Banks Committee

JOINT FAVORABLE REPORT

Bill No.:

HB-5577

Title:

AN ACT CONCERNING RESPONSIBLE LENDING AND ECONOMIC SECURITY.

Vote Date:

3/4/2008

Vote Action:

Joint Favorable Substitute

PH Date:

2/28/2008

File No.:

SPONSORS OF BILL:

Banks Committee

REASONS FOR BILL:

This bill intends to assist Connecticut families, who are either in danger of home foreclosure or are experiencing the process of home foreclosure, through the creation of multi-tiered, state administered programs and through the realigning of specific state resources. This bill will address the need for deeper regulatory oversight of brokers and lenders of nonprime mortgage products.

RESPONSE FROM ADMINISTRATION/AGENCY:

Howard F. Pitkin, Commissioner, Department of Banking:

Opposition. The Department asks the committee to instead endorse rSB-21, a bill that the agency drafted in conjunction with the Governor's office. The agency is crafting substitute language, which they feel will be “acceptable to all involved.”

Joan McDonald, Commissioner, Department of Economic and Community Development:

Opposition. DECD is concerned that the introduction of a multimillion dollar program would require significant resources and administrative costs in order to manage the program in a timely manner and staff training would be within a very small timeframe. DECD suggests that the agency administering the program should perform the functions of the bill's EMAP Committee. The department agrees with CHFA's concerns regarding the bill's impact on the Authority's bond ratings.

Attorney General Richard Blumenthal:

Support. This bill “would keep people in their homes, but impose accountability on them and lenders. [The bill's] financing system could spare homeowners from devastation without expense to taxpayers.”

Michael J. Ward, Administrator, Connecticut Housing Finance Authority:

Opposition. CHFA opposes taking of bond proceeds to fund this bill's programs. Such a taking would negatively impact the Authority's bond ratings; thereby driving up the Authority's cost of funds. CHFA continues to endorse the CTFAMILIES program. The Authority would like to work with the Banks Committee to develop the loan purchase proposal of this bill [as part of the CTFAMILIES program], as well as to play a role in the implementation of this bill's EMAP program.

NATURE AND SOURCES OF SUPPORT:

Senator Donald E. Williams, Jr. [S29th ], President Pro Tempore:

“This bill would protect borrowers from unscrupulous lenders and brokers who act against consumers' best interests. It seeks to provide relief to those who have been victimized by the crisis.”

Representative Minnie Gonzalez [3rd]:

Supports this bill and wishes to offer further concepts to consider. Among these are escrow requirements for all mortgages, stricter licensing and regulation of mortgage brokers and their agents, and outlawing prepayment penalties.

Patricia A. McCoy, University of Connecticut School of Law:

Offered testimony in the form of an authoritative report with specific conclusions for the Committee to consider. Expanding regulation of home mortgages will increase access to credit, not restrict it. Lower triggers and assignee liability provisions may increase access to credit by providing lenders legal certainty and protecting them from competitive pressures to relax underwriting standards. Consumers may also be given more confidence to apply for home mortgages.

Erin Kemple, CT Fair Housing Center:

Supports much of the bill. [This bill ] should include provisions to regulate non-traditional mortgages such as payment option ARMs and interest-only mortgages that consumers may not fully understand.

Raphael L. Podolsky, Legal Assistance Resource Center of CT, Inc.:

Supports the bill with additional protections. Include in the nonprime loan definition, “bona fide” discount points in the interest rate, non-traditional mortgages and open-end loans, and yield-spread premiums as part of the loan's points calculation. Create a fiduciary duty on the part of lenders and brokers to the borrowers with respect to a borrower's ability to meet debt obligations.

Joseph M. Carbone, The Workplace Inc.:

Support for the bill's Workforce Development Boards' inclusion of the CTWorks Career Development Centers. [This will] help borrowers in foreclosure and prevent more foreclosures from happening through much needed employment opportunities. The provision will help borrowers find ways to meet their financial obligations.

NATURE AND SOURCES OF OPPOSITION:

Connecticut Mortgage Bankers Association, Inc.:

CMBA supports the foreclosure mitigation programs (Sec1-4), which have the potential to provide help to borrowers at risk of foreclosure. CMBA is concerned that many provisions of the bill might provide a disincentive to the lending industry in considering extending credit to Connecticut borrowers, not just nonprime categories. CMBA opposes the foreclosure notification pre-condition as a potential offense to “impairment of a contract” prohibition. A concern exists that certain proposals of the bill could lead to inconsistent/duplicative regulations as well as risks to exemptions under federal law affecting state chartered lenders.

Richard Tracy, Connecticut Society of Mortgage Brokers:

CSMB supports the foreclosure mitigation programs (Sec1-4) and offers assistance to the Committee. However; concerns with bill include: originators might be exempt from the bill's education provision; the educational curriculum should be focused on state and federal regulations. Another concern pertains to the definition of nonprime loan, which the bill defines using Federal Reserve guidelines and may not be reflective of the current economic environment.

Joshua Grant, resident of Bridgeport:

The bill lacks critical components, among them are: yield spread premiums should be eliminated for all loans and not merely regulated more strictly; pre-payment penalties must be prohibited for all high-cost loans and should conform to Fed Reserve policy for adjustable rates; negative amortization should be prohibited.

Dan Duffy, Connecticut Association of Mortgage Brokers:

The continuing education provision should be administered by the Department of Banking and should focus on federal and state regulations. The definition of nonprime loan, tied to treasury notes might be too restrictive and could inadvertently place prime loans under its definition. The terms “tangible benefit” and “acting in the best interest” are open to interpretation (by a court). Yield spread premiums are disclosed on the “good faith” estimate and in the HUD document at closing.

Reported by: Hal Smullen, Clerk

Date: 3/11/2008