In  rush to somehow aide families who might be facing a foreclosure on their homes, State Senator Bob Duff has crafted a bill to combat the financial crisis. So who does it really help? Let’s take a look.

Establishes the Homeowner’s Equity Recovery Opportunity Loan (HERO) program through the Connecticut Housing Finance Authority (CHFA). It authorizes CHFA to use $30 million in existing bonds to purchase mortgages directly from lenders and place eligible borrowers on an affordable payment schedule for a 30-year fixed-rate mortgage. To qualify for HERO assistance, borrowers must have made an effort to meet financial obligations, have a sufficient and stable income, have the legal title to the mortgaged property and reside in it as their permanent residence, show an accounting for their cash flow and agree to attend in-person financial counseling at a CHFA approved agency.

Mortgage lenders made decisions  to loan money with terms that left the lenders susceptible to default. That’s the way the market should work.  As long as their is someone to bail out poor loans, the lenders will have no incentive to make loans with terms that are sustainable. Cloaking CHAFA as the bail out providor makes it sound like its helping the borrower, its not. The mortage lender could, like they do for business loans reset the terms so that there’s a workout that makes sense.

Reinvests in the state’s emergency mortgage assistance program (EMAP) for borrowers facing foreclosure

Seems reasonable.

Continuation of the $40 million CT FAMILIES assistance program

Ditto.

Empowers CHFA develop a program to purchase foreclosed residential property for the purpose of providing affordable and supportive housing.

So how exactly does this work? Is there a work down price that these properties are being purchased at, or is this another bail out of the mortgage holder?

Creates a foreclosure mediation program within the state Judicial Branch.

This sounds good, since out of state mortgage holders often have little paperwork relating to the loans they hold. The workout should be between the mortaged holder and the homeowner.

Establishes a mortgage crisis job training program at Workplace Inc., in association with other regional workforce development boards and one-stop centers.

Who needs the crisis training here?

Defines “nonprime loans” and imposes new restrictions and licensing requirements on mortgage lenders and brokers.

Sure, there should be some checks and balances in the system. But how about going farther and having term sheets in English that spell out what the payment is, what the interest rate is and what the penalties are. No fine print allowed.

Gives the commissioner of the state Department of Banking additional responsibilities
Allows the commissioner to participate in the Nationwide Mortgage Licensing System.

Not sure what these do, but they are there for your perusal.

So there you have it, essentially a way for bad loans to get bought relieving lenders from the losses they would actually incur if the loans were paid out out of foreclosure funds. Some will look at this as a way to preserve homeownership. I see it more as a way to keep people in a permanent underclass of bad economic decisions. There are some good parts to the bill, but propping up the mortgage industry isn’t a good use of taxpayer bonding dollars.