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Governor Rell Convenes Sub-Prime Mortgage Task Force
Thousands of Connecticut Families Affected – Many Facing Foreclosure

April 10, 2007

Governor M. Jodi Rell today announced that she will convene a task force of banking and mortgage experts to examine and make recommendations regarding the issue of sub-prime lending in Connecticut. There are approximately $8.1 billion in sub-prime loans currently outstanding on Connecticut properties and nearly 10 percent of those loans are past due affecting thousands of homeowners.  Determining the exact number of potential foreclosures in Connecticut will be part of the task force’s charge.

“Over the past few years there has been a huge increase in adjustable rate mortgages that featured low initial rates for a few years, but were then adjusted upward, often doubling or tripling monthly mortgage payments,” Governor Rell said. “As a result, a significant and increasing number of these mortgages are currently in foreclosure and many families are facing hardship and possibly the loss of their homes.”

“We need to identify the scope of the problem in Connecticut to determine how these families may be helped.  Many lenders wrote mortgages requiring no down payment, using less stringent underwriting criteria than traditional mortgages. For many homebuyers with past credit issues, these sub-prime mortgages were their only path to homeownership. Many planned to re-finance to conventional, fixed-rate mortgages when their homes appreciated in value. Unfortunately, homes did not increase in value in many Connecticut markets.”

The Governor charged the group with completing a definitive analysis of the entire issue, including the number of families currently holding sub-prime mortgages, the number in foreclosure, the opportunities for re-financing, and what kind of assistance or guidance may be available to affected families.

The record expansion of credit over the past several years resulted in new mortgage products known as “hybrid adjustable rate mortgages.” These feature low “teaser” rates for the first two or three years, but then the rates are adjusted upward, greatly increasing the original mortgage payment.  In addition, many loans were written based on the borrower’s ability to pay the initial rate, without consideration of their ability to pay at the adjusted rate a few years down the road. Some were also underwritten based on “stated income” which was not verified by the lender.

The Governor noted that U.S. Senator Christopher J. Dodd is examining the issue of sub-prime lending at the federal level as chairman of the Banking, Housing and Urban Affairs Committee. The governor expects the work of her new task force to complement the efforts being undertaken by Senator Dodd.

Governor Rell has invited officials from the Connecticut Department of Banking, the Department of Consumer Protection, FHA, VA, HUD, FNMA, FreddieMac, the Connecticut Mortgage Association, the Connecticut Bankers Association, CHFA, realtors, brokers and mortgages lenders to define the extent of Connecticut’s problem. Banking Commissioner Howard Pitkin and Gary King, President of CHFA will co-chair the task force. The group will hold their first meeting the first week of May. They will prepare and submit a report to Governor Rell with their findings and recommendations.