Reverse Mortgages

Adds a new Chapter to the Hawaii Revised Statutes regarding
"reverse" mortgages, loans against home equity providing cash
advances to elderly homeowners and requiring no repayment until a
future time, usually until the borrower dies, sells the home, or
permanently moves.

HOUSE OF REPRESENTATIVES                H.B. NO.553        
TWENTIETH LEGISLATURE, 1999                                
STATE OF HAWAII                                            

                   A  BILL  FOR  AN  ACT



 1      SECTION 1.  The intent of this Act is to permit elderly
 2 homeowners to meet their financial needs by accessing the equity
 3 in their homes through a reverse mortgage.  The legislature
 4 recognizes that many restrictions and requirements that have been
 5 enacted to govern traditional mortgage transactions are
 6 inapplicable in the context of reverse mortgages.  In order to
 7 foster reverse mortgage transactions and better service the
 8 elderly residents of this State, this legislature authorizes the
 9 making of reverse mortgages and expressly relieves reverse
10 mortgage lenders and borrowers from compliance with mortgage
11 requirements, as delineated elsewhere in the law, that are
12 inappropriate when applied to reverse mortgages.
13      SECTION 2.  The Hawaii Revised Statutes is amended by adding
14 a new chapter to be appropriately designated and to read as
15 follows:
16                             "CHAPTER
17                       REVERSE MORTGAGES ACT
18        -1  Definitions.  As used in this chapter unless the
19 context otherwise requires:

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 1      "Elder" means a person who is a resident of the State and
 2 has attained the age of sixty-two years.
 3      "Owner-occupant" means that the legal owner of a home is the
 4 occupant of the property, notwithstanding that the legal title to
 5 the property is held in the name of a trust, provided that if the
 6 occupant of the property is a beneficiary of the trust, the
 7 property shall still be deemed to be owner-occupied.
 8      "Reverse mortgage" means a non-recourse loan secured by real
 9 property that:
10      (1)  Provides cash advances to a borrower based on the
11           equity in a borrower's owner-occupied principal
12           residence;
13      (2)  Requires no payment of principal or interest until the
14           entire loan becomes due and payable; and
15      (3)  Is made by any lender authorized to engage in business
16           as a bank, savings institution, mortgage company, or
17           credit union under the laws of the United States or of
18           the State, or any other lender authorized to make
19           reverse mortgage loans by the department of commerce
20           and consumer affairs.
21        -2  Reverse mortgages generally.  Reverse mortgage
22 loans shall be governed by the following rules, without regard to

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 1 the requirements set out elsewhere for other types of mortgage
 2 transactions.
 3      (1)  Prepayment:  Prepayment under a reverse mortgage, in
 4           whole or in part, shall be permitted without penalty at
 5           any time during the period of the loan;
 6      (2)  Intervening loans:  All advances made under a reverse
 7           mortgage and all interest on such advances shall have
 8           priority over any lien filed after the closing of a
 9           reverse mortgage;
10      (3)  Interest:  A reverse mortgage may provide for an
11           interest rate which is fixed or adjustable, and may
12           also provide for interest that is contingent on the
13           value of the property at closing or at maturity, or on
14           changes in value between closing and maturity;
15      (4)  Cost charging:  A reverse mortgage may include costs
16           that are charged at closing on a periodic basis or upon
17           maturity;
18      (5)  Periodic advances:  If a reverse mortgage provides for
19           periodic advances to a borrower, such advances shall
20           not be reduced in amount of number based on any
21           adjustment in the interest rate;

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 1      (6)  Lender default:  Lenders failing to make loan advances
 2           as required in the loan documents and failing to cure
 3           such default after notice as required in the loan
 4           documents shall forfeit any right to collect interest.
 5           Lenders may also be subject to administrative penalty
 6           as determined by the department of commerce and
 7           consumer affairs of this State;
 8      (7)  Special mortgage recording fee:  The special mortgage
 9           recording fee provided for in section 431P-16 and which
10           is recorded in the bureau of conveyances of the State
11           under chapter 502 or filed with the assistant registrar
12           of the land court of the State under chapter 501 on
13           reverse mortgages shall be based on the net present
14           value of credit available to the borrower at closing,
15           that shall be subject to the following conditions:
16           (A)  The present value of credit shall not include any
17                financed or anticipated costs or interest;
18           (B)  The present value of credit shall include the
19                dollar amount of any lump sum advance or available
20                creditline at closing; and
21           (C)  The present value of credit shall include the
22                present value equivalent of any anticipated
23                monthly loan advances as specified by the lender;

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 1      (8)  Repayment: 
 2           (A)  The mortgage may become due and payable only upon
 3                the occurrence of one of the following events:
 4                 (i) The home securing the loan is sold or title
 5                     to the home is otherwise transferred;
 6                (ii) All borrowers permanently cease occupying the
 7                     home as a principal place of residence;
 8               (iii) Any fixed maturity date agreed to by the
 9                     lender and the borrower occurs; or
10                (iv) An event occurs which is specified in the
11                     loan documents and which jeopardizes the
12                     lender's security; and
13           (B)  Repayment shall be subject to the following
14                additional conditions:
15                 (i) Temporary absences from the home not
16                     exceeding sixty consecutive days shall not
17                     cause the mortgage to become due and payable;
18                (ii) Temporary absences from the home exceeding
19                     sixty consecutive days but less than one year
20                     shall not cause the mortgage to become due
21                     and payable so long as the borrower has taken
22                     prior action which secures the home in a
23                     manner satisfactory to the lender;

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 1               (iii) The lender's right to collect reverse mortgag
 2                     e proceeds shall be subject to the applicable
 3                     statute of limitations for loan contracts;
 4                     notwithstanding that the statute of
 5                     limitations shall commence on the date that
 6                     the mortgage becomes due and payable; and
 7                (iv) The lender shall prominently disclose in the
 8                     loan agreement any interest or other fees to
 9                     be charged during the period that commences
10                     on the date that the mortgage becomes due and
11                     payable, and that ends when repayment in full
12                     is made.
13        -3 Inapplicability of other laws.  Reverse mortgage
14 loans may be made or acquired without regard to the following
15 statutory or regulatory provisions for other types of mortgage
16 transactions: 
17      (1)  Limitations on the purpose and use of future advances
18           or any other mortgage proceeds;
19      (2)  Limitations on future advances to a term of years or
20           limitations on the term of credit line advances, or
21           limitations as to a maximum term of the mortgage or
22           deed of trust;

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 1      (3)  Limitations on the term during which future advances
 2           take priority over intervening advances;
 3      (4)  Requirements that a maximum mortgage amount be stated
 4           in the mortgage;
 5      (5)  Limitations on loan-to-value ratios;
 6      (6)  Prohibitions on balloon payments;
 7      (7)  Prohibitions on compounded interest and interest on
 8           interest;
 9      (8)  Interest rate limits under usury statutes;
10      (9)  Requirements that a percentage of the loan proceeds
11           must be advanced prior to the loan assignment;
12     (10)  Requirements that loans offered at adjustable rates
13           must also be offered at fixed rates;
14     (11)  Requirements that obligate lenders to refinance
15           mortgages; and
16     (12)  Requirements that permit borrowers to place limits on
17           lien amounts.
18        -4  Treatment of reverse mortgage loan proceeds by
19 public benefit programs.(a)  Reverse mortgage loan programs
20 made to a borrower shall be treated as proceeds from a loan and
21 not as income for the purpose of determining eligibility and
22 benefits under means-tested programs of aid to individuals.

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 1      (b)  Undisbursed reverse mortgage funds shall be treated as
 2 equity in the borrower's home and not as proceeds from a loan,
 3 resources, or assets for the purpose of determining eligibility
 4 and benefits under means-tested programs of aid to individuals.
 5      (c)  This section applies to any law or program relating to
 6 payments, allowances, benefits, or services provided on a means-
 7 tested basis by this State, including but not limited to
 8 supplemental security income, low-income energy assistance,
 9 property tax relief, medical assistance, and general assistance.
10        -5  Consumer education and counseling.(a)  No reverse
11 mortgage commitment shall be made by a lender unless the loan
12 applicant attests in writing that the applicant received from the
13 lender at the time of initial inquiry a statement prepared by the
14 department of commerce and consumer affairs regarding the
15 advisability and availability of independent information and
16 counseling services.
17      (b)  The department of commerce and consumer affairs shall
18 be responsible for:
19      (1)  Developing the content and format of the statement
20           described in subsection (a) within sixty days of the
21           enactment of this chapter;

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 1      (2)  Providing independent consumer information on reverse
 2           mortgages and their alternatives; and
 3      (3)  Referring customers to independent counseling services
 4           with expertise in reverse mortgages."
 5      SECTION 3.  This Act shall take effect upon its approval.
 7                           INTRODUCED BY:  _______________________