STAND. COM. REP. NO.1199

Honolulu, Hawaii

, 2003

RE: H.B. No. 1438

H.D. 2

S.D. 1

 

 

Honorable Robert Bunda

President of the Senate

Twenty-Second State Legislature

Regular Session of 2003

State of Hawaii

Sir:

Your Committee on Commerce, Consumer Protection and Housing, to which was referred H.B. No. 1438, H.D. 2, entitled:

"A BILL FOR AN ACT RELATING TO HOME LOAN PROTECTION,"

begs leave to report as follows:

The purpose of this measure is to prohibit predatory lending practices.

Testimony in support of this measure was submitted by the Hawaii Coalition for Responsible Lending, Legal Aid Society of Hawaii, and Kokua Council. Opposing testimony was submitted by the Mortgage Bankers Association of Hawaii, Chamber of Commerce of Hawaii, Hawaii Financial Services Association, American Financial Services Association, Hawaii Association of Realtors, Hawaii Credit Union League, Hawaii Bankers Association, Hawaii Association of Mortgage Brokers, ILWU Local 142, and an individual. The Department of Commerce and Consumer Affairs submitted comments on the measure.

This measure establishes the Hawaii Home Loan Protection Act to prohibit predatory lending practices by mortgage brokers in the brokering of home loans. These practices include the brokering of a home loan without regard to the borrower's repayment ability or receipt of loan counseling, loan flipping, and brokering loans that include provisions for default interest rates, the financing of credit insurance premiums, mandatory arbitration, and certain prepayment and late fees.

This measure establishes a range of prohibited mortgage brokering practices and applies to any entity that brokers a loan for a fee. The measure also requires disclosure to borrowers, establishes a fiduciary duty from the broker to the borrower, and deems a violation of the Home Loan Protection Act an unfair and deceptive trade practice under section 480-2, Hawaii Revised Statutes (HRS).

Your Committee has amended this measure by replacing its contents with language that establishes the prohibition against predatory lending practices within the law regulating mortgage brokers and solicitors, chapter 454, HRS. As amended, the measure:

(1) Does not apply to banks, credit unions, financial services loan companies, real estate brokers, and other entities exempt from the requirements of chapter 454, HRS;

(2) Provides that the majority of the lending prohibitions apply to high cost home loans, rather than to all home loans;

(3) Does not require borrower disclosure;

(4) Does not establish a fiduciary duty from the broker to the borrower;

(5) Does not establish additional remedies or expressly provide that a violation of the brokering prohibitions constitutes a violation of section 480-2, HRS; and

(6) Takes effect on July 1, 2003, rather than on July 1, 2099.

Your Committee believes that this measure, as amended, balances consumer protection interests against the interests of maintaining a viable subprime lending market. Your Committee further believes that this measure is a work-in-progress and that continued discussion is necessary to address several unresolved issues, including the matter of federal preemption in this area.

As affirmed by the record of votes of the members of your Committee on Commerce, Consumer Protection and Housing that is attached to this report, your Committee is in accord with the intent and purpose of H.B. No. 1438, H.D. 2, as amended herein, and recommends that it pass Second Reading in the form attached hereto as H.B. No. 1438, H.D. 2, S.D. 1, and be referred to the Committee on Judiciary and Hawaiian Affairs.

Respectfully submitted on behalf of the members of the Committee on Commerce, Consumer Protection and Housing,

____________________________

RON MENOR, Chair