State aims to ease mortgage crunch

November 9, 2007: As Originally Appeared in the Stamford Advocate

HARTFORD - In the midst of a subprime loan crisis, the governor and state housing officials yesterday announced a $50 million initiative to keep low- and moderate-income residents in their homes.

The crisis, marked by a sharp rise in foreclosures in the subprime mortgage market, began in the United States last year and went global this year. Subprime loans are made to borrowers who do not qualify for the best interest rates because of poor credit histories. "Subprime" describes the borrower, not the interest rate on the loan.

"Connecticut so far has not seen as much of a negative impact from subprimes as, say, Ohio," said Gary King, president of the Connecticut Housing Finance Authority. "We're trying to mitigate to make sure that continues to be the case."

King and Gov. M. Jodi Rell yesterday said that the state, through the authority, will provide $50 million to help 300 to 400 of the neediest first-time homeowners refinance their adjustable-rate mortgages into 30-year, fixed-rate, amortizing loans.

The CHFA loans will be offered at .25 percent above the authority's regular rate of 6 percent.

"We have about $15 billion in subprime loans outstanding on Connecticut properties," Rell said. "Many of those homeowners, especially first-time homeowners, are struggling with those payments."

The authority will begin taking applications for the loans Dec. 10, and established a call center at (860) 571-3500 to help interested homeowners determine their eligibility.

Applicants must supply pay stubs, tax returns and other proof of income, said Carol DeRosa, a spokeswoman for the state's housing finance authority.

CHFA's household income limits in Fairfield County are higher than the statewide average of $81,000 for a household of two or less, and $93,150 for a family of three or more.

In Stamford, Norwalk and Greenwich, the income limits are $116,300 for a household of two or less, and $133,745 for a family of three or more.

According to American LoanPerformance, a data and analytics firm serving the mortgage industry, lower Fairfield County has the lowest concentration of subprime loans in the state - 6 percent in the Stamford-Norwalk market compared with 18 percent in Waterbury and 13 percent each in Hartford and Bridgeport.

Penn Johnson of the Stamford Mortgage Co. said many subprime borrowers in the area took "no documentation loans" and may not be eligible for the CHFA program.

"For the borrowers who can legitimately verify income, this is a big help (and) is really going to take the pressure off," Johnson said. "If they can't verify their income, they won't get through the governor's and CHFA's underwriting. And let's face it, the reason there's so many foreclosures is people just exaggerated their income."

The finance authority will review all of an applicant's bills to ensure they can afford the mortgage payments, Rell said.

"Gas, oil, electric, car payments, whatever you have," she said.

The state is trying to avoid foreclosures that land the property in the authority's hands, Rell and King said.

Joan Carty, executive director of the Housing Development Fund in Stamford, which promotes affordable housing in Fairfield County and helps first-time buyers, said she was thrilled by Rell's announcement.

"Our own borrowers have been protected because we'll only place people in 30-year, fixed-rate mortgages," Carty said. "But we're starting to get calls from other agencies or directly from the public. . . . A couple of funders are very much interested in us starting a foreclosure prevention program. You need funding quickly to take people out of bad loans and recast them in loans that are really going to protect them in their homes for the long term."

Norwalk Fair Housing Officer Margaret Suib said the new CHFA program is "a really good start."

"I think the need will be much greater and beyond first-time homeowners," Suib said. "Some people refinanced or were talked into refinancing into these crazy predatory loans. . . . Those people need help, too. In my opinion they were defrauded. They were mislead."

CHFA's refinancing program was recommended by a special task force Rell convened this year to examine how Connecticut could address the subprime crisis. The task force's report is expected in the near future, she said.