The law requires that the court add certain items, such as court costs and legal fees, to the existing principal balance when it restructures the mortgage debt. The law prohibits restructuring the debt if the restructured debt would exceed the original mortgage debt. It requires that the foreclosure be dismissed if there are no further foreclosure proceedings for three months following the end of the restructuring period. More information is available in OLR report 2002-R-0363: http://search.cga.state.ct.us/dl2002/rpt/doc/2002-R-0363.doc.