Sen. Kane Works to Reduce Economic Impact of Sub-Prime Lending Crisis

May 12, 2008

State Senator Rob Kane (R-32), ranking member on the General Assembly’s Banks Committee, today hailed passage of a mortgage reform bill aimed at mitigating the economic impact of the sub-prime lending crisis in Connecticut. The legislation, HB 5577, creates two programs to help homeowners avoid foreclosure. The bill authorizes the state to buy mortgages and place eligible borrowers on an affordable repayment plan. It will also help protect people with poor credit from purchasing loans they cannot repay.

“The sub-prime lending crisis is a major contributing factor to the current economic downturn,” said Senator Kane. “I am pleased Connecticut is taking a leading role in addressing this crisis, and we are doing it in a way that is fair to lenders, fair to homeowners facing foreclosure, and most importantly, fair to Connecticut taxpayers.”

HB 5577, an Act Concerning Responsible and Economic Security, is now on the way to Governor M. Jodi Rell’s desk. Among other things, it creates the Homeowners’ Equity Recovery Opportunity (HERO) program through which the state can purchase mortgages directly from lenders. Eligible owner-occupants of one-to-four family residences, including condominiums will then repay the state, with the HERO loan in the first lien position.

“It is important to note, I would not have supported a public bailout of people who got into loans they knew they could never repay,” said Senator Kane, who worked with the Democratic chairmen of the Banks Committee to craft compromise legislation. Under HB 5577, eligible borrowers must have made an effort to meet their financial obligations to the best of their ability; must have sufficient and stable income to support timely repayment of a HERO loan; must have legal title to the mortgaged property and reside in it as a permanent resident; and must have the ability to account for cash flow if they have stopped making monthly payments by showing how the funds were escrowed, saved or redirected. Furthermore, the legislation includes additional provisions for mortgage and housing programs.

“This bill is not a public bailout. It is a responsible and necessary reaction to a problem that affects every aspect of our state and national economy . This bill will help clean-up the problems caused by the bad loans and bad decisions made in recent years. But, more importantly, by tightening lending restrictions and holding mortgage brokers to the same high standards as banks, this bill will help Connecticut avoid a similar crisis in the future,” said Senator Kane.