STAND. COM. REP. NO.  44-12

Honolulu, Hawaii

                , 2012

RE:   H.B. No. 2019

Honorable Calvin K.Y. Say

Speaker, House of Representatives

Twenty-Sixth State Legislature

Regular Session of 2012

State of Hawaii

Sir:

     Your Committees on Consumer Protection & Commerce and Judiciary, to which was referred H.B. No. 2019 entitled:

"A BILL FOR AN ACT RELATING TO MORTGAGES,"

beg leave to report as follows:

The purpose of this measure is to strengthen protections for mortgage consumers by prohibiting deficiency judgments to recover the remaining balance on mortgage loans for certain residential property sold in a foreclosure action or short sale, if:

     (1)  The mortgagor has continuously occupied the property as a principal residence from the time the loan interest was secured, excluding reasonable periods of absence;

     (2)  The mortgagor used the proceeds of the mortgage to purchase the property; and

     (3)  The mortgage has not been refinanced.

The Legal Aid Society of Hawaii and two concerned individuals testified in support of this measure.  The Hawaii Bankers Association, Hawaii Financial Services Association, and Hawaii Credit Union League opposed this measure.  The Department of Commerce and Consumer Affairs' Division of Financial Institutions and Office of Consumer Protection, and the Hawaii Association of REALTORS provided comments.

Your Committees find that the current economic climate has caused widespread unemployment among homeowners and reduced property values.  Moreover, several types of home loans issued in the last decade, during a housing bubble, are based upon adjustable rate mortgages that will soon shift upwards, making it more difficult for struggling homeowners to stay current on their loans.

This measure seeks to limit deficiency judgments in short sales and foreclosures to prevent loan holders from obtaining a double recovery when they purchase the foreclosed property with a low bid, obtain a judgment for the deficiency, then sell the property to a third-party buyer at a higher price on the open market.

Furthermore, limiting deficiency judgments will assist homeowners' financial recovery and decrease bankruptcy filings by homeowners seeking to discharge these debts, along with the negative effects associated with bankruptcy.  This measure will also reduce abusive debt collection practices by third parties who purchase at deep discounts the rights to collect deficiencies.

Your Committees respectfully request the Committee on Finance to consider the testimony on this measure suggesting amendments to:

     (1)  Cover refinanced mortgage loans;

     (2)  Eliminate or limit the uninterrupted occupancy requirement, or conform this requirement with the definition of "owner-occupant" in sections 667-21 and 667-72, Hawaii Revised Statutes (requiring occupancy as a primary residence for a continuous period of at least two hundred days immediately preceding the date on which the foreclosure notice was served); and

     (3)  Apply this measure to situations in which the homeowner relinquishes the property deed in lieu of foreclosure.

     As affirmed by the records of votes of the members of your Committees on Consumer Protection & Commerce and Judiciary that are attached to this report, your Committees are in accord with

the intent and purpose of H.B. No. 2019 and recommend that it pass Second Reading and be referred to the Committee on Finance.

Respectfully submitted on behalf of the members of the Committees on Consumer Protection & Commerce and Judiciary,

____________________________ GILBERT KEITH-AGARAN, Chair

____________________________ ROBERT N. HERKES, Chair