By State Representative Marilyn Giuliano
Residential mortgage foreclosures in Connecticut are rising, along with mortgages in delinquency or pre-foreclosure. In Connecticut and the nation, homeowners have found that their mortgage payments are rising faster than their incomes can support. A root cause is the recent conduct of the subprime mortgage industry.
Subprime mortgages are high cost loans developed for borrowers with poor credit. By definition, these loans carry a higher than average rate of default.
Over the years, the subprime mortgage industry has actually created incentives for reckless risk-taking. One of these changes was securitization. Prior to securitization, lenders handled and oversaw all parts of the lending process. Lenders solicited loan applicants, underwrote the loans, funded them, serviced them and held them in portfolios. If a loan went bad, it was the lender who bore the loss.
Securitization turned this process inside-out. Called ‘unbundling’, securitization allowed for parts of the lending process to be outsourced. Instead of making money from interest payments, lenders sold their loans and collected upfront fees from borrowers. Once sold, it was now the investor–not the lender– who assumed the risk if a loan went bad. Lenders also liked being paid in advance rather than having to wait for monthly payments over the life of the loan. These actions, however, greatly increased the risks to borrowers and investors.
The outsourcing of mortgage loans and the built-in absence of oversight due to outsourcing came at a cost. Consumers became financially stretched as adjustable subprime loans rates reset and caused borrowers’ monthly mortgage payments to soar.
With so many families facing foreclosure, the Connecticut legislature enacted mortgage assistance programs to restructure home debt and keep families in their homes. Mortgage modifications, delinquency repayment plans and direct mortgage assistance are in place to provide an important safety net to families during this national recession.
The Connecticut Department of Banking and the Connecticut Housing Finance Authority (CHFA) offer new and expanded programs to help families remain in their homes.
The Connecticut Fair Alternative Mortgage Lending Initiative and Education Services (CTFAMLIES ) offers mortgage refinancing services to those homeowners struggling with adjustable rate resets and high interest mortgages. CT FAMLIES enables homeowners in the beginning stages of mortgage delinquency to refinance their home debt. In addition, CHFA has received federal funds through National Foreclosure Mitigation Counseling grants to help homeowners seeking to prevent foreclosure.
In an uncertain economy, these federal and state programs are important initiatives to restore our community and state economic strength, and serve to protect families and homeownership in this period of recession.
A Foreclosure Prevention Workshop will be held Saturday, February 14, 2009 from 10:00 a.m. to 4:00 p.m. at the CT Convention Center in Hartford where borrowers can learn about the options that may be available. For more information, go to http://www.theinformedhomebuyer.org or call 1-800-882-1600
State Rep. Marilyn Giuliano represents the towns of Lyme, Old Lyme, Old Saybrook and Westbrook in the Connecticut General Assembly.