OLR Research Report

October 9, 2008




By: Soncia Coleman, Associate Legislative Analyst

You wanted to know if recently passed federal legislation, the Housing and Economic Recovery Act of 2008 (P.L. 110-289), conflicts with Connecticut's Act Concerning Responsible Lending and Economic Security (P.A. 08-176).

The Office of Legislative Research is not authorized to provide legal opinions and this should not be construed as one.


While the two pieces of legislation overlap in some areas, they do not appear to conflict. P.L. 110-289 was signed by the President on July 30, 2008. It addresses oversight and reform of Fannie Mae, Freddie Mac, and Federal Home Loan Banks; modernizes the Federal Housing Administration; creates a program for borrowers with loans they cannot afford; creates programs and protections for service members and veterans; creates new mortgage licensing requirements; provides funding for the redevelopment of foreclosed properties; and institutes housing related tax benefits. The Connecticut legislature passed P.A. 08-176 addressing some of the same issues.

Below is a summary of both act's provisions on homeowner assistance programs, mortgage licensing, foreclosure prevention, mortgage disclosures, and the redevelopment of foreclosed properties. The Congressional Research Service's full summary of the federal law can be found at The Office of Legislative Research's full public act summary of the Connecticut law can be found at


The Housing and Economic Recovery Act of 2008 establishes a new FHA program, Hope for Homeowners, to reduce principal and interest payments for eligible borrowers by allowing them to refinance into fixed rate 30-year FHA-insured loans that are based on current property values.

The Connecticut legislation includes three mortgage assistance programs. The Connecticut Fair Alternative Mortgage Lending Initiative and Education Services program (CT FAMILIES) and the Homeowner's Equity Recovery Opportunity (HERO) program provide refinancing opportunities for qualified borrowers. (CHFA indicates that the Hope for Homeowners program will be used as a model for the HERO program.) The previously unfunded Emergency Mortgage Assistance program (EMAP) provides temporary loans for mortgage payments. All three programs are administered by the Connecticut Housing Finance Authority (CHFA). (For further discussion of these programs, see OLR report 2008-R-0516).

As the goal of the HERO, CT FAMILIES and Hope for Homeowners programs is to put borrowers in a loan that they are better able to pay, it seems unlikely that a person would need, or meet the requirements, to use one of these programs to refinance a loan that was offered under another program. Additionally, EMAP is not available for homeowners with FHA insured loans.


P.L. 110-289 encourages participation in the Nationwide Mortgage Licensing and Registry (NMLSR) system created in 2004 by the Conference of State Bank Supervisors and the American Association of Residential Mortgage Regulators. It requires licensing of all “loan originators” which it defines as an individual who (1) takes a residential mortgage loan application and (2) offers or negotiates terms of a residential mortgage loan for compensation or gain.

Specifically, the act prohibits people from engaging in the business of a loan originator without first (1) obtaining a unique identifier and (2) annually maintaining a registration as a registered loan originator or a license and registration as a state-licensed loan originator. These requirements are subject to the existence of a registration regime.

Loan Originator Licensing Requirements

The act establishes requirements for loan originator licensing or registration, including fingerprint and background checks; 20 hours of pre-licensing education; a written test; and eight hours of continuing education annually. It also prevents the issuance of a license to an applicant who:

1. has had a loan originator license revoked in any governmental jurisdiction;

2. has been convicted of, or pled guilty or no contest to, a felony (a) during the seven-year period before the date of the application for licensing and registration; or (b) at any time preceding application, if the felony involved an act of fraud, dishonesty, or a breach of trust, or money laundering; and

3. has not met either a net worth or surety bond requirement, or paid into a state fund, as required by the state.

Finally, the applicant has to demonstrate financial responsibility, character, and general fitness such as to command the confidence of the community and to warrant a determination that the loan originator will operate honestly, fairly, and efficiently.

HUD Licensing System

The act requires the Department of Housing and Urban Development (HUD) to establish a backup licensing system for a state if, after one year (or two years for biennial legislatures), a state does not (1) participate in the Nationwide Mortgage Licensing System or (2) have a system in place that addresses the requirements above. A state with its own system must also have a state loan originator supervisory authority that:

1. is maintained to provide effective supervision and enforcement of the law, including the suspension, termination, or nonrenewal of a license for a violation of state or federal law;

2. ensures that all state-licensed loan originators operating in the state are registered with NMLSR;

3. is required to regularly report violations of the law, as well as enforcement actions and other relevant information, to the NMLSR;

4. has a process in place for challenging information contained in the NMLSR;

5. has established a mechanism to assess civil money penalties for individuals acting as mortgage originators in their State without a valid license or registration; and

6. has established minimum net worth or surety bonding requirements that reflect the dollar amount of loans originated by a residential mortgage loan originator, or has established a recovery fund paid into by the loan originators.

The HUD secretary can extend this period by up to two years. The Act also requires federal bank regulators to establish a parallel registration system for FDIC-insured banks.


A 2007 act (PA 07-156) allowed the Connecticut banking commissioner to participate in the national mortgage licensing system. PA 08-176 moved up the participation date from September 30 to July 1, 2008, and made it mandatory. Mortgage brokers in Connecticut, which are defined generally as people who, for valuable consideration, negotiate, solicit, arrange, place or find a mortgage loan that is to be made by a lender, already have to meet net worth, bond, and fingerprint/background check requirements. However, there are currently no testing or education (initial or continuing) requirements for licensure. (There are experience requirements). Further, Connecticut law does not appear to prohibit the licensure of those that have been convicted of certain crimes or had their licenses revoked in another state.

Connecticut law defines an originator as an individual who is employed or retained by, or otherwise acts on behalf of, a mortgage lender or broker licensee for, or with the expectation of, valuable consideration, to take an application for or negotiate, solicit, arrange or find a mortgage loan. Public Act 07-156 required originators to be licensed rather than registered. However, originators, because they work on behalf of brokers or lenders, do not have to meet the surety and other requirements. It is unclear whether Connecticut originators would have to individually meet these requirements based on the federal definition of “loan originator.”


The Connecticut law required the chief court administrator, by July 1, 2008, to establish a foreclosure mediation program in each judicial district and appropriated $2 million to the Judicial Branch for the program from the Banking Fund for FY 09. The program is available to owner-occupants of one-to-four family residential real property in Connecticut who are also borrowers under a mortgage encumbering the property and who use the property as their primary residence.

The federal law did not create foreclosure mediation programs, but it does appropriate $100 million for the Neighborhood Reinvestment Corporation for foreclosure mitigation activities. It also contains provisions that prevent lenders from foreclosing on a veteran's home and allows any proceedings on the home or property of a service member to be stayed for nine months after the end of military service. The interest rate on a mortgage created before entering military service can be no higher than 6% during the term of military service and one year thereafter. The Department of Defense is also required to develop and implement mortgage foreclosure counseling for members of the Armed Forces returning from active duty abroad.


Public Act 08-176 specifically allows CHFA to develop and implement a program for it to purchase foreclosed Connecticut property and turn the property into supportive and affordable housing. It appears to allow them to report on the program and plans for implementing it to the Banks, Housing, and Planning and Development committees by January 1, 2009.

The federal law appropriates $4 billion for assistance to state and local governments for the redevelopment of abandoned and foreclosed homes. HUD must develop a formula to allocate the money based on the number of foreclosures, delinquencies, and home financed by subprime loans in a state or town. Funds may be used to purchase (at a discount) and redevelop foreclosed and abandoned homes; establish land banks for foreclosed homes; demolish blighted structures; and redevelop demolished or vacant properties. Each state is to receive at least 0.5% of the $4 billion appropriated ($20 million).


The federal legislation expands the types of mortgages that are subject to Truth in Lending Act (TILA) disclosures and the disclosure requirements for those mortgages. Specifically, it extends the types of mortgages subject to TILA's early (within three days of application) disclosure requirement to any extension of credit secured by a dwelling (rather than just residential mortgage transactions.) It provides that disclosures must generally be provided at least seven days before a closing. It creates a new disclosure requirement about the payments on variable loans. Finally, it increases penalties for certain TILA violations from between $200 and $2,000 to between $400 and $4,000.

Public Act 08-176 creates a number of requirements relative to loans (primarily nonprime loans) and mortgage professionals making them. Among other things, it requires a lender to provide the borrower with a notice or letter that generally describes the terms of a nonprime home loan that is a first mortgage loan. It must be provided no later than three business days prior to the closing, unless the borrower expressly requests an expedited closing and the lender has not yet, acting in good faith, provided the letter or notice. In cases where a letter or notice is required, the lender must notify the borrower, within a reasonable time period, of any subsequent material changes to the terms of the transaction. This requirement cannot be waived.