MAYOR IMPLEMENTS POLICY PROTECTING NEW HOMEBUYERS

 FROM PREDATORY LENDING

---NEWS RELEASE---

(October 15, 2007)--- Mayor Eddie A. Perez has put a policy in place to protect first time homebuyers from predatory lending, including abusive sub-prime lending.  Recent real estate trends have shown an increase in home foreclosures nationwide. Too often these foreclosures are the consequence of predatory lending.

Mayor Perez says, “Hartford has 1350 new homeowners since 2002 and we don’t want to threaten that momentum.  Nor do we want to risk the gains our residents have made in regards to accumulating wealth through homeownership.  City funds will not be used to support irresponsible sub-prime lending.”

Although sub-prime lending provides a needed source of financing to borrowers with a blemished credit record, certain practices have been identified as having a high potential for lender abuse.  These include the charging of excessive fees and points, and inadequate borrower choice about mortgage terms, such as prepayment penalties.

In an attempt to fight predatory lending and reduce the risk of home foreclosures, the City of Hartford has established the following standards for purchase (first-lien) mortgages, which are supported by subordinate liens under the “HouseHartford” and the “Appraised Gap Financing” homebuyer assistance programs and for other City funded programs or projects:

1.       Predatory lending practices and abusive sub-prime mortgages are prohibited

2.       Lenders must make best efforts to place borrowers in least risky, most sustainable and most affordable loan product that is appropriate for the customer’s financial situation

3.       Purchase mortgages must be conventional (fixed-rate) or responsible sub-prime loans

4.       Lenders must provide evidence that they are direct Fannie Mae lending partners or Freddie Mac approved lenders (Both companies have assumed leadership role in the secondary market industry by implementing higher underwriting standards)

5.       Originated mortgages must be eligible for purchase by Fannie Mae or Freddie Mac

6.       Mortgages with balloon payments, interest only or interest first provisions, and those that allow for no-income no-asset, or stated income-stated asset features are prohibited

7.       Prepayment penalty terms must not exceed three years and must how specific benefit to borrower

8.       Adjustable rate mortgages are prohibited unless borrowers are qualified at the fully-indexed or fully amortizing rate

9.       Lenders must agree to maintain foreclosure prevention practices that meet or exceed the standards set by Fannie Mae or Freddie Mac

10.   Potential homebuyers must complete an 8-hour Homebuyer Education class by an approved city provider (see below)

11.   Lenders, developers, and homebuyers must acknowledge compliance to this policy

Homebuyer Education Directory for Hartford:

Urban League:                          (860) 527-0147 x172

Co-opportunity:                          (860) 236-3617 x114

HART:                                     (860) 525-3449

Mutual Housing:                        (860) 296-1797

Blue Hills Civic Association:       (860) 769-3848

Christian Activities Council:        (860) 527-9860

To learn more about predatory lending and abusive sub-prime loans:

Mortgage Bankers Association of America:

http://www.stopmortgagefraud.com/

Fannie Mae:

http://www.fanniemae.com/index.jhtml

Freddie Mac:

http://www.freddiemac.com/index/html

Connecticut Department of Banking: