REPORT TITLE:
Refinancing Loans


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

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
                                                        
THE SENATE                              S.B. NO.           2104
TWENTIETH LEGISLATURE, 2000                                
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 mortgagors to refinance their
 
 3 mortgage if their income is too low (low-income families).  In
 
 4 many cases there has been a decrease in family income.  When such
 
 5 families request refinancing of their home mortgage in order to
 
 6 take advantage of lower interest rates, they are turned down even
 
 7 when payments on the first mortgage are current.  The legislature
 
 8 further finds that this results in families paying higher monthly
 
 9 mortgage payments than necessary, resulting in less disposable
 
10 income simply because they cannot qualify for the lower payment.
 
11 Consequently, this hinders our State's economic recovery, and may
 
12 result in increased losses of personal residences or increased
 
13 bankruptcies.
 
14      The purpose of this Act is to require financial institutions
 
15 to refinance a mortgage loan if the current market interest rate
 
16 is at least one and one half per cent lower than the existing
 
17 mortgage rate.
 
18      SECTION 2.  Section 412:5-302, Hawaii Revised Statutes, is
 
19 amended to read as follows:
 

 
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 1      "§412:5-302  Limitations on loans and extensions of credit
 
 2 to one borrower.  (a)  No bank shall permit a person to become
 
 3 indebted or liable to it, either directly or indirectly on loans
 
 4 and extensions of credit, in a total amount outstanding at any
 
 5 one time in excess of twenty per cent of the capital and surplus
 
 6 of the bank.
 
 7      (b)  This section applies to all loans and extensions of
 
 8 credit made by a bank and its subsidiaries.  It does not apply to
 
 9 loans and extensions of credit made by a bank or its subsidiaries
 
10 to its affiliates or subsidiaries.
 
11      (c)  The limitations set forth in this section shall not
 
12 apply to:
 
13      (1)  A bank's eligible acceptances as described in section
 
14           412:5-204(b);
 
15      (2)  A bank's purchase or discount of another bank's
 
16           acceptances of the kinds described in section 13 of the
 
17           Federal Reserve Act;
 
18      (3)  A bank's deposits with a Federal Reserve Bank, Federal
 
19           Home Loan Bank or another depository institution made
 
20           in compliance with this chapter;
 
21      (4)  A bank's sale of federal funds to another depository
 
22           institution with a maturity of one business day or
 
23           under a continuing contract;
 

 
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                                     S.B. NO.           2104
                                                        
                                                        

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

 
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                                     S.B. NO.           2104
                                                        
                                                        

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

 
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                                     S.B. NO.           2104
                                                        
                                                        

 
 1 partner, in a limited partnership, or unless such individual
 
 2 partner or member, by law, by the terms of the partnership, joint
 
 3 venture, or membership agreement, or by the terms of an agreement
 
 4 with the bank, is not to be held liable to the bank for the debts
 
 5 of the partnership, joint venture, or association.
 
 6      (e)  Alternatively, a bank may, with the prior approval of
 
 7 the commissioner, comply with the lending limits applicable to
 
 8 national banking associations, as and to the same extent it
 
 9 would, at the time, be so required by federal law or regulation
 
10 if it were a national banking association.  In monitoring a
 
11 bank's compliance with the national banking association lending
 
12 limits, the commissioner shall give substantial weight to the
 
13 Office of the Comptroller of the Currency's regulations and
 
14 opinions interpreting the national banking association lending
 
15 limits and will regard them as strong evidence of safe and sound
 
16 banking practices. 
 
17      (f)  A bank shall refinance or restructure a first mortgage
 
18 loan without requalification to a lower interest rate when the
 
19 prevailing interest rate for mortgages is at least one and one
 
20 half per cent below the mortgagee's current interest rate."
 
21      SECTION 3.  Section 412:6-302, Hawaii Revised Statutes, is
 
22 amended to read as follows:
 
23      "§412:6-302  Requirements and limits for certain loans.  (a)
 

 
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                                     S.B. NO.           2104
                                                        
                                                        

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

 
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                                     S.B. NO.           2104
                                                        
                                                        

 
 1      (c)  A savings bank may reclassify or apportion a loan from
 
 2 one category to another in this section.
 
 3      (d)  A savings bank shall refinance or restructure a first
 
 4 mortgage loan without requalification to a lower interest rate
 
 5 when the prevailing interest rate for mortgages is at least one
 
 6 and one half per cent below the mortgagee's current interest
 
 7 rate."
 
 8      SECTION 4.  Section 412:7-302, Hawaii Revised Statutes, is
 
 9 amended to read as follows:
 
10      "§412:7-302  Requirements and limits for certain loans.  (a)
 
11 Not less than sixty per cent of the amount of loans and
 
12 extensions of credit made by a savings and loan association shall
 
13 be in loans and extensions of credit secured by real estate.
 
14      (b)  The aggregate amount loaned by any savings and loan
 
15 association for the following types of loans, whether secured or
 
16 unsecured, shall not exceed the following limits:
 
17      (1)  Commercial loans:  twelve and one-half per cent of the
 
18           savings and loan association's total assets.  For
 
19           purposes of this section "commercial loan" means any
 
20           loan primarily for business, corporate, commercial, or
 
21           agricultural purposes where the savings and loan
 
22           association substantially relies on the borrower's
 
23           general credit standing for repayment of the loan and,
 

 
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                                     S.B. NO.           2104
                                                        
                                                        

 
 1           if the loan is secured by real property, does not
 
 2           primarily rely on the value of or income or projected
 
 3           income from the security for repayment of the loan;
 
 4      (2)  Education loans:  five per cent of the savings and loan
 
 5           association's total assets.  For purposes of this
 
 6           section, "education loan" means any loan the proceeds
 
 7           of which are used to pay for tuition, fees, books, and
 
 8           other expenses related to primary, secondary,
 
 9           vocational and undergraduate and postgraduate college
 
10           or university education;
 
11      (3)  Unsecured construction loans:  five per cent of the
 
12           savings and loan association's total assets.  For
 
13           purposes of this section, "unsecured construction loan"
 
14           means any loan to provide financing for what is
 
15           expected to be residential real estate and where the
 
16           savings and loan association relies primarily on the
 
17           borrower's general credit and projected future income,
 
18           if any, from such completed construction.
 
19      (c)  A savings and loan association may reclassify or
 
20 apportion a loan from one category to another in this section.
 
21      (d)  A savings and loan association shall refinance or
 
22 restructure a first mortgage loan without requalification to a
 
23 lower interest rate when the prevailing interest rate for
 

 
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                                     S.B. NO.           2104
                                                        
                                                        

 
 1 mortgages is at least one and one half per cent below the
 
 2 mortgagor's current interest rate."
 
 3      SECTION 5.  Section 412:9-405, Hawaii Revised Statutes, is
 
 4 amended to read as follows:
 
 5      "§412:9-405  Loans and extensions of credit fully secured by
 
 6 real property.  (a)  For loans and extensions of credit fully
 
 7 secured by real property other than unimproved raw land, a
 
 8 depository financial services loan company may advance, directly
 
 9 or indirectly, up to and including ninety-five per cent of the
 
10 appraised value or real property evaluation required under the
 
11 Federal Deposit Insurance Act and the rules and regulations of
 
12 the Federal Deposit Insurance Corporation of the real property
 
13 securing the loan and extension of credit.  The principal amount
 
14 of the loan and extension of credit shall be added together with
 
15 the outstanding balances of all prior liens on the real property
 
16 to determine the ninety-five per cent loan-to-value ratio.
 
17      (b)  For loans and extensions of credit fully secured by
 
18 mortgages on unimproved raw land, the maximum loan-to-value ratio
 
19 shall not exceed seventy per cent of the appraised value or real
 
20 property evaluation required under the Federal Deposit Insurance
 
21 Act and the rules and regulations of the Federal Deposit
 
22 Insurance Corporation of the unimproved raw land.  Parcels of
 
23 land with direct access by road and served by electric power
 

 
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                                     S.B. NO.           2104
                                                        
                                                        

 
 1 shall not be deemed unimproved raw land.
 
 2      (c)  Notwithstanding the provisions of subsections (a) and
 
 3 (b), depository financial services loan companies, which make
 
 4 loans fully secured by real property in excess of twenty per cent
 
 5 of their capital and surplus, shall obtain appraisals of the real
 
 6 property securing those loans. 
 
 7      (d)  A financial services loan company shall refinance or
 
 8 restructure a first mortgage loan without requalification to a
 
 9 lower interest rate when the prevailing interest rate for
 
10 mortgages is at least one and one half per cent below the
 
11 mortgagee's current interest rate."
 
12      SECTION 6.  Section 412:10-409, Hawaii Revised Statutes, is
 
13 amended to read as follows:
 
14      "§412:10-409  Real estate mortgage loans.  (a)  The amount
 
15 of any credit union loan secured by a mortgage on real property
 
16 shall be limited to the following percentages of the appraised
 
17 value of the property:
 
18      (1)  Ninety per cent of the value of any residential real
 
19           property; and
 
20      (2)  Eighty per cent of the value of any non-residential
 
21           real property.
 
22 The principal amount of the loan shall be added together with the
 
23 outstanding balances of all prior liens on the real property to
 

 
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                                     S.B. NO.           2104
                                                        
                                                        

 
 1 determine the loan to value ratio.
 
 2      (b)  The amount of a loan secured by residential real
 
 3 property may be increased by the unencumbered share or deposit
 
 4 balances of the borrowing member that are pledged to the loan.
 
 5      (c)  Loans secured by real property other than residential
 
 6 real property shall provide for the regular reduction of
 
 7 principal.
 
 8      (d)  For loans secured by real property, the credit union
 
 9 may require the borrower to make regular deposits for the payment
 
10 of insurance, taxes, and other expenses assessed against the
 
11 property.
 
12      (e)  A credit union shall refinance or restructure a first
 
13 mortgage loan without requalification when the prevailing
 
14 interest rate for mortgages is at least one and one half per cent
 
15 below the mortgagee's current interest rate."
 
16      SECTION 7.  New statutory material is underscored.
 
17      SECTION 8.  This Act shall take effect upon its approval.
 
18 
 
19                           INTRODUCED BY:  _______________________