REPORT TITLE:
Work out plans


DESCRIPTION:
Requires financial institutions to develop and implement a work
out plan to help mortgagors maintain their current mortgages in
times of financial difficulty.  (SD1)

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
                                                        2104
THE SENATE                              S.B. NO.           S.D. 1
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.  Chapter 412, Hawaii Revised Statutes, is amended
 
 2 by adding a new section to article 1 to be appropriately
 
 3 designated and to read as follows:
 
 4      "§412:1-     Work out plans.  (a)  All financial
 
 5 institutions covered under this chapter shall be required to
 
 6 develop and implement a work out plan.
 
 7      (b)  In developing a work out plan, the financial instutions
 
 8 shall consider factors including but not limited to:
 
 9      (1)  The amount of the monthly mortgage payment;
 
10      (2)  The monthly mortgage interest rate; and
 
11      (3)  The nature of the mortgagor's financial difficulty.
 
12 The financial institutions shall also consider a temporary
 
13 deferment of the monthly mortgage payments as part of a viable
 
14 work out plan.
 
15      (c)  If a financial institution does not implement its own
 
16 work out plan, it shall implement a work out plan which shall be
 
17 developed by the department of commerce and consumer affairs, the
 
18 office of consumer protection, and the commissioner of financial
 
19 institutions.
 

 
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 1      A "work out plan" means a plan that allows a mortgagor, who
 
 2 is unable to meet monthly mortgage payments due to temporary
 
 3 financial hardship, to maintain the mortgage loan on the
 
 4 mortgagor's personal primary residence."
 
 5      SECTION 2.  Section 412:5-302, Hawaii Revised Statutes, is
 
 6 amended to read as follows:
 
 7      "§412:5-302  Limitations on loans and extensions of credit
 
 8 to one borrower.  (a)  No bank shall permit a person to become
 
 9 indebted or liable to it, either directly or indirectly on loans
 
10 and extensions of credit, in a total amount outstanding at any
 
11 one time in excess of twenty per cent of the capital and surplus
 
12 of the bank.
 
13      (b)  This section applies to all loans and extensions of
 
14 credit made by a bank and its subsidiaries.  It does not apply to
 
15 loans and extensions of credit made by a bank or its subsidiaries
 
16 to its affiliates or subsidiaries.
 
17      (c)  The limitations set forth in this section shall not
 
18 apply to:
 
19      (1)  A bank's eligible acceptances as described in section
 
20           412:5-204(b);
 
21      (2)  A bank's purchase or discount of another bank's
 
22           acceptances of the kinds described in section 13 of the
 
23           Federal Reserve Act;
 

 
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 1      (3)  A bank's deposits with a Federal Reserve Bank, Federal
 
 2           Home Loan Bank, or another depository institution made
 
 3           in compliance with this chapter;
 
 4      (4)  A bank's sale of federal funds to another depository
 
 5           institution with a maturity of one business day or
 
 6           under a continuing contract;
 
 7      (5)  Loans and extensions of credit secured by the interest-
 
 8           bearing obligations of the United States or those for
 
 9           which the faith and credit of the United States are
 
10           distinctly pledged to provide for the payment of the
 
11           principal and interest thereof or of the State or any
 
12           county or municipal or political subdivision of this
 
13           State, issued in compliance with the laws of this
 
14           State, where the market value of the security shall be
 
15           at any time not less than one hundred five per cent of
 
16           the face amount of the loans and extensions of credit;
 
17      (6)  Loans and extensions of credit to the extent secured by
 
18           a pledge or security interest in a deposit account in
 
19           the lending bank; and
 
20      (7)  Loans and extensions of credit arising from the
 
21           discount of negotiable or nonnegotiable credit sales
 
22           contracts which carry a partial recourse endorsement or
 
23           limited guarantee by the person transferring the credit
 

 
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 1           sales contracts, if the bank's respective file or the
 
 2           knowledge of its officers of the financial condition of
 
 3           each maker of such credit sales contract is reasonably
 
 4           adequate, and an officer of the bank certifies in
 
 5           writing that the bank is relying primarily upon the
 
 6           responsibility of each maker for payment of such credit
 
 7           sales contract and not upon any partial recourse
 
 8           endorsement or limited guarantee by the transferor.
 
 9           Under these circumstances, such credit sales contract
 
10           will be considered a loan and extension of credit to
 
11           the maker of the credit sales contract rather than the
 
12           seller of the credit sales contract.
 
13      (d)  In computing the total loans and extensions of credit
 
14 made by a bank to any person, all loans and extensions of credit
 
15 by the bank to the person and to any partnership, joint venture,
 
16 or unincorporated association of which the person is a partner or
 
17 a member shall be included unless the person is a limited
 
18 partner, but not a general partner, in a limited partnership, or
 
19 unless the person is a partner in a limited or general
 
20 partnership, or a member of a joint venture or unincorporated
 
21 association, if such partner or member, by law, by the terms of
 
22 the partnership, joint venture, or membership agreement, or by
 
23 the terms of an agreement with the bank, is not to be held liable
 

 
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 1 to the bank for the debts of the partnership, joint venture or
 
 2 association.  In computing the total loans and extensions or
 
 3 credit made by a bank to any firm, partnership, joint venture, or
 
 4 unincorporated association, all loans and extensions of credit to
 
 5 its individual partners or members shall be included unless such
 
 6 individual partner is a limited partner, but not a general
 
 7 partner, in a limited partnership, or unless such individual
 
 8 partner or member, by law, by the terms of the partnership, joint
 
 9 venture, or membership agreement, or by the terms of an agreement
 
10 with the bank, is not to be held liable to the bank for the debts
 
11 of the partnership, joint venture, or association.
 
12      (e)  Alternatively, a bank may, with the prior approval of
 
13 the commissioner, comply with the lending limits applicable to
 
14 national banking associations, as and to the same extent it
 
15 would, at the time, be so required by federal law or regulation
 
16 if it were a national banking association.  In monitoring a
 
17 bank's compliance with the national banking association lending
 
18 limits, the commissioner shall give substantial weight to the
 
19 Office of the Comptroller of the Currency's regulations and
 
20 opinions interpreting the national banking association lending
 
21 limits and will regard them as strong evidence of safe and sound
 
22 banking practices.
 
23      (f)  A bank shall develop and implement a work out plan
 

 
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 1 allowing mortgagors the means of maintaining the current status
 
 2 of their home mortgage loans during times of temporary financial
 
 3 hardship.  If a bank does not implement a work out plan, it shall
 
 4 be required to implement the work out plan developed by the
 
 5 department of commerce and consumer affairs, the office of
 
 6 consumer protection, and the commissioner of financial
 
 7 institutions."
 
 8      SECTION 3.  Section 412:6-302, Hawaii Revised Statutes, is
 
 9 amended to read as follows:
 
10      "§412:6-302  Requirements and limits for certain loans.  (a)
 
11 Not less than fifty per cent of the amount of loans and
 
12 extensions of credit made by a savings bank shall be in loans and
 
13 extensions of credit secured by real estate.
 
14      (b)  The aggregate amount loaned by any savings bank for the
 
15 following types of loans, whether secured or unsecured, shall not
 
16 exceed the following limits:
 
17      (1)  Commercial loans:  fifteen per cent of the savings
 
18           bank's total assets.  For purposes of this section
 
19           "commercial loan" means any loan primarily for
 
20           business, corporate, commercial, or agricultural
 
21           purposes where the savings bank substantially relies on
 
22           the borrower's general credit standing for repayment of
 
23           the loan and, if the loan is secured by real property,
 

 
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 1           does not primarily rely on the value of or income or
 
 2           projected income from the security for repayment of the
 
 3           loan; and
 
 4      (2)  Education loans:  ten per cent of the savings bank's
 
 5           total assets.  For purposes of this section, "education
 
 6           loan" means any loan the proceeds of which are used to
 
 7           pay for tuition, fees, books, and other expenses
 
 8           related to primary, secondary, vocational, and
 
 9           undergraduate and postgraduate college or university
 
10           education.
 
11      (c)  A savings bank may reclassify or apportion a loan from
 
12 one category to another in this section.
 
13      (d)  A savings bank shall develop and implement a work out
 
14 plan allowing mortgagors the means of maintaining the current
 
15 status of their home mortgage loans during times of temporary
 
16 financial hardship.  If a savings bank does not implement a work
 
17 out plan, it shall be required to implement the work out plan
 
18 developed by the department of commerce and consumer affairs, the
 
19 office of consumer protection, and the commissioner of financial
 
20 institutions."
 
21      SECTION 4.  Section 412:7-302, Hawaii Revised Statutes, is
 
22 amended to read as follows:
 
23      "§412:7-302  Requirements and limits for certain loans.  (a)
 

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

 
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 1      (3)  Unsecured construction loans:  five per cent of the
 
 2           savings and loan association's total assets.  For
 
 3           purposes of this section, "unsecured construction loan"
 
 4           means any loan to provide financing for what is
 
 5           expected to be residential real estate and where the
 
 6           savings and loan association relies primarily on the
 
 7           borrower's general credit and projected future income,
 
 8           if any, from such completed construction.
 
 9      (c)  A savings and loan association may reclassify or
 
10 apportion a loan from one category to another in this section.
 
11      (d)  A savings and loan association shall develop and
 
12 implement a work out plan allowing mortgagors the means of
 
13 maintaining the current status of their home mortgage loans
 
14 during times of temporary financial hardship.  If a savings and
 
15 loan association does not implement a work out plan, it shall be
 
16 required to implement the work out plan developed by the
 
17 department of commerce and consumer affairs, the office of
 
18 consumer protection, and the commissioner of financial
 
19 institutions."
 
20      SECTION 5.  Section 412:9-405, Hawaii Revised Statutes, is
 
21 amended to read as follows:
 
22      "§412:9-405  Loans and extensions of credit fully secured by
 
23 real property.  (a)  For loans and extensions of credit fully
 

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

 
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 1      (d)  A financial services loan company shall develop and
 
 2 implement a work out plan allowing mortgagors the means of
 
 3 maintaining the current status of their home mortgage loans
 
 4 during times of temporary financial hardship.  If a financial
 
 5 services loan company does not implement a work out plan, it
 
 6 shall be required to implement the work out plan developed by the
 
 7 department of commerce and consumer affairs, the office of
 
 8 consumer protection, and the commissioner of financial
 
 9 institutions."
 
10      SECTION 6.  Section 412:10-409, Hawaii Revised Statutes, is
 
11 amended to read as follows:
 
12      "§412:10-409  Real estate mortgage loans.  (a)  The amount
 
13 of any credit union loan secured by a mortgage on real property
 
14 shall be limited to the following percentages of the appraised
 
15 value of the property:
 
16      (1)  Ninety per cent of the value of any residential real
 
17           property; and
 
18      (2)  Eighty per cent of the value of any non-residential
 
19           real property.
 
20 The principal amount of the loan shall be added together with the
 
21 outstanding balances of all prior liens on the real property to
 
22 determine the loan to value ratio.
 
23      (b)  The amount of a loan secured by residential real
 

 
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 1 property may be increased by the unencumbered share or deposit
 
 2 balances of the borrowing member that are pledged to the loan.
 
 3      (c)  Loans secured by real property other than residential
 
 4 real property shall provide for the regular reduction of
 
 5 principal.
 
 6      (d)  For loans secured by real property, the credit union
 
 7 may require the borrower to make regular deposits for the payment
 
 8 of insurance, taxes, and other expenses assessed against the
 
 9 property.
 
10      (e)  A credit union shall develop and implement a work out
 
11 plan allowing mortgagors the means of maintaining the current
 
12 status of their home mortgage loans during times of temporary
 
13 financial hardship.  If a credit union does not implement a work
 
14 out plan, it shall be required to implement the work out plan
 
15 developed by the department of commerce and consumer affairs, the
 
16 office of consumer protection, and the commissioner of financial
 
17 institutions."
 
18      SECTION 7.  New statutory material is underscored.
 
19      SECTION 8.  This Act shall take effect upon its approval.