12 Nov Connecticut Takes Baby Step on SubPrime Mortgages
Connecticut ‘s Governor Rell announced the first product of her commission on the sub-prime mortgages. The commission recommended a special program for first-time homeowners with sub-prime mortgages. Under the program, low- and moderate-income consumers will receive special rates on a refinance of a sub-prime mortgage provided they are fully qualified. Foreclosure rates in the inner cities where most low and moderate income families live have increased 450% to 550% in the first half of 2007.This very small step will assist some first-time homeowners to keep their homes, but to qualify certain restrictions will apply. If the appraised value of the home is less than what is owed, borrowers may obtain a second mortgage loan to make up the difference. Since there is no adjustment of the original amount owed, there may be very little incentive to continue paying on a home when the value is continuing to drop and the amount owed has not changed. While $55 million is allocated for the program, less than $5 million is available for the second mortgages, meaning very few will receive the full benefit of a refinance. The rates are fixed at 6.5%, but the small amount of money available and the restrictions on income and credit assure that the program will not have a large effect on foreclosures in Connecticut cities.