OLR Bill Analysis

sHB 5577

AN ACT CONCERNING RESPONSIBLE LENDING AND ECONOMIC SECURITY.

SUMMARY:

The bill creates three mortgage assistance programs and establishes a 10-member mortgage assistance program committee to develop standards for and procedures to implement them within the Department of Economic and Community Development (DECD). The programs must be funded by state bonding and loan repayments under the programs. The governor, House speaker, Senate president pro tempore, House and Senate majority and minority leaders, the banking commissioner and the Banks Committee chairpersons must each appoint one member to the mortgage assistance program committee. The committee must elect a chair from among its members.

The committee must develop written standards that, at a minimum, establish (1) the standards for qualifying mortgages and mortgagors for the emergency mortgage assistance programs; (2) the scope and nature of the emergency assistance available; and (3) the terms and conditions under which DECD will provide, and be repaid for the assistance provided under the programs. The committee must also develop an application for relief and procedures for the committee's determination of eligibility. The standards and procedures the committee will develop must be adopted in regulations by DECD by October 1, 2008.

For all loans, the bill establishes a fiduciary duty from all lenders and mortgage brokers to borrowers. The bill prohibits the financing of insurance and refinancing that do not benefit the borrower. It requires mortgage professionals to use reasonable care, requires disclosures with regard to yield spread premiums, and prohibits the influencing of real estate appraisals. It also prescribes on-line continuing education for mortgage lending professionals and increases mortgage broker surety bonds. The bill also allows the banking commissioner to impose a case-by-case foreclosure moratorium of up to six months.

The bill defines “nonprime loans. ” For nonprime loans, it establishes a specific fiduciary duty. It prohibits certain provisions in a nonprime loan, such as prepayment penalties and interest rate increases after default. It also prohibits the making of these loans unless the borrower is properly qualified and takes a course, funds are escrowed, and a specific notice is provided.

For all of these lending provisions, the bill defines a “mortgage broker” as a Department of Banking (DOB)-licensed person who, for a fee, commission, or other valuable consideration, negotiates, solicits, arranges, places, or finds a mortgage, or his successors or assigns. It defines a “lender” as any DOB-licensed person or entity originating a mortgage, or its successors or assigns.

EFFECTIVE DATE: July 1, 2008, except for the provision increasing the bond, which is effective on September 30, 2008.

1-4 - MORTGAGE ASSISTANCE PROGRAMS

Refinance to an Affordable Loan Program (REAL)

The REAL program must combine 100% financing with flexible underwriting to refinance loans. It must offer 30-year fixed rates at . 25% higher than the Connecticut Housing Finance Authority's (CHFA) regular rate. Borrowers are eligible for this program if:

1. their combined gross annual income is no more than $ 120,000, unless they fall under a committee-specified exceptions;

2. they are less than 60 days past due on their existing mortgage; and

3. they have a credit score of at least 620 or meet all of the following conditions: (a) their mortgage payment has been adjusted in the past 12 months to a higher interest rate or a fully amortized payment and they have made no more than two, 30-days-late payments since the adjustment, and their mortgage payment history for 12 months before the adjustment shows no history of late payments; and (b) the borrower's credit history of debt other than the mortgage shows no more than three, 30-days-late payments in the 12 months prior to the mortgage adjustment.

The bill allows a borrower who meets the credit score requirements to borrow up to 100% of his or her home's value based upon a current appraisal, while a borrower with a lower credit score can borrow up to 95%. The bill allows the loan to be used to finance subordinate mortgages, closing costs, prepayment penalties, delinquent property taxes, and arrearages that have occurred within the 12 months after the loan reset. The bill limits borrowers total debt costs, including credit cards, motor vehicle loans, installment loans, REAL program mortgage payments, and student loans. If the borrower has at least a 620 credit score, his or her total debt costs cannot be more than 50% of his or her total gross monthly income. For borrowers with a lower credit score, total debt cost cannot be more than 45% of his or her total gross monthly income.

Home Equity Recovery Option (HERO)

The HERO program is available for those who are ineligible for the REAL program or other mortgage refinance products available in the general market due to credit issues or because they owe more than their home's current appraised value. This program requires DECD to purchase loans directly from lenders and then place borrowers on an affordable repayment plan. It must offer mortgages for up to a 30-year term, in an amount up to 100% of the home's value, and at a fixed rate of . 25% higher than CHFA's regular rate.

The loan must be serviced by DECD and must include property taxes and insurance, including mortgage insurance, homeowner's insurance and, if applicable, flood insurance, in the borrower's monthly payment amount. It can be used to pay off the current mortgage debt, closing costs, prepayment penalties, and delinquent property taxes.

Borrowers are eligible for this program if:

1. their combined gross annual income is no more than $ 120,000, unless they fall under a committee-specified exceptions;

2. they have made an effort to meet their financial obligations to the best of their ability;

3. they have sufficient and stable income to support timely repayment of the HERO loan in regular, monthly installments and agree to make monthly mortgage payments by automatic payment directly from their bank account;

4. they have legal title to the mortgaged property and reside in it as their permanent residence;

5. they are able to account for their cash flow by showing how they escrowed, saved or redirected funds if they have stopped making monthly payments; and

6. the HERO loan is in first lien position.

Emergency Mortgage Assistance Program (EMAP)

EMAP is available for borrowers who do not qualify for the first two programs. EMAP must offer at least two types of mortgage assistance loans. First, it must offer noncontinuing mortgage assistance loans, where a mortgage is brought current to a specific date and the borrower is responsible for making all subsequent payments to the lender along with any repayment to EMAP. Second, it must offer continuing mortgage assistance loans, where the borrower pays its designated monthly payment to EMAP, and DECD combines the amount sent by the borrower with EMAP funds and forwards the full monthly mortgage payment directly to the lender for the borrower.

The bill also requires EMAP to include giving no-interest and prepayment penalty loans. A prepayment penalty loan allows DECD to pay any prepayment penalties that a borrower may incur in order to terminate his or her mortgage in connection with securing a better loan. DECD secures a secondary lien on the property securing the mortgagor's new loan.

The law already includes a CHFA-administered emergency mortgage assistance program. It is unfunded.

Information About the Programs

The bill requires the committee to, by October 1, 2008, establish hotlines or other programs or procedures to provide information about the mortgage assistance programs and assist eligible borrowers to renegotiate mortgages, engage foreclosure consultants, or provide for any other assistance it deems appropriate.

Application Procedures ( 3, 4)

The committee must evaluate, using the standards and procedures it develops, applicants' eligibility first for the Refinance to an Affordable Loan program (REAL), next for the Homeowners' Equity Recovery Opportunity Loan program (HERO), and finally for the emergency mortgage assistance program (EMAP). All borrowers approved for these programs must attend in-person financial counseling at a committee-approved agency. The bill does not specify who will pay for this service.

The committee must start receiving applications for, and making determinations of eligibility for, the REAL program, HERO program and EMAP, by October 1, 2008. The committee must make its eligibility determinations within 30 calendar-days of receiving an application. Approved loans must move to closing within 45 days of the committee's determination of loan eligibility. It is not clear what is meant by the term “move to closing.

Funds cannot be provided unless the committee determines that its eligibility standards are met. Borrowers must apply for the program on the committee-prescribed form. If the committee determines that a borrower is eligible for the REAL program, HERO program, or EMAP, it must authorize DECD to make payments to the borrower in accordance with the applicable program.

Borrowers must complete and sign the application subject to the penalty for false statement, a Class A misdemeanor punishable by up to one year imprisonment, a fine of up to $ 2,000, or both. The borrower must provide the committee with full disclosure of all assets and liabilities, whether singly or jointly held, and all household income regardless of source. Any borrower who misrepresents any financial or other material information in conjunction with filing an application for REAL program, HERO program, or EMAP, or any modification of such assistance, can be denied assistance and required to immediately repay any amount of assistance already provided. Additionally, DECD can take any remedial action permitted under law or equity that it deems appropriate to recover mortgage assistance provided under the programs when the borrower fails to repay in accordance with the committee's terms and conditions.

Affordable Supportive Housing ( 6)

The bill requires the DOB to develop a program to purchase foreclosed residential real property located in this state for resale for the purposes of providing affordable and supportive housing. However, DOB can only purchase the property if (1) the property is sold at a discount, and (2) the transfer of funds, the purchase of the property, and the resale of the property, are approved in advance by the mortgage assistance committee.

Program Funding (2, 7-8)

The bill requires the mortgage programs to be funded by state bonding and repayment of loans provided by the programs. All funds received by DECD under the mortgage assistance programs and the supportive housing program must be deposited in the funds or accounts established by DECD and can only be used for these programs.

The bill requires CHFA to transfer to DECD $ 40 million of CHFA's pre-1986 bond sale proceeds. DECD must use this money for the REAL and HERO programs. It is unclear whether this action may violate CHFA's bond covenants to use those funds for a specific purpose (see BACKGROUND).

For EMAP and the affordable supportive housing program, the bill authorizes up to an aggregate of $ 100 million in state bonding, with (1) $ 35 million effective July 1, 2008, (2) $ 35 million effective July 1, 2009, (3) $ 15 million effective July 1, 2010, and (4) $ 15 million effective July 1, 2012.

Definitions ( 1)

For all of its mortgage assistance provisions, the bill defines the term “mortgage” as a mortgage deed or other instrument that constitutes a first or secondary consensual lien on any interest in one-to-four family residential real property located in this state, which is, or when the loan is made, intended to be occupied by the borrower as a principal residence. It includes nonprime home loans.

5, 17 - FORECLOSURES

Notice ( 5)

Starting on October 1, 2008, the bill requires a lender who wants to foreclose on a mortgage to provide notice to the borrower by registered or certified mail, postage prepaid, at the address of the property that is secured by the mortgage. It is not clear how this requirement works with existing foreclosure notice requirements. The lender has to wait 30 days after mailing the notice before it commences foreclosure. The notice must, at least, tell the borrower about his or her delinquency or other default and his or her right to try to get assistance from DECD under the mortgage assistance programs the bill establishes. The committee must determine the notice's specific contents. Borrowers who want to apply for the programs have 30 days from the receipt of the notice, or 30 days from the day they refused delivery of the notice, whichever is earlier, to begin the application process by meeting with a designated counseling agency. The counseling agency must prepare the application and submit the initial paperwork to DECD. Foreclosure actions must cease as long as the mortgagor files a timely application with the DECD.

Moratorium ( 5)

The bill requires the banking commissioner, by October 1, 2008, to adopt regulations to establish criteria for the granting of foreclosure action moratoriums of up to six months. The moratoriums must be granted on a case-by-case basis. The bill gives a borrower who is denied relief under the program the right to seek a continuing moratorium of the foreclosure action. It is unclear how or if this moratorium is affected by the constitutional provision prohibiting the impairment of contracts (See BACKGROUND). The borrower must exercise this right by submitting an application to the banking commissioner within 30 days of the denial notice's postmark date.

If the commissioner grants moratorium request, the commissioner must notify both parties in writing, setting forth the basis for the commissioner's determination and the term of the moratorium. The lender cannot commence an action until this term has expired. The bill also requires the parties to meet within 90 days of receipt of the commissioner's notice to attempt to renegotiate the loan terms. If they are unable to renegotiate the terms, the lender can take any legal action to enforce the mortgage when the moratorium period is over, without further restrictions or requirements. Additionally, the bill specifically provides that if the commissioner denies the request for a moratorium, the lender may take any legal action to enforce the mortgage without further restrictions or requirements.

Notifying Tenants of Foreclosure ( 17)

The bill requires a residential mortgage holder to notify any tenants inhabiting the property of the commencement of a foreclosure action instituted against the mortgage holder within 60 days of such action. The bill allows the tenant to terminate his or her lease without penalty for up to 30 days after receiving the notice. It appears as if the bill is referring to the borrower when the term “mortgage holder” is used.

LENDING REQUIREMENTS APPLICABLE TO ALL LOANS

Duties of Mortgage Broker ( 9, 12)

The bill requires a mortgage broker (1) to use reasonable care, skill, and diligence in performing the broker's duties; (2) make reasonable efforts to secure a loan that is in the best interests of the borrower considering all the circumstances, including the rates, points, fees, charges, costs, and product type; and (3) ensure that the cost of credit is appropriate considering the borrower's level of creditworthiness. The bill also establishes a fiduciary duty from lenders to borrowers.

Tangible Benefit from Refinancing Section ( 11)

The bill prohibits lenders from offering a refinanced mortgage unless it will provide a tangible benefit to the borrower. The bill defines a “tangible benefit” as cash back at closing in the amount of at least 5% of the appraised value of the home securing the mortgage or at least a 5% reduction in the borrower's monthly mortgage payment without a significant extension of the term of the loan. It is not clear if the monthly mortgage payment is limited to just principal and interest. The bill prohibits lenders from taking any action that recommends or encourages a default on an existing mortgage or other debt prior to and in connection with the closing or planned closing of a new mortgage that refinances all or any portion of the existing loan or debt.

Prohibition on Financing Insurance and Certain Payments ( 11)

The bill prohibits lenders from financing, in connection with a mortgage, any credit life, credit disability, credit unemployment, or credit property insurance or any other life or health insurance or any payments directly or indirectly for any debt cancellation or suspension agreement or contract. But, the bill provides that insurance premiums or debt cancellation or suspension fees calculated and paid on a monthly basis or through regularly scheduled periodic payments are not considered to be financed by the lender.

Terminating Foreclosure Proceedings ( 11)

The bill requires lenders to take the necessary steps to terminate a foreclosure proceeding or other action if all defaults in connection with a residential mortgage are cured within 90-days of the foreclosure action's initiation. The bill allows lenders to require the borrower to pay any reasonable costs actually incurred by the lender before the default was cured. The curing of the default reinstates the borrower to the same position as if the default had not occurred and nullifies, as of the date of the cure, any acceleration of any obligation under the security instrument or note arising from the default. The bill specifies that term “cure” means payment of arrearages.

Yield Spread Premiums ( 13)

The bill requires mortgage brokers to clearly and conspicuously disclose to the borrower any “yield spread premium,” which the bill defines as any amount to be paid by the lender to the broker in connection with a mortgage. The disclosure must be made before the mortgage is signed. It must be a separate document written in plain language that states the existence and amount of the yield spread premium and the amount of money that it costs the borrower. The bill appears to require the broker to provide the borrower with any written broker agreement.

Influence of Real Estate Appraisals ( 14, 15)

The bill prohibits mortgage brokers from influencing residential real estate appraisals. In this context, the bill defines this as including the refusal or intentional failure to (1) pay an appraiser for an appraisal that reflects a fair market value estimate that is less than the sale contract price; or (2) utilize, or encourage other mortgage brokers not to utilize, an appraiser based solely on the fact that the appraiser provided an appraisal reflecting a fair market value estimate that was less than the sale contract price.

The bill allows the banking commissioner to, upon a verified written complaint in writing of any person, investigate the actions of a mortgage broker if the complaint, or evidence presented with the complaint, makes out a prima facie case of a violation. If a mortgage broker violates these requirements, the bill allows the commissioner to temporarily suspend or permanently revoke the broker's license after the appropriate notice and hearing. In addition to or instead of the suspension or revocation, the bill allows the commissioner to impose a civil penalty of up to $ 1,000 for any violation of this requirement. The banking commissioner can already impose these sanctions for violations of the banking statutes.

The bill imposes similar requirements for real estate brokers and salespersons. In this context, the term is defined to include the refusal or intentional failure to refer a homebuyer, or encouraging other real estate brokers or real estate agents not to refer a homebuyer, to a mortgage broker or lender based solely on the fact that the broker or lender uses an appraiser who has provided an appraisal reflecting a fair market value estimate that was less than the sale contract price. The bill allows the Department of Consumer Protection commissioner to take the same action against a real estate salesperson or broker violating this requirement that the banking commissioner can take against mortgage brokers.

9 - NONPRIME LOANS

Definition of Nonprime Loan

The bill defines a “nonprime loan” as any loan or extension of credit, excluding both an open-end line of credit secured by the consumer's dwelling and a reverse mortgage transaction:

1. where the borrower is an individual;

2. the proceeds of which are to be used primarily for personal family or household purposes;

3. secured by a mortgage on a one-to-four family residential property located in this state which is, or when the loan is made intended to be, used or occupied by the borrower as a principal residence; and

4. where the principal amount of the loan does not exceed the then current conforming loan limit, as established from time to time by the Federal National Mortgage Association (Fannie Mae).

With regard to interest, nonprime loans are those where the difference between the annual percentage rate (APR) for the loan or extension of credit and the yield on United States Treasury securities having comparable periods of maturity is either equal to or greater than three percentage points on first mortgage loans, or five percentage points on second mortgage loans. The bill requires the difference between the APR and the yield to be determined using the same procedures and calculation methods applicable to loans that are subject to the reporting requirement of the federal Home Mortgage Disclosure Act, as amended from time to time, provided the yield on United States Treasury securities is determined as of the 15th day of the month prior to the application for the loan.

Additionally, non prime loans are those where the difference between the APR for the loan and the conventional mortgage rate is either equal to or greater than 1. 75 percentage points if the loan is a first mortgage, or 3. 75 percentage points if it is a second mortgage. The bill specifies that the conventional mortgage rate is the most recent daily contract interest rate on commitments for fixed-rate mortgages published by the board of governors of the Federal Reserve System in its statistical release H. 15, or any publication that may supersede it, during the week in which the interest rate for the loan is set.

The bill that provides that, with regard to the interest rate calculations, the dollar amount of any bona fide discount points does not have to be included in the APR. The bill defines these as points that a borrower agrees to pay for the express purpose of reducing the interest rate and that actually result in a bona-fide interest rate reduction (although this term is not defined).

Fiduciary Duty

It specifies that the fiduciary duty owed to nonprime home loan borrowers established by the bill includes the obligation to ensure that borrowers have enough information to clearly understand the terms of the loan and the associated risks in order to make an informed choice. Additionally, the bill specifically includes as a duty, but does not limit duty to, the requirements of the bill.

Suitability Standard and Required Course

The bill requires the banking commissioner to adopt regulations to establish (1) a suitability standard that lenders and mortgage brokers must use to determine which nonprime home loan products are most suitable for borrowers and (2) the minimum verification and documentation requirements for qualifying borrowers for a nonprime home loan. The regulations must include a mandate (1) that lenders verify income by the best means of documentation available, including at least, payroll receipts, bank records, tax returns, or other similar reliable documents and (2) that lenders consider the reasonable ability of the borrower to repay the nonprime home loan according to a fully amortizing payment schedule and taking into account all requirements of the loan.

Lenders must notify all potential nonprime home loan borrowers in writing that they are required to attend a DOB-accredited course on nonprime home loans and provide evidence of course completion before the mortgage can be executed. The commissioner must adopt regulations on accrediting these courses and for issuance of completion certificates by entities providing the courses.

Elements Necessary to Make a Nonprime Loan

The bill prohibits a lender from making a nonprime loan unless:

1. it documents, in accordance with the bill, that the borrower qualifies for the loan at its highest interest rate over the term of the loan;

2. it requires and collects the monthly escrow of property taxes, insurance, and homeowners' or condominium fees;

3. the potential borrower completes the required courses, as evidenced by certificates of completion;

4. it provides the notice required by the bill, which provides basic information about mortgage loans; and

5. it discloses a list of nonprofit housing counselors approved by the federal Department of Housing and Urban Development to all potential borrowers.

Provisions Prohibited in a Nonprime Loan

The bill prohibits a lender from making a nonprime loan that contains a prepayment penalty provision or a provision that increases the interest rate after default. It also prohibits any provision requiring a borrower to assert any claim or defense in a forum that (1) does not have to adhere to the rules of evidence or apply the law as set forth in the statutes or common law; (2) limits any claim or defense the borrower may have; or (3) is less convenient, more costly, or more dilatory for the resolution of a dispute than a judicial forum established in this state where the borrower may otherwise properly bring a claim or defense.

Correcting Loans Executed in Violation of the Nonprime Provisions

The bill provides that any nonprime home loan executed in violation of its requirements is generally considered a breach of fiduciary duty and an unfair or deceptive trade practice under the Connecticut Unfair Trade Practices Act (see BACKGROUND). But these provisions do not apply if, within 90 days of the loan closing and before any action against the lender, (1) the lender notifies the borrower of the compliance failure; (2) the lender tenders appropriate restitution; and (3) the lender offers, at the borrower's option, either to make the nonprime home loan comply with the bill's requirements or to change the terms of the mortgage to benefit the borrower so that the mortgage will no longer be considered a nonprime home loan. The lender must act within a reasonable period of time following the borrower's election of remedy.

The loans will also not be in breach or violation (1) if the compliance failure is not intentional and results from a bona fide error that occurs despite the maintenance of procedures reasonably adopted to avoid such errors and (2) within 120 days of the discovery of the compliance failure and prior to the commencement of any action against the lender, the borrower is notified of the compliance failure, the lender tenders appropriate restitution, and makes the same offer as above. The bill specifies that a bona fide error includes a clerical, calculation, printing, computer malfunction or programming error, but does not include an error of legal judgment with respect to a person's obligations.

EDUCATION AND BONDING REQUIREMENTS FOR MORTGAGE BROKERS

On-line Continuing Education for Entities in the Mortgage Lending Business ( 16)

The bill requires the banking commissioner to, by January 1, 2009, adopt regulations establishing an on-line continuing education program for entities in the mortgage lending business that are required to be licensed under the banking statutes. The bill makes DOB solely and exclusively responsible for the provision of the courses. It requires the regulations to set out the required subject matter and course hours, which must be no more than eight hours of course study over the course of one calendar year, or 12 hours of course study over the course of two calendar years for any licensee. The licensees are responsible for cost of completing the requirement.

Surety Bond Requirement ( 20)

The bill increases, from $ 40,000 to $ 60,000, the surety bond that a mortgage lender or first mortgage broker applicant must file starting on January 1, 2009.

18 - BANKING COMMISSIONER'S ENFORCEMENT POWERS

The bill specifically requires the banking commissioner to enforce all of the bill's mortgage provisions (excluding the provisions on real estate brokers and salespersons and tenants in a property subject to foreclosure. ) It specifically grants him the following powers and duties to do so.

1. The commissioner may adopt regulations necessary to carry out the provisions, and prohibit acts, practices or terms in connection with mortgages that the commissioner finds are: (a) unfair, deceptive, or designed to evade the bill's provisions; and (b) associated with abusive, unfair, or deceptive lending practices or that are otherwise not in the interest of the borrowing public.

2. The commissioner must conduct examinations and investigations and issue subpoenas and orders to enforce the provisions with respect to lenders or brokers.

3. The commissioner may examine any instrument, document, account, book, record, or file of a lender or mortgage broker. He must recover the cost of examinations from the person. A person making or brokering mortgage loans must maintain its records in a manner that will facilitate the commissioner's determination of whether the person is complying with the bill's provisions and any associated regulations. The commissioner must require the submission of reports by lenders or mortgage brokers that include information he requires in regulation.

4. If a person fails to comply with a commissioner-issued subpoena for documents or testimony, he can request an order from a court of competent jurisdiction requiring the person to produce the requested information.

5. If the commissioner determines that a person has violated the provisions, he may do any combination of the following that he deems appropriate: (a) in accordance with existing law, bring a Superior Court action for a permanent or temporary injunction, restraining order, or writ of mandamus, seek a court order imposing a penalty of up to $ 100,000 per violation, or apply to the Superior Court for an order of restitution; (b) suspend, revoke or refuse to renew any license issued by the DOB; (c) prohibit or permanently remove an individual responsible for a violation from working in his or her present capacity or in any other capacity related to activities regulated by the department; (d) order a person to cease and desist any violation and make restitution and other appropriate relief, including loan modification or forgiveness, to borrowers; or (e) impose a remedy he deems appropriate.

The bill provides that no action taken by the commissioner against a creditor relieves that creditor from civil liability. It prohibits the foregoing provisions from being construed as a limitation on the power or authority of the state, the attorney general or the commissioner to seek administrative, legal, or equitable relief under common law or the statutes. It also provides that these remedies are cumulative and do not restrict any other right or remedy otherwise available to the borrower.

19 - WORKFORCE DEVELOPMENT BOARDS

The bill requires workforce development boards to establish a Mortgage Crisis Job Training Team, in conjunction with CTWorks One-Stop Career Centers, to provide rapid, customized employment services, job retraining and placement assistance for the unemployed or underemployed. The team must also provide financial literacy and credit repair training.

BACKGROUND

CHFA Bond Covenants

The proceeds of all CHFA bonds are jointly pledged under its General Bond Resolution. This resolution constitutes a contract with CHFA bondholders. By law, the state pledges that it “will not limit or alter the rights hereby vested in the authority until such obligations, together with the interest thereon, are fully met and discharged and such contracts are fully performed on the part of the authority” (CGS 8-261). This pledge is included in the CHFA General Bond Resolution. The transfer of CHFA bond proceeds that have been pledged to be used for CHFA programs under the statutes and for payment of debt service on the bonds could violate the impairment of contracts clause of the U. S. Constitution (Article I, Section 10). The U. S. Supreme Court has held that the purported repeal by a state of a state covenant for the benefit of bondholders was an unconstitutional impairment of the contract (See United States Trust Company of New York v. New Jersey et al, 431 U. S. 1 (1977)).

Foreclosure Moratoriums

In 1933, the Minnesota legislature enacted, and the U. S. Supreme Court upheld, a law imposing a temporary foreclosure moratorium during the Great Depression. In upholding the legislation under the Contracts Clause (Article I, Section 10) of the U. S. Constitution, the Court found an emergency justifying the exercise of the state's police powers and a legitimate end protecting a societal interest. The Court noted the temporary nature of the act and that the mortgage indebtedness was not impaired (Home Building & Loan v. Blaisdell, 290 U. S. 398 (1934)). It is not clear how that ruling applies to the bill.

Connecticut Unfair Trade Practices Act (CUTPA)

The law prohibits businesses from engaging in unfair and deceptive acts or practices. CUTPA allows the Department of Consumer Protection commissioner to issue regulations defining what constitutes an unfair trade practice, investigate complaints, issue cease and desist orders, order restitution in cases involving less than $ 5,000, enter into consent agreements, ask the attorney general to seek injunctive relief, and accept voluntary statements of compliance. The act also allows individuals to sue. Courts may issue restraining orders; award actual and punitive damages, costs, and reasonable attorneys fees; and impose civil penalties of up to $ 5,000 for willful violations and $ 25,000 for violation of a restraining order.

Related Bill

sSB 5023, reported favorably by the Banks Committee, requires initial and renewal applicants for the first- and second-mortgage broker and originator licenses to meet certain education and testing requirements.

COMMITTEE ACTION

Banks Committee

Joint Favorable Substitute

Yea

10

Nay

7

(03/04/2008)