Connecticut Mortgage Brokers to Abide By New Federal Guidelines

The Connecticut Department of Banking has adopted guidelines for state-licensed mortgage brokers intended to help educate consumers about non-traditional mortgage loans.

They pertain mainly to the marketing of interest-only and option ARM loans, the Constitution State’s Deputy Banking Commissioner, Alan Eicchetti, told the New Haven Register.

The guidelines detail various risks and qualifications, among other data, pertaining to the increasingly-popular high-risk mortgages, which present borrowers with the greatest likelihood of problems.

While non-traditional mortgage loans can be a smart investment for certain borrowers, people should be aware of all inherent risks and components before deciding on a mortgage. An interest-only mortgage, for instance, doesn’t build any equity for a set period of time.

Moreover, an option ARM can even result in negative amortization, as borrowers are given a set of choices as to how much they want to pay each month. Many elect to pay too little.

For the first time, the newly-enacted guidelines give all state-licensed brokers a set of uniform recommendations for marketing such Connecticut mortgages to the public.

“(They) give advice to people that underwrite these loans,” Eicchetti said. “The intended result is to better educate borrowers. “This is an effort to help consumers.”

The newly adopted state guidelines largely mirror federal ones adopted in October.

The Conference of State Bank Supervisors and the American Association of Residential Mortgage Regulators introduced federal guidelines last month, but those pertain only to federally regulated financial institutions. The Connecticut state guidelines apply to any state-licensed mortgage broker at an insured financial institutions and their affiliates.

“These guidelines are designed to level the playing field in the mortgage market in order to protect consumers from taking on high-risk mortgages without having a full understanding of the terms of such loans,” state Banking Commissioner Howard F. Pitkin said in a written statement.

All states are being urged to adopt guidelines that mirror the federal ones already in place, ensuring consumers will be equally protected by all 50 U.S. states, and that mortgage underwriting everywhere will be subject to similar standards.