OLR Research Report

December 20, 2007




By: Julia Thomson-Philbrook, Legislative Analyst

You asked for information regarding the governor's CT FAMLIES program to assist at-risk homeowners who have adjustable rate mortgages. You were particularly interested in the role of the Connecticut Housing Finance Authority (CHFA) in refinancing the mortgages, the programs' funding sources, and the governor's authority to initiate the program.

To examine the adjustable rate mortgage crisis and its effects on Connecticut residents, the governor convened a Sub-Prime Mortgage Task Force on April 10, 2007. Howard F. Pitkin, the commissioner of the Department of Banking, and Gary King, CHFA president and executive director, co-chaired the task force.

The task force completed its report on November 9, 2007. The task force found that there are 71,000 sub-prime mortgages in Connecticut, with loan balances totaling over $15 billion. The task force also found that 8% of these were seriously delinquent. One of the task force's major recommendations was to sponsor a refinancing program. Based on these recommendations, the governor launched the CT FAMLIES program through CHFA. CHFA allocated approximately $50 million for the program.

The CT FAMLIES program assists low- and moderate-income borrowers who took out adjustable rate mortgages to finance their first home. Borrowers are eligible if they cannot make their mortgage payments, and if they reside in the home. The program refinances these mortgages into fixed rate, 30-year mortgages. The fixed rate for these mortgages is .25% above CHFA's regular rate, which is currently 5.750% (APR 5.850-6.250%), with an additional origination fee of up to 1% for the lenders.

Three lenders (McCue Mortgage Company, New Alliance Bank, and Webster Bank) will underwrite the refinanced loans. Homeowners contact the lenders and set up appointments. The lenders then submit a request to CHFA for approval. If CHFA determines that the homeowner is eligible, it will issue the funds to the lenders to cover the refinanced mortgage. These funds will pay the previous adjustable rate mortgage and allow the lenders to establish new mortgages at fixed rates. The lenders receive payments from the mortgage holders, and forward these to CHFA after withholding the origination fee.

CHFA began taking applications for the CT FAMLIES program on December 10, 2007. For more information, residents should call CHFA's call center at (860) 571-3500.

Authority and Funding Sources

In Connecticut, state law authorizes CHFA to sell bonds and use the proceeds for its homebuyer programs (CGS 8-241 et seq.). CHFA's statutory purposes include alleviating “the shortage of housing for low and moderate income families and persons in this state” (CGS 8-250). CT FAMLIES is a product of this statutory purpose.

CHFA must comply with Section 143 of the Internal Revenue Code (the Code) when issuing federal tax-exempt bonds to finance mortgages for first-time homebuyers. To fund the CT FAMLIES program, CHFA is using proceeds from bond sales prior to 1986, because up until that time the Code also allowed states to issue tax-exempt bonds to refinance existing mortgages.