STAND. COM. REP. NO. 1169

                                   Honolulu, Hawaii
                                                     , 1999

                                   RE:  H.B. No. 1017
                                        H.D. 1
                                        S.D. 1




Honorable Norman Mizuguchi
President of the Senate
Twentieth State Legislature
Regular Session of 1999
State of Hawaii

Sir:

     Your Committee on Government Operations and Housing, to
which was referred H.B. No. 1017, H.D. 1, entitled: 

     "A BILL FOR AN ACT RELATING TO THE HOUSING LOAN AND MORTGAGE
     PROGRAM,"

begs leave to report as follows:

     The purpose of this measure is to enable the Housing and
Community Development Corporation of Hawaii to issue an
additional $500,000,000 in tax-exempt revenue bonds for the Hula
Mae Single Family Mortgage Purchase Program, making the aggregate
principal amount $2,275,000,000.

     Prior to the hearing, your Committee circulated a Senate
draft.  Testimony was received on this proposed H.B. No. 1017,
H.D. 1, S.D. 1.  

     The proposed H.B. No. 1017, H.D. 1, S.D. 1, added to the
measure as received language which:

     (1)  Requires financial institutions to provide refinancing
          of a mortgage loan if the current market interest rate
          is at least one and one half per cent lower than the
          existing mortgage rate;

     (2)  Requires financial institutions to restructure second
          and third mortgage loans in default by extending the

 
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          repayment period and or reducing the interest rate;
          provided the first mortgage is not delinquent;

     (3)  Requires financial institutions to restructure a
          mortgage loan when a mortgagee becomes unemployed or
          underemployed;

     (4)  Authorizes the state finance director to issue
          short-term floating rate interest general obligation
          bonds for the repair and maintenance of state-owned
          public housing; and 

     (5)  Issues $20,000,000 in general obligation bonds and
          appropriate the funds to the rental housing trust fund.

     Testimony in support of the proposed H.B. No. 1017, H.D. 1,
S.D. 1, was received from the Legal Aid Society of Hawaii.

     Testimony in support of the proposed H.B. No. 1017, H.D. 1,
S.D. 1, except the section on using general obligations bonds for
the repair and maintenance of public housing, was received from
the Housing and Community Development Corporation of Hawaii
(HCDCH).

     Testimony in support of the sections on loan mortgage
restructuring was received from the Hawaii Association of
Realtors.

     Testimony in support of the section on the Hula Mae Single
Family Mortgage Purchase Program was received from one
individual.

     Testimony in support of short-term floating rate general
issuing bonds for the repair and maintenance of public housing
was received from Catholic Charities and one individual.
Testimony in opposition was received from the Department of
Budget and Finance.

     Testimony in support of the section issuing general
obligation bonds and making an appropriation for the Rental
Housing Trust fund was received from the Genesis Foundation, the
Affordable Housing and Homeless Alliance, Hawaii Investors for
Affordable Housing, Inc., Catholic Charities, and two
individuals.

Hula Mae Single Family Mortgage Purchase Program

     Your Committee finds that under the Hula Mae Single Family
Mortgage Purchase Program, the HCDCH is authorized to issue tax

 
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exempt mortgage revenue bonds, and to make funds available
through mortgage lenders at affordable interest rates to
households with low to moderate incomes.  As of June 30, 1998,
over 8,000 first time home buyers have been provided mortgages
through the Hula Mae program.

     In 1997 and 1998, lenders and private developers requested
over $1 billion of Hula Mae funds, yet only approximately $283
million was actually available for lending.

     Currently, the HCDCH is authorized to issue revenue bonds in
the principal amount of $1,775,000,000.  To date, HCDCH has
issued $1,551,045,000, leaving only $223,955,000 of bond
authority available to HCDCH.

     Your Committee finds that in order to meet the demand for
affordable interest rate mortgage loans, additional funds are
needed for the Hula Mae Program.

Restructuring Mortgage Loans When Prevailing Interest Rate Falls
Below 1.5% of Existing Rate

     Your Committee finds that in these hard economic times,
foreclosures and short sales have increased because of the
inability of borrowers to afford their monthly mortgage payments.
Additionally, your Committee finds that currently, financial
institutions are refusing to allow mortgagees to refinance their
mortgage if their income is too low, whereby, monthly payments
remain high, and disposable income is lowered even further.  

     Your Committee finds that refinancing a mortgage loan will
provide for a decrease in monthly mortgage payments, which in
return will increase the borrowers' ability to pay monthly
mortgage payments and increase monthly disposable income.
Consequently, the State's economic recovery will increase as
well.

     Your Committee recognizes the concerns the banking industry
has with this measure, and encourages further discussion and
dialogue on this issue in the Committee on Ways and Means.

Restructuring Delinquent Mortgage Prohibiting Foreclosure on
Subsequent Mortgages

     Your Committee finds that financial institutions are
foreclosing on properties when a second and third mortgage is in
default, even though the first mortgage is not in default.  The
legislature further finds that under current economic conditions,

 
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foreclosure on a property is harmful to Hawaii's family housing
when the first mortgage is not in default.

     Your Committee finds that more research needs to be
completed in order to evaluate whether this provision will give
homeowners more spendable income and the ability to preserve or
improve their creditworthiness, while at the same time preserve
the secondary mortgage market.  Therefore, your Committee
believes this provision should be deleted.

Restructuring Mortgage when Mortgagee Becomes Unemployed or
Underemployed

     Your Committee finds that unemployment and underemployment
have created too many low income families who are experiencing
foreclosure actions by financial institutions.  

     Your Committee finds that this provision will preserve
homeownership, provide encouragement for the future, and most
importantly, give the homeowner a second chance to keep the home.

     The legislature further finds that foreclosure actions
prevent our State's economic recovery and that the mission of
financial institutions should be to help families through these
difficult economic times.  

G.O. Bonds Issuance for Repair and Maintenance of State Owned
Housing

     Your Committee finds that this provision provides a
mechanism to prevent small repairs from developing into serious
repairs later.  Providing for adequate maintenance and repairs on
a regular basis will not only save money in the long run, but
will also raise the living standards and self-esteem of the
residents.

$20 Million Appropriation for the Rental Housing Trust Fund

     Your Committee finds that additional funding for the Rental
Housing Trust Fund will provide loans or grants for the
development, pre-development, construction, acquisition,
preservation, and substantial rehabilitation of rental housing
units.  Given the scarcity of funds available for affordable
housing and the high cost of construction in the State, this
program leverages funds to the greatest possible extent. 

     Your Committee has amended this measure by replacing its
contents with the proposed H.B. No. 1017, H.D. 1, S.D. 1, with
the following changes:

 
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     (1)  The provision requiring restructuring of delinquent
          mortgages and prohibiting foreclosures on secondary
          mortgages was deleted.  Committee members expressed
          concern as to whether the prohibition on such
          foreclosures when first mortgages are not delinquent
          would have negative impacts on the availability of
          second mortgages.  Your Committee believes that further
          research, including consultation with the banking and
          finance industry, is required; and

     (2)  The amounts of G.O. bond issuance for the Rental
          Housing Trust Fund and the Hula Mae Housing Loan and
          Mortgage Program were left blank so that the specific
          amount may be determined in the Committee on Ways and
          Means.

     As affirmed by the record of votes of the members of your
Committee on Government Operations and Housing that is attached
to this report, your Committee is in accord with the intent and
purpose of H.B. No. 1017, H.D. 1, as amended herein, and
recommends that it pass Second Reading in the form attached
hereto as H.B. No. 1017, H.D. 1, S.D. 1, and be referred to the
Committee on Ways and Means.

                                   Respectfully submitted on
                                   behalf of the members of the
                                   Committee on Government
                                   Operations and Housing,



                                   ______________________________
                                   ROD TAM, Chair

 
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