Substitute House Bill No. 6350

Public Act No. 99-262

An Act Concerning the Residential Mortgage Refinancing Guarantee Program.

Be it enacted by the Senate and House of Representatives in General Assembly convened:

Section 1. (NEW) (a) As used in this section:

(1) "Authority" means the Connecticut Housing Finance Authority as created under section 8-244 of the general statutes;

(2) "Mortgage" means a mortgage deed or other instrument that constitutes a first consensual lien on one, two or three-family owner-occupied residential real property located in this state;

(3) "Mortgagee" means mortgage lenders authorized to originate mortgage loans in this state; and

(4) "Mortgagor" means the owner-occupant of one, two or three-family residential real property located in this state who is also the borrower under a mortgage encumbering such real property.

(b) It being in the public interest for the state to extend mortgage guarantees to mortgage lending institutions to provide refinancing for mortgage loans when the decline of home values has precluded such lending, the Connecticut Housing Finance Authority shall establish and administer a program of loan guarantees to work in conjunction with loan programs established by secondary market investors to allow mortgagees to refinance residential mortgage loans when a decrease in the appraised value of the real property securing the mortgage might otherwise preclude such lending. The authority shall adopt procedures in accordance with the provisions of section 1-121 of the general statutes no later than January 1, 2000, to carry out the provisions of this section. Such procedures may establish a fee for such mortgage guarantee.

(c) The authority shall implement the program established by this section within the resources allocated by the State Bond Commission to the Department of Economic and Community Development for the purposes of a grant to the authority for the purposes of this section, in a manner designed to facilitate the qualifications of mortgage guarantees under such program for sale to one or more secondary mortgage markets for such loans. The authority shall explore options that maximize the funds made available, including, but not limited to, the opportunity to minimize the state's exposure through insurance alternatives.

(d) (1) The authority is authorized to enter into loan guarantee agreements with secondary market investors or lenders who meet criteria established by the authority in procedures adopted pursuant to subsection (b) of this section. The authority shall make available to the general public a description of the residential mortgage refinancing guarantee program, including, but not limited to, information regarding participation of mortgagees in the program, eligibility criteria and the terms and conditions of the mortgage guarantee.

(2) Mortgagees may participate in the program by entering into a mortgage guarantee agreement with the authority. Mortgagees participating in the program shall process and underwrite mortgage guarantees in accordance with the provisions of this section and with the procedures adopted pursuant to subsection (b) of this section.

(e) Mortgagors eligible for refinanced mortgages under this program shall meet the criteria established in the procedures adopted pursuant to subsection (b) of this section, including, but not limited to:

(1) The mortgagor shall occupy the property as such mortgagor's primary residence, and shall continue such occupancy for five years after the date of the refinancing under this section;

(2) The mortgagor shall have received the primary mortgage on the property no earlier than January 1, 1986, and no later than December 31, 1992;

(3) The mortgagor shall have a primary mortgage on the property with a loan to value ratio of no more than one hundred twenty-five per cent, and a recent full appraisal of the property in accordance with secondary market standards shall be required;

(4) The mortgagor shall have no second mortgage on the property except a second mortgage where repayment is waived after a certain period of time has elapsed;

(5) The mortgagor shall have mortgage insurance in place to allow the property to be refinanced and sold on the secondary market; and

(6) No mortgagor shall participate in this program if such mortgagor currently has other refinancing alternatives.

(f) Any mortgagee or mortgagor seeking a mortgage guarantee shall provide such information to the authority as the authority deems reasonably necessary.

(g) Mortgages refinanced pursuant to this section shall be underwritten using secondary market standards, except:

(1) The household income of the mortgagor shall not exceed one hundred twenty per cent of the state median income;

(2) The mortgagor shall have been current on the payments on the mortgage loan for the most recent twenty-four month period; and

(3) The credit rating of the mortgagor shall meet the secondary market standards.

(h) The amount of any mortgage guarantee provided under this section shall be reviewed and approved by the authority. The guarantee shall secure the mortgagee up to the amount of the guarantee for any loss incurred by the mortgagee because of default by the mortgagor including losses in principal balance.

(i) The authority may terminate any mortgage guarantee if the mortgagee misrepresents any information pertaining to the application for a mortgage guarantee or fails to comply with any term of the mortgage guarantee agreement in connection with the mortgage guarantee.

Sec. 2. Up to five million dollars of the proceeds of the sale of the bonds authorized pursuant to sections 27 and 28 of special act 97-1 of the June 5 special session, as amended by sections 75 and 76 of special act 98-9, may be used for the purposes of the program authorized by section 1 of this act as authorized from time to time by the State Bond Commission.

Sec. 3. This act shall take effect July 1, 1999.

Approved June 29, 1999