The foreclosure crisis has made national headlines, but the federal government has “failed in its obligation to address this crisis,” Attorney General Richard Blumenthal said Wednesday. And this is why a number of proposals to address the increase in mortgage foreclosures, subprime loans, and predatory lending practices will be addressed at the state level this year.
Senator Martin Looney, a Democrat from New Haven, said the number of adjustable rate mortgages and related foreclosures will increase over time because a number of adjustable rate loans were taken out in 2006 and 2007.
According to the Connecticut Fair Housing Center, there were 7,747 foreclosure filings in the third quarter of 2007, which represents a 920 percent increase over the third quarter of 2006. Almost 90 percent of the subprime loans in Connecticut are adjustable rate mortgages. These subprime loans accounted for 7 out of 10 foreclosures in 2007.
The significant spike in foreclosures is “why the we need to take action at the state level,” Looney said.
Gov. M. Jodi Rell’s “CT Families” $50 million refinancing program for borrowers with a subprime loan is too restrictive, Blumenthal said Wednesday. He said since the program was started in November 2007 it has only helped 25 families. He said the problem with the program is that in order to refinance the homeowner can’t have any credit problems, which is unreasonable for almost anyone in this situation.
Blumenthal said he will propose something like what the federal government did during the Great Depression. He said back then the government bought mortgages in default at steep discounts and then helped homeowners refinance them so they could stay in their homes.
Some of the proposed legislation includes bans on certain loan terms that greatly increase default, such as prepayment penalties and balloon payments. There’s also a proposal to make escrow of property taxes and homeowner’s insurance mandatory.
Click hereto read a number of stories from individuals caught up in the crisis and the story of one family who narrowly escaped an adjustable rate mortgage.