REPORT TITLE:
Refinancing Loans


DESCRIPTION:
Requires financial institutions to re-finance or restructure a
mortgage loan without requalification when the prevailing
interest rate is at least 1.5% below the mortgagee's current
interest rate.

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
                                                        
THE SENATE                              S.B. NO.           884
TWENTIETH LEGISLATURE, 1999                                
STATE OF HAWAII                                            
                                                             
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                   A  BILL  FOR  AN  ACT


RELATING TO FINANCING OF AFFORDABLE HOUSING. 


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

 1      SECTION 1.  The legislature finds that financial
 
 2 institutions are refusing to allow mortgagees to refinance their
 
 3 mortgage if their income is too low (low income families).  The
 
 4 legislature further finds that this results in families paying
 
 5 higher monthly mortgage payments, resulting in less disposable
 
 6 income.  Consequently, this hinders our State's economic
 
 7 recovery, and may result in the loss of a residence or
 
 8 bankruptcy.
 
 9      The purpose of this Act is to require financial institutions
 
10 to refinance a mortgage loan if the current market interest rate
 
11 is at least one and one half per cent lower than the existing
 
12 mortgage rate.
 
13      SECTION 2.  Section 412:5-302, Hawaii Revised Statutes, is
 
14 amended to read as follows:
 
15      "412:5-302  Limitations on loans and extensions of credit
 
16 to one borrower.  (a)  No bank shall permit a person to become
 
17 indebted or liable to it, either directly or indirectly on loans
 
18 and extensions of credit, in a total amount outstanding at any
 
19 one time in excess of twenty per cent of the capital and surplus
 

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

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

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

 
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 1      (e)  Alternatively, a bank may, with the prior approval of
 
 2 the commissioner, comply with the lending limits applicable to
 
 3 national banking associations, as and to the same extent it
 
 4 would, at the time, be so required by federal law or regulation
 
 5 if it were a national banking association.  In monitoring a
 
 6 bank's compliance with the national banking association lending
 
 7 limits, the commissioner shall give substantial weight to the
 
 8 Office of the Comptroller of the Currency's regulations and
 
 9 opinions interpreting the national banking association lending
 
10 limits and will regard them as strong evidence of safe and sound
 
11 banking practices. 
 
12      (f)  A bank shall re-finance or restructure a mortgage loan
 
13 without requalification to a lower interest rate when the
 
14 prevailing interest rate for mortgages is at least one and one
 
15 half per cent below the mortgagee's current interest rate."
 
16      SECTION 3.  Section 412:6-302, Hawaii Revised Statutes, is
 
17 amended to read as follows:
 
18      "412:6-302  Requirements and limits for certain loans.  (a)
 
19 Not less than fifty per cent of the amount of loans and
 
20 extensions of credit made by a savings bank shall be in loans and
 
21 extensions of credit secured by real estate.
 
22      (b)  The aggregate amount loaned by any savings bank for the
 
23 following types of loans, whether secured or unsecured, shall not
 

 
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                                     S.B. NO.           884
                                                        
                                                        

 
 1 exceed the following limits:
 
 2      (1)  Commercial loans:  fifteen per cent of the savings
 
 3           bank's total assets.  For purposes of this section
 
 4           "commercial loan" means any loan primarily for
 
 5           business, corporate, commercial, or agricultural
 
 6           purposes where the savings bank substantially relies on
 
 7           the borrower's general credit standing for repayment of
 
 8           the loan and, if the loan is secured by real property,
 
 9           does not primarily rely on the value of or income or
 
10           projected income from the security for repayment of the
 
11           loan; and
 
12      (2)  Education loans:  ten per cent of the savings bank's
 
13           total assets.  For purposes of this section, "education
 
14           loan" means any loan the proceeds of which are used to
 
15           pay for tuition, fees, books, and other expenses
 
16           related to primary, secondary, vocational, and
 
17           undergraduate and postgraduate college or university
 
18           education.
 
19      (c)  A savings bank may reclassify or apportion a loan from
 
20 one category to another in this section.
 
21      (d)  A savings bank shall re-finance or restructure a
 
22 mortgage loan without requalification to a lower interest rate
 
23 when the prevailing interest rate for mortagages is at least one
 

 
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                                     S.B. NO.           884
                                                        
                                                        

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

 
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                                     S.B. NO.           884
                                                        
                                                        

 
 1           section, "education loan" means any loan the proceeds
 
 2           of which are used to pay for tuition, fees, books, and
 
 3           other expenses related to primary, secondary,
 
 4           vocational and undergraduate and postgraduate college
 
 5           or university education;
 
 6      (3)  Unsecured construction loans:  five per cent of the
 
 7           savings and loan association's total assets.  For
 
 8           purposes of this section, "unsecured construction loan"
 
 9           means any loan to provide financing for what is
 
10           expected to be residential real estate and where the
 
11           savings and loan association relies primarily on the
 
12           borrower's general credit and projected future income,
 
13           if any, from such completed construction.
 
14      (c)  A savings and loan association may reclassify or
 
15 apportion a loan from one category to another in this section.
 
16      (d)  A savings and loan association shall re-finance or
 
17 restructure a mortgage loan without requalification to a lower
 
18 interest rate when the prevailing interest rate for mortgages is
 
19 at least one and one half per cent below the mortgagee's current
 
20 interest rate."
 
21      SECTION 5.  Section 412:9-405, Hawaii Revised Statutes, is
 
22 amended to read as follows:
 
23      "412:9-405  Loans and extensions of credit fully secured by
 

 


 

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                                     S.B. NO.           884
                                                        
                                                        

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

 
Page 10                                                    
                                     S.B. NO.           884
                                                        
                                                        

 
 1 property securing those loans. 
 
 2      (d)  A financial services loan company shall re-finance or
 
 3 restructure a mortgage loan without requalification to a lower
 
 4 interest rate when the prevailing interest rate for mortgages is
 
 5 at least one and one half per cent below the mortgagee's current
 
 6 interest rate."
 
 7      SECTION 6.  Section 412:10-409, Hawaii Revised Statutes, is
 
 8 amended to read as follows:
 
 9      "412:10-409  Real estate mortgage loans.  (a)  The amount
 
10 of any credit union loan secured by a mortgage on real property
 
11 shall be limited to the following percentages of the appraised
 
12 value of the property:
 
13      (1)  Ninety per cent of the value of any residential real
 
14           property; and
 
15      (2)  Eighty per cent of the value of any non-residential
 
16           real property.
 
17 The principal amount of the loan shall be added together with the
 
18 outstanding balances of all prior liens on the real property to
 
19 determine the loan to value ratio.
 
20      (b)  The amount of a loan secured by residential real
 
21 property may be increased by the unencumbered share or deposit
 
22 balances of the borrowing member that are pledged to the loan.
 
23      (c)  Loans secured by real property other than residential
 

 
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 1 real property shall provide for the regular reduction of
 
 2 principal.
 
 3      (d)  For loans secured by real property, the credit union
 
 4 may require the borrower to make regular deposits for the payment
 
 5 of insurance, taxes, and other expenses assessed against the
 
 6 property.
 
 7      (e)  A credit union shall re-finance or restructure a
 
 8 mortgage loan without requalification when the prevailing
 
 9 interest rate for mortgages is at least one and one half per cent
 
10 below the mortgagee's current interest rate."
 
11      SECTION 7.  New statutory material is underscored.
 
12      SECTION 8.  This Act shall take effect upon its approval.
 
13 
 
14                           INTRODUCED BY:  _______________________