REPORT TITLE:
Mortgage Refinancing


DESCRIPTION:
Requires financial institutions to refinance a mortgage note for
a mortgagor who becomes unemployed or underemployed.

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
                                                        
THE SENATE                              S.B. NO.           2105
TWENTIETH LEGISLATURE, 2000                                
STATE OF HAWAII                                            
                                                             
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                   A  BILL  FOR  AN  ACT

RELATING TO LOW INCOME HOUSING MORTGAGES. 


BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF HAWAII:

 1      SECTION 1.  The legislature finds that unemployment and
 
 2 underemployment have created too many low income families who are
 
 3 experiencing foreclosure actions because of their inability to
 
 4 make monthly payments.  The legislature further finds that ever
 
 5 increasing foreclosure actions prevent our State from achieving
 
 6 economic recovery.  The legislature further finds that financial
 
 7 institutions should take responsibility and help families through
 
 8 these difficult economic times.  
 
 9      The purpose of this Act is to require financial institutions
 
10 to restructure a first mortgage loan when a mortgagor becomes
 
11 unemployed or underemployed.
 
12      SECTION 2.  Section 412:5-302, Hawaii Revised Statutes, is
 
13 amended to read as follows:
 
14      "412:5-302  Limitations on loans and extensions of credit
 
15 to one borrower.  (a)  No bank shall permit a person to become
 
16 indebted or liable to it, either directly or indirectly on loans
 
17 and extensions of credit, in a total amount outstanding at any
 
18 one time in excess of twenty per cent of the capital and surplus
 
19 of the bank.
 

 
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 1      (b)  This section applies to all loans and extensions of
 
 2 credit made by a bank and its subsidiaries.  It does not apply to
 
 3 loans and extensions of credit made by a bank or its subsidiaries
 
 4 to its affiliates or subsidiaries.
 
 5      (c)  The limitations set forth in this section shall not
 
 6 apply to:
 
 7      (1)  A bank's eligible acceptances as described in section
 
 8           412:5-204(b);
 
 9      (2)  A bank's purchase or discount of another bank's
 
10           acceptances of the kinds described in section 13 of the
 
11           Federal Reserve Act;
 
12      (3)  A bank's deposits with a Federal Reserve Bank, Federal
 
13           Home Loan Bank or another depository institution made
 
14           in compliance with this chapter;
 
15      (4)  A bank's sale of federal funds to another depository
 
16           institution with a maturity of one business day or
 
17           under a continuing contract;
 
18      (5)  Loans and extensions of credit secured by the interest-
 
19           bearing obligations of the United States or those for
 
20           which the faith and credit of the United States are
 
21           distinctly pledged to provide for the payment of the
 
22           principal and interest thereof or of the State or any
 
23           county or municipal or political subdivision of this
 

 
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 1           State, issued in compliance with the laws of this
 
 2           State, where the market value of the security shall be
 
 3           at any time not less than one hundred five per cent of
 
 4           the face amount of the loans and extensions of credit;
 
 5      (6)  Loans and extensions of credit to the extent secured by
 
 6           a pledge or security interest in a deposit account in
 
 7           the lending bank; and
 
 8      (7)  Loans and extensions of credit arising from the
 
 9           discount of negotiable or nonnegotiable credit sales
 
10           contracts which carry a partial recourse endorsement or
 
11           limited guarantee by the person transferring the credit
 
12           sales contracts, if the bank's respective file or the
 
13           knowledge of its officers of the financial condition of
 
14           each maker of such credit sales contract is reasonably
 
15           adequate, and an officer of the bank certifies in
 
16           writing that the bank is relying primarily upon the
 
17           responsibility of each maker for payment of such credit
 
18           sales contract and not upon any partial recourse
 
19           endorsement or limited guarantee by the transferor.
 
20           Under these circumstances, such credit sales contract
 
21           will be considered a loan and extension of credit to
 
22           the maker of the credit sales contract rather than the
 
23           seller of the credit sales contract.
 

 
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                                     S.B. NO.           2105
                                                        
                                                        

 
 1      (d)  In computing the total loans and extensions of credit
 
 2 made by a bank to any person, all loans and extensions of credit
 
 3 by the bank to the person and to any partnership, joint venture,
 
 4 or unincorporated association of which the person is a partner or
 
 5 a member shall be included unless the person is a limited
 
 6 partner, but not a general partner, in a limited partnership, or
 
 7 unless the person is a partner in a limited or general
 
 8 partnership, or a member of a joint venture or unincorporated
 
 9 association, if such partner or member, by law, by the terms of
 
10 the partnership, joint venture, or membership agreement, or by
 
11 the terms of an agreement with the bank, is not to be held liable
 
12 to the bank for the debts of the partnership, joint venture or
 
13 association.  In computing the total loans and extensions or
 
14 credit made by a bank to any firm, partnership, joint venture, or
 
15 unincorporated association, all loans and extensions of credit to
 
16 its individual partners or members shall be included unless such
 
17 individual partner is a limited partner, but not a general
 
18 partner, in a limited partnership, or unless such individual
 
19 partner or member, by law, by the terms of the partnership, joint
 
20 venture, or membership agreement, or by the terms of an agreement
 
21 with the bank, is not to be held liable to the bank for the debts
 
22 of the partnership, joint venture, or association.
 
23      (e)  Alternatively, a bank may, with the prior approval of
 
24 the commissioner, comply with the lending limits applicable to
 

 
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                                     S.B. NO.           2105
                                                        
                                                        

 
 1 national banking associations, as and to the same extent it
 
 2 would, at the time, be so required by federal law or regulation
 
 3 if it were a national banking association.  In monitoring a
 
 4 bank's compliance with the national banking association lending
 
 5 limits, the commissioner shall give substantial weight to the
 
 6 Office of the Comptroller of the Currency's regulations and
 
 7 opinions interpreting the national banking association lending
 
 8 limits and will regard them as strong evidence of safe and sound
 
 9 banking practices. 
 
10      (f)  A bank shall restructure a first mortgage note for a
 
11 mortgagor who becomes unemployed or underemployed, subject to
 
12 these conditions:
 
13      (1)  The restructuring period shall not exceed five years;
 
14      (2)  The new mortgage payment shall not be more than thirty
 
15           per cent of the total family household income; and 
 
16      (3)  Household income shall exclude part-time student
 
17           income.
 
18 The mortgagor shall submit proof of unemployment furnished by the
 
19 state department of labor and industrial relations.  In the case
 
20 of underemployment, the mortgagor shall furnish proof that the
 
21 mortgagor's annual income has been reduced by     per cent when
 
22 compared to the income the mortgagor indicated in obtaining the
 
23 first mortgage."
 

 
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                                     S.B. NO.           2105
                                                        
                                                        

 
 1      SECTION 2.  Section 412:6-302, Hawaii Revised Statutes, is
 
 2 amended to read as follows:
 
 3      "412:6-302  Requirements and limits for certain loans.  (a)
 
 4 Not less than fifty per cent of the amount of loans and
 
 5 extensions of credit made by a savings bank shall be in loans and
 
 6 extensions of credit secured by real estate.
 
 7      (b)  The aggregate amount loaned by any savings bank for the
 
 8 following types of loans, whether secured or unsecured, shall not
 
 9 exceed the following limits:
 
10      (1)  Commercial loans:  fifteen per cent of the savings
 
11           bank's total assets.  For purposes of this section
 
12           "commercial loan" means any loan primarily for
 
13           business, corporate, commercial, or agricultural
 
14           purposes where the savings bank substantially relies on
 
15           the borrower's general credit standing for repayment of
 
16           the loan and, if the loan is secured by real property,
 
17           does not primarily rely on the value of or income or
 
18           projected income from the security for repayment of the
 
19           loan; and
 
20      (2)  Education loans:  ten per cent of the savings bank's
 
21           total assets.  For purposes of this section, "education
 
22           loan" means any loan the proceeds of which are used to
 
23           pay for tuition, fees, books, and other expenses
 

 
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                                     S.B. NO.           2105
                                                        
                                                        

 
 1           related to primary, secondary, vocational, and
 
 2           undergraduate and postgraduate college or university
 
 3           education.
 
 4      (c)  A savings bank may reclassify or apportion a loan from
 
 5 one category to another in this section.
 
 6      (d)  A savings bank shall restructure a first mortgage note
 
 7 for a mortgagor who becomes unemployed or underemployed, subject
 
 8 to these conditions:
 
 9      (1)  The restructuring period shall not exceed five years;
 
10      (2)  The new mortgage payment shall not be more than thirty
 
11           per cent of the total family household income; and
 
12      (3)  Household income shall exclude part-time student
 
13           income.
 
14 The mortgagor shall submit proof of unemployment furnished by the
 
15 state department of labor and industrial relations.  In the case
 
16 of underemployment, the mortgagor shall furnish proof that the
 
17 mortgagor's annual income has been reduced by     per cent when
 
18 compared to the income the mortgagor indicated in obtaining the
 
19 first mortgage."
 
20      SECTION 3. Section 412:7-302, Hawaii Revised Statutes, is
 
21 amended to read as follows:
 
22      "412:7-302  Requirements and limits for certain loans.  (a)
 
23 Not less than sixty per cent of the amount of loans and
 

 
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                                     S.B. NO.           2105
                                                        
                                                        

 
 1 extensions of credit made by a savings and loan association shall
 
 2 be in loans and extensions of credit secured by real estate.
 
 3      (b)  The aggregate amount loaned by any savings and loan
 
 4 association for the following types of loans, whether secured or
 
 5 unsecured, shall not exceed the following limits:
 
 6      (1)  Commercial loans:  twelve and one-half per cent of the
 
 7           savings and loan association's total assets.  For
 
 8           purposes of this section "commercial loan" means any
 
 9           loan primarily for business, corporate, commercial, or
 
10           agricultural purposes where the savings and loan
 
11           association substantially relies on the borrower's
 
12           general credit standing for repayment of the loan and,
 
13           if the loan is secured by real property, does not
 
14           primarily rely on the value of or income or projected
 
15           income from the security for repayment of the loan;
 
16      (2)  Education loans:  five per cent of the savings and loan
 
17           association's total assets.  For purposes of this
 
18           section, "education loan" means any loan the proceeds
 
19           of which are used to pay for tuition, fees, books, and
 
20           other expenses related to primary, secondary,
 
21           vocational and undergraduate and postgraduate college
 
22           or university education;
 
23      (3)  Unsecured construction loans:  five per cent of the
 
24           savings and loan association's total assets.  For
 

 
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                                     S.B. NO.           2105
                                                        
                                                        

 
 1           purposes of this section, "unsecured construction loan"
 
 2           means any loan to provide financing for what is
 
 3           expected to be residential real estate and where the
 
 4           savings and loan association relies primarily on the
 
 5           borrower's general credit and projected future income,
 
 6           if any, from such completed construction.
 
 7      (c)  A savings and loan association may reclassify or
 
 8 apportion a loan from one category to another in this section.
 
 9      (d)  A savings and loan association shall restructure a
 
10 first mortgage note for a mortgagor who becomes unemployed or
 
11 underemployed, subject to these conditions:
 
12      (1)  The restructuring period shall not exceed five years;
 
13      (2)  The new mortgage payment shall not be more than thirty
 
14           per cent of the total family household income; and
 
15      (3)  Household income shall exclude part-time student
 
16           income.
 
17 The mortgagor shall submit proof of unemployment furnished by the
 
18 state department of labor and industrial relations.  In the case
 
19 of underemployment, the mortgagor shall furnish proof that the
 
20 mortgagor's annual income has been reduced by     per cent when
 
21 compared to the income the mortgagor indicated in obtaining the
 
22 first mortgage."
 
23      SECTION 4.  Section 412:9-405, Hawaii Revised Statutes, is
 
24 amended to read as follows:
 

 
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                                     S.B. NO.           2105
                                                        
                                                        

 
 1      "412:9-405  Loans and extensions of credit fully secured by
 
 2 real property.  (a)  For loans and extensions of credit fully
 
 3 secured by real property other than unimproved raw land, a
 
 4 depository financial services loan company may advance, directly
 
 5 or indirectly, up to and including ninety-five per cent of the
 
 6 appraised value or real property evaluation required under the
 
 7 Federal Deposit Insurance Act and the rules and regulations of
 
 8 the Federal Deposit Insurance Corporation of the real property
 
 9 securing the loan and extension of credit.  The principal amount
 
10 of the loan and extension of credit shall be added together with
 
11 the outstanding balances of all prior liens on the real property
 
12 to determine the ninety-five per cent loan-to-value ratio.
 
13      (b)  For loans and extensions of credit fully secured by
 
14 mortgages on unimproved raw land, the maximum loan-to-value ratio
 
15 shall not exceed seventy per cent of the appraised value or real
 
16 property evaluation required under the Federal Deposit Insurance
 
17 Act and the rules and regulations of the Federal Deposit
 
18 Insurance Corporation of the unimproved raw land.  Parcels of
 
19 land with direct access by road and served by electric power
 
20 shall not be deemed unimproved raw land.
 
21      (c)  Notwithstanding [the provisions of] subsections (a) and
 
22 (b), depository financial services loan companies, which make
 
23 loans fully secured by real property in excess of twenty per cent
 

 
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                                     S.B. NO.           2105
                                                        
                                                        

 
 1 of their capital and surplus, shall obtain appraisals of the real
 
 2 property securing those loans. 
 
 3      (d)  A financial services loan company shall restructure a
 
 4 first mortgage note for a mortgagor who becomes unemployed or
 
 5 underemployed, subject to these conditions:
 
 6      (1)  The restructuring period shall not exceed five years;
 
 7      (2)  The new mortgage payment shall not be more than thirty
 
 8           per cent of the total family household income; and
 
 9      (3)  Household income shall exclude part-time student
 
10           income.
 
11 The mortgagor shall submit proof of unemployment furnished by the
 
12 state department of labor and industrial relations. In the case
 
13 of underemployment, the mortgagor shall furnish proof that the
 
14 mortgagor's annual income has been reduced by     per cent when
 
15 compared to the income the mortgagor indicated in obtaining the
 
16 first mortgage."
 
17      SECTION 5.  Section 412:10-409, Hawaii Revised Statutes, is
 
18 amended to read as follows:
 
19      "412:10-409  Real estate mortgage loans.  (a)  The amount
 
20 of any credit union loan secured by a mortgage on real property
 
21 shall be limited to the following percentages of the appraised
 
22 value of the property:
 
23      (1)  Ninety per cent of the value of any residential real
 
24           property; and
 

 
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                                     S.B. NO.           2105
                                                        
                                                        

 
 1      (2)  Eighty per cent of the value of any non-residential
 
 2           real property.
 
 3 The principal amount of the loan shall be added together with the
 
 4 outstanding balances of all prior liens on the real property to
 
 5 determine the loan to value ratio.
 
 6      (b)  The amount of a loan secured by residential real
 
 7 property may be increased by the unencumbered share or deposit
 
 8 balances of the borrowing member that are pledged to the loan.
 
 9      (c)  Loans secured by real property other than residential
 
10 real property shall provide for the regular reduction of
 
11 principal.
 
12      (d)  For loans secured by real property, the credit union
 
13 may require the borrower to make regular deposits for the payment
 
14 of insurance, taxes, and other expenses assessed against the
 
15 property.
 
16      (e)  A credit union shall restructure a first mortgage note
 
17 for a mortgagor who becomes unemployed or underemployed, subject
 
18 to these conditions:
 
19      (1)  The restructuring period shall not exceed five years;
 
20      (2)  The new mortgage payment shall not be more than thirty
 
21           per cent of the total family household income; and
 
22      (3)  Household income shall exclude part-time student
 
23           income.
 

 
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                                     S.B. NO.           2105
                                                        
                                                        

 
 1 The mortgagor shall submit proof of unemployment furnished by the
 
 2 state department of labor and industrial relations.  In the case
 
 3 of underemployment, the mortgagor shall furnish proof that the
 
 4 mortgagor's annual income has been reduced by     per cent when
 
 5 compared to the income the mortgagor indicated on obtaining the
 
 6 first mortgage."
 
 7      SECTION 6.  Statutory material to be repealed is bracketed.
 
 8 New statutory material is underscored.
 
 9      SECTION 7.  This Act shall take effect upon its approval.
 
10 
 
11                           INTRODUCED BY:  _______________________