REPORT TITLE:
Mortgage Foreclosure Actions

DESCRIPTION:
Provides that if a mortgagee is not delinquent on a first
mortgage, then no other mortgagor shall foreclose, but instead
shall restructure the delinquent loan by extending the repayment
period and reducing the interest rate.

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
                                                        
THE SENATE                              S.B. NO.           880
TWENTIETH LEGISLATURE, 1999                                
STATE OF HAWAII                                            
                                                             
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                   A  BILL  FOR  AN  ACT


RELATING TO HOUSING MORTGAGES. 


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

 1      SECTION 1.  The legislature finds that financial
 
 2 institutions are foreclosing on properties when a second and
 
 3 third mortgage is in default, even though the first mortgage is
 
 4 not in default.  The legislature further finds that under current
 
 5 economic conditions, foreclosure on a property is harmful to
 
 6 Hawaii's family housing when the first mortgage is not in
 
 7 default.
 
 8      The purpose of this Act is to require financial institutions
 
 9 to restructure second and third mortgage loans in default by
 
10 extending the repayment period and or reducing the interest rate;
 
11 provided the first mortgage is not delinquent.
 
12      SECTION 2.  Section 412:5-302, Hawaii Revised Statutes, is
 
13 amended to read as follows::
 
14      "§412:5-302  Limitations on loans and extensions of credit
 
15 to one borrower.  (a)  No bank shall permit a person to become
 
16 indebted or liable to it, either directly or indirectly on loans
 
17 and extensions of credit, in a total amount outstanding at any
 
18 one time in excess of twenty per cent of the capital and surplus
 
19 of the bank.
 

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

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

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

 
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 1 the commissioner, comply with the lending limits applicable to
 
 2 national banking associations, as and to the same extent it
 
 3 would, at the time, be so required by federal law or regulation
 
 4 if it were a national banking association.  In monitoring a
 
 5 bank's compliance with the national banking association lending
 
 6 limits, the commissioner shall give substantial weight to the
 
 7 Office of the Comptroller of the Currency's regulations and
 
 8 opinions interpreting the national banking association lending
 
 9 limits and will regard them as strong evidence of safe and sound
 
10 banking practices. 
 
11      (f)  If a mortgagee is not delinquent on a first mortgage,
 
12 then no other mortgagor may file for foreclosure when a mortgage
 
13 is delinquent; but shall restructure a delinquent loan by
 
14 extending the repayment period and reducing the interest rate."
 
15      SECTION 3.  Section 412:6-302, Hawaii Revised Statutes, is
 
16 amended to read as follows:
 
17      "§412:6-302  Requirements and limits for certain loans.  (a)
 
18 Not less than fifty per cent of the amount of loans and
 
19 extensions of credit made by a savings bank shall be in loans and
 
20 extensions of credit secured by real estate.
 
21      (b)  The aggregate amount loaned by any savings bank for the
 
22 following types of loans, whether secured or unsecured, shall not
 
23 exceed the following limits:
 

 
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 1      (1)  Commercial loans:  fifteen per cent of the savings
 
 2           bank's total assets.  For purposes of this section
 
 3           "commercial loan" means any loan primarily for
 
 4           business, corporate, commercial, or agricultural
 
 5           purposes where the savings bank substantially relies on
 
 6           the borrower's general credit standing for repayment of
 
 7           the loan and, if the loan is secured by real property,
 
 8           does not primarily rely on the value of or income or
 
 9           projected income from the security for repayment of the
 
10           loan; and
 
11      (2)  Education loans:  ten per cent of the savings bank's
 
12           total assets.  For purposes of this section, "education
 
13           loan" means any loan the proceeds of which are used to
 
14           pay for tuition, fees, books, and other expenses
 
15           related to primary, secondary, vocational and
 
16           undergraduate and postgraduate college or university
 
17           education.
 
18      (c)  A savings bank may reclassify or apportion a loan from
 
19 one category to another in this section.
 
20      (d)  If a mortgagee is not delinquent on a first mortgage,
 
21 then no other mortgagor may file for foreclosure when a mortgage
 
22 is delinquent; but shall restructure a delinquent loan by
 
23 extending the repayment period and reducing the interest rate." 
 

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

 
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                                     S.B. NO.           880
                                                        
                                                        

 
 1           other expenses related to primary, secondary,
 
 2           vocational, and undergraduate and postgraduate college
 
 3           or university education;
 
 4      (3)  Unsecured construction loans:  five per cent of the
 
 5           savings and loan association's total assets.  For
 
 6           purposes of this section, "unsecured construction loan"
 
 7           means any loan to provide financing for what is
 
 8           expected to be residential real estate and where the
 
 9           savings and loan association relies primarily on the
 
10           borrower's general credit and projected future income,
 
11           if any, from such completed construction.
 
12      (c)  A savings and loan association may reclassify or
 
13 apportion a loan from one category to another in this section.
 
14      (d)  If a mortgagee is not delinquent on a first mortgage,
 
15 then no other mortgagor may file for foreclosure when a mortgage
 
16 is delinquent; but shall restructure a delinquent loan by
 
17 extending the repayment period and reducing the interest rate."
 
18      SECTION 5.  Section 412:9-405, Hawaii Revised Statutes, is
 
19 amended to read as follows:
 
20      "§412:9-405  Loans and extensions of credit fully secured by
 
21 real property.  (a)  For loans and extensions of credit fully
 
22 secured by real property other than unimproved raw land, a
 
23 depository financial services loan company may advance, directly
 

 
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                                     S.B. NO.           880
                                                        
                                                        

 
 1 or indirectly, up to and including ninety-five per cent of the
 
 2 appraised value or real property evaluation required under the
 
 3 Federal Deposit Insurance Act and the rules and regulations of
 
 4 the Federal Deposit Insurance Corporation of the real property
 
 5 securing the loan and extension of credit.  The principal amount
 
 6 of the loan and extension of credit shall be added together with
 
 7 the outstanding balances of all prior liens on the real property
 
 8 to determine the ninety-five per cent loan-to-value ratio.
 
 9      (b)  For loans and extensions of credit fully secured by
 
10 mortgages on unimproved raw land, the maximum loan-to-value ratio
 
11 shall not exceed seventy per cent of the appraised value or real
 
12 property evaluation required under the Federal Deposit Insurance
 
13 Act and the rules and regulations of the Federal Deposit
 
14 Insurance Corporation of the unimproved raw land.  Parcels of
 
15 land with direct access by road and served by electric power
 
16 shall not be deemed unimproved raw land.
 
17      (c)  Notwithstanding the provisions of subsections (a) and
 
18 (b), depository financial services loan companies, which make
 
19 loans fully secured by real property in excess of twenty per cent
 
20 of their capital and surplus, shall obtain appraisals of the real
 
21 property securing those loans. 
 
22      (d)  If a mortgagee is not delinquent on a first mortgage,
 
23 then no other mortgagor may file for foreclosure when a mortgage
 

 
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                                     S.B. NO.           880
                                                        
                                                        

 
 1 is delinquent; but shall restructure a delinquent loan by
 
 2 extending the repayment period and reducing the interest rate."
 
 3      SECTION 6.  Section 412:10-409, Hawaii Revised Statutes, is
 
 4 amended to read as follows:
 
 5      "§412:10-409  Real estate mortgage loans.  (a)  The amount
 
 6 of any credit union loan secured by a mortgage on real property
 
 7 shall be limited to the following percentages of the appraised
 
 8 value of the property:
 
 9      (1)  Ninety per cent of the value of any residential real
 
10           property; and
 
11      (2)  Eighty per cent of the value of any non-residential
 
12           real property.
 
13 The principal amount of the loan shall be added together with the
 
14 outstanding balances of all prior liens on the real property to
 
15 determine the loan to value ratio.
 
16      (b)  The amount of a loan secured by residential real
 
17 property may be increased by the unencumbered share or deposit
 
18 balances of the borrowing member that are pledged to the loan.
 
19      (c)  Loans secured by real property other than residential
 
20 real property shall provide for the regular reduction of
 
21 principal.
 
22      (d)  For loans secured by real property, the credit union
 
23 may require the borrower to make regular deposits for the payment
 

 
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 1 of insurance, taxes, and other expenses assessed against the
 
 2 property.
 
 3      (e)  If a mortgagee is not delinquent on a first mortgage,
 
 4 then no other mortgagor may file for foreclosure when a mortgage
 
 5 is delinquent; but shall restructure a delinquent loan by
 
 6 extending the repayment period and reducing the interest rate."
 
 7      SECTION 7.  New statutory material is underscored.
 
 8      SECTION 8.  This Act shall take effect upon its approval.
 
 9 
 
10                           INTRODUCED BY:  _______________________