OFFICE OF FISCAL ANALYSIS

Legislative Office Building, Room 5200

Hartford, CT 06106 (860) 240-0200

http: //www. cga. ct. gov/ofa

sHB-5577

AN ACT CONCERNING RESPONSIBLE LENDING AND ECONOMIC SECURITY.

As Amended by House "A" (LCO 5938)

House Calendar No. : 70

Senate Calendar No. : 549

OFA Fiscal Note

State Impact:

Agency Affected

Fund-Effect

FY 09 $

FY 10 $

Various State Agencies

BF - Cost

21. 0 million

See Below

Consumer Protection, Dept.

GF - Revenue Gain

Potential Minimal

Potential Minimal

Note: BF=Banking Fund; GF=General Fund

Municipal Impact: None

Explanation

Section 1 authorizes the Connecticut Housing Finance Authority (CHFA) to redirect the use of the proceeds of existing, outstanding bonds (totaling $40 million) to continue to develop and implement a program for home mortgage refinancing. This will not result in a fiscal impact to the state as CHFA is a quasi-public entity and is not a state budgeted agency.

Section 2 authorizes CHFA to redirect the use of the proceeds of existing, outstanding bonds (totaling $30 million) to develop and implement the Homeowner's Equity Recovery Opportunity (HERO) loan program. This also will not result in a fiscal impact to the state.

Section 3 increases the statutory limit on uninsured mortgages that CHFA can hold from $1. 0 billion to $1. 5 billion. This change increases the level of default risk in CHFA's mortgage portfolio. CHFA uses the loan repayments from this portfolio to make debt service payments on bonds that are backed by a special capital reserve fund[1][1] (SCRF). If a large number of these uninsured mortgages went into default, it could potentially affect the agency's ability to meet its debt service liability. In such a situation, the debt service payments would be made from the reserve account for the SCRF-backed bonds. If the reserve account fell below a certain level, the state would be obligated to appropriate money from the General Fund to refill the account. It appears very unlikely that this scenario would occur because CHFA is rated as AAA by the ratings agencies, which is higher than the State of Connecticut's rating[2][2]. CHFA's high rating indicates that the overall quality of the assets in its portfolio is considered to be very high and the overall level of default risk is low. Thus, in the unlikely event that a large number of uninsured mortgages went into default, CHFA would in all likelihood still be able to meet its debt service obligations with loan repayments from the remainder of its portfolio.

As of February 2, 2008, CHFA had $3. 5 billion in outstanding SCRF-backed bonds under its Housing Mortgage Finance Program and $87. 9 million under its Special Needs Housing Mortgage Finance Program.

Section 4, which requires CHFA to develop and report on a program to purchase foreclosed property for the development of supportive housing by January 1, 2009, has no fiscal impact to the state.

Section 11 requires the state to pay the debt service on $50 million in bonds issued by CHFA for the emergency mortgage assistance program. Assuming a 5. 0% interest rate over 20 years, the total General Fund debt service cost for principal and interest payments is $76. 3 million. The first year that the state will experience costs associated with the bonds depends on when they are allocated through the State Bond Commission and when the funds are expended. The first debt service payment of approximately $2. 5 million is anticipated to occur if FY 09. It should be noted that section 80 appropriates $2. 5 million to the State Treasurer from the Banking Fund for such state assistance in FY 09. The current balance in the Banking Fund is approximately $56. 0 million. Appropriations from the Banking Fund count against the spending cap.

Section 12 appropriates $14 million to CHFA from the Banking Fund to assist in implementing the provisions of sections five to twelve of the amendment.

Section 14 appropriates $2. 5 million to the Department of Labor from the Banking Fund for the mortgage crisis job training program established by The Workplace Inc. and the other workforce development boards.

Sections 17–18 require the Judicial Department to establish a foreclosure mediation program in each judicial district courthouse that handles foreclosure cases, and Section 20 appropriates (FY 09) $2. 0 million from the state Banking Fund to implement the program. This funding level would be sufficient to add 15 mediator positions in addition to case flow coordinators and court operations assistants to process cases. In accordance with the bill, the court shall not accept any foreclosure mediation requests received on or after July 1, 2010. The foreclosure mediation program terminates when all mediation has concluded with respect to mediation requests submitted to the court prior to July 1, 2010. No funding source is identified in FY 10 for this program.

The remaining sections pertaining to the duties and regulations of the Department of Banking (DOB) result in a cost of approximately $200,000 to the DOB in FY 09. Additionally the participation in the Nationwide Mortgage Licensing System will result in a future cost to the DOB of approximately $5. 0 million as a new database system will require extensive development and programming.

Finally the bill results in a potential minimal revenue gain through the Department of Consumer Protection due to potential violations and associated fines contained in sections 81 and 82.

House “A” (LCO 5938) struck the original bill and resulted in the fiscal impact described above.

The Out Years

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

The preceding Fiscal Impact statement is prepared for the benefit of the members of the General Assembly, solely for the purposes of information, summarization and explanation and does not represent the intent of the General Assembly or either chamber thereof for any purpose.

[1] CHFA issues bonds under its own authority that are backed by a special capital reserve fund (SCRF). A SCRF extends the state's credit for bonds issued by various quasi-public state bond-issuing authorities such as CHFA.   SCRF-backed bonds are a contingent liability or potential financial responsibility of the state that may become a real financial responsibility at some point if the quasi-public agency fails to pay the debt services for SCRF-backed bonds it has issued.

[2] The State of Connecticut's General Obligation bond rating is AA from Standard & Poor's and Fitches and Aa3 from Moody's.