Hawaii-2014-SB2538-Amended

SECTION 1. The Hawaii Revised Statutes is amended by adding a new chapter to be appropriately designated and to read as follows:

"Chapter

HAWAII DIRECT HOME LOAN PROGRAM

-1 Definitions. As used in this chapter:

"Corporation" means the Hawaii housing finance and development corporation.

"Director" means the executive director of the Hawaii housing finance and development corporation.

"Lender" means a private savings and loan institution, bank, or mortgage company that makes, holds, and services a loan. The lender is primarily responsible for originating, underwriting, servicing, and where necessary, liquidating the loan and disposing of the property in a manner consistent with maximizing the government's interest.

"Qualified applicant" means an individual or family who:

(1) Has very low or low income. For the purposes of this chapter:

(A) "Very low income" means an adjusted annual income below fifty per cent of the adjusted area median income; and

(B) "Low income" means an adjusted annual income of fifty to eighty per cent of the adjusted area median income;

(2) Has adequate and dependable income;

(3) Can afford the mortgage payments, requiring proof that:

(A) For very low income individuals or families:

(i) The burden of principal, interest, taxes, and insurance is twenty-nine per cent or less of gross monthly income; and

(ii) The total of monthly debts is forty-one per cent or less of gross monthly income;

(B) For low income individuals or families:

(i) The burden of principal, interest, taxes, and insurance is thirty-three per cent or less of gross monthly income; and

(ii) The total of monthly debts is forty-one per cent or less of gross monthly income;

(4) Is unable to qualify for conventional mortgage credit; and

(5) Has a credit history that indicates a reasonable ability and willingness to meet obligations as they become due.

§ -2 Hawaii direct home loan program. There is created a Hawaii direct home loan program which shall be administered by the director in accordance with the spirit and intent of this chapter. The program objective is to assist eligible households in purchasing adequate but modest, decent, safe, and sanitary single family dwellings and related facilities for their own use.

§ -3 Hawaii direct home loan special fund. (a) There is established the Hawaii direct home loan special fund into which shall be deposited:

(1) Moneys appropriated to the fund by the legislature;

(2) Gifts, donations, and grants from public agencies and private persons;

(3) Interest earned or accrued on moneys deposited into the fund; and

(4) All moneys received pursuant to this chapter.

(b) The corporation shall use funds for the purposes of this chapter.

§ -4 Direct home loans; interest; fees; payment. (a) Direct loans under this section shall be subject to section ‑7. Direct loans shall be limited to qualified applicants for the purpose of purchasing a completed dwelling and related facilities or to purchase a new or existing dwelling to be used by the qualified applicant as a primary residence. The loan may be for "take out" financing for a loan to construct a new dwelling or improve an existing dwelling when the construction financing is arranged in connection with the loan package. The loan may also include funds for the following purposes:

(1) The purchase and installation of necessary appliances and energy saving measures;

(2) The payment of incidental expenses for tax monitoring services, architectural, appraisal, survey, environmental, and other technical services;

(3) Necessary related facilities such as a garage, storage shed, walks, driveway, and water or sewage facilities including reasonable connection fees for utilities that the buyer is required to pay;

(4) Special design features or equipment necessary to accommodate a physically disabled member of the household;

(5) The cost of establishing an escrow or reserve account for payment of real estate taxes, insurance premiums, or annual fees when they come due;

(6) Title clearance, title insurance, and loan closing; stock in a cooperative lending agency necessary to obtain the loan; and, for low-income applicants only, loan discount points to reduce the note interest rate from the rate authorized in subsection (d) not exceeding the amount typical for the area; and

(7) Provide funds for seller equity or essential repairs when an existing guaranteed loan is to be assumed simultaneously.

(b) Interest charged on a direct home loan made under this section shall be determined by the corporation. Interest charged on a direct home loan shall be modified and subsidized based on the qualified applicant's current income to assist the applicant with qualifying for the loan. The corporation shall document the interest rate and the date the rate was determined.

(d) Unless the loan documents specify other loan repayment terms, principal and interest shall be due and payable monthly. The term for final maturity shall not be less than thirty-three years from the date of the note and not more than thirty-three years from the date of the first scheduled payment; provided that loans for manufactured homes shall be thirty years; provided further that a thirty-eight year term shall be available for borrowers with incomes below sixty per cent of the adjusted area median income who cannot afford a thirty-three year term. The corporation shall collect all payments from the borrower and otherwise service the loan.

(e) The corporation shall review annually each borrower's eligibility for continued payment subsidy and determine the appropriate level of assistance. To be eligible for payment subsidy renewal, the borrower must also occupy the property. The borrower shall notify the corporation whenever an adult member of the household becomes employed or changes employment, whenever there is a change in household composition, or if income increases by at least ten per cent. The household may also report decreases in income. If the change in the household's income will cause the payment for principal and interest to change by at least ten per cent, the household's payment subsidy may be adjusted for a new twelve-month period. The new agreement will be applied to the due date following the date the borrower's information is verified by the corporation.

(f) If a borrower makes less than the scheduled payment, the payment shall be held in suspense and shall not be applied to the borrower's account. When subsequent payments are received in an amount sufficient to equal a scheduled payment, the amount shall be applied in the following order:

(1) Protective advances charged to the account;

(2) Accrued interest due;

(3) Principal due; and

(4) Escrow for taxes and insurance.

(g) The corporation shall cancel a payment subsidy if the borrower does not occupy the property, has sold or transferred title to the property, or is no longer eligible for payment subsidy.

§ -5 Functions, powers, and duties of director. In the performance of, and with respect to, the functions, powers, and duties vested in the director by this chapter, the director may:

(1) Adopt rules pursuant to chapter 91 to carry out this chapter; and

(2) Perform all functions necessary to effectuate the purposes of this chapter.

§ -6 Rules. The rules adopted pursuant to section ‑5 shall:

(1) Establish preferences and priorities in determining eligibility for loans under this chapter;

(2) Establish the conditions, consistent with the purposes of this chapter, for the granting or for the continuance of a grant of a loan under this chapter;

(3) Establish any loan costs owed by the borrower; and

(4) Provide for reasonable inspections of existing dwellings and construction sites.

§ -7 Hawaii direct home loans; terms and restrictions. (a) Payments required under loans under this chapter may be deferred, but no loans under this chapter shall be forgiven.

(b) Prohibited loan purposes shall include:

(1) Payment of construction draws;

(2) Purchase of furniture or other personal property except for essential equipment and materials authorized in accordance with -4;

(3) Purchase or improvement of income-producing land, or buildings to be used principally for income-producing purposes, or to buy or build buildings that are largely or in part specifically designed to accommodate a business or income-producing enterprise;

(4) Improving the entry of a homestead entryman or desert entryman prior to receipt of patent; and

(5) Purchase of a dwelling with an in-ground swimming pool.

(c) Housing units may be financed in existing subdivisions approved by local, regional, state, or federal government agencies. An existing subdivision is one in which the local government has accepted the subdivision plan, its principal development and rights-of-way, the construction of streets, water and water or waste disposal systems, and utilities; is at a point which precludes any major changes; and is one in which provisions are in place for continuous maintenance.

(d) Qualified applicants shall be required to recertify the household's income on an annual basis. The amount of subsidy that the household receives shall be adjusted accordingly.

(e) Qualified applicants shall be required to refinance their loans with a private lender when household income increases substantially or home equity becomes significant.

(f) Payment assistance and subsidies received by the qualified applicant shall be subject to repayment to the corporation when the house is sold, assumed, released, or no longer occupied by the qualified applicant.

(g) The corporation may contract with any financial institution for administrative services related to home loans provided under this chapter.

§ -8 Application of other laws to this chapter. Notwithstanding any law to the contrary, chapter 515 and any applicable federal law shall apply in administering this chapter.

§ -9 Reports. The corporation shall make a report as of December 31 of each year of operations under this chapter to the governor, the president of the senate, and the speaker of the house of representatives on the progress made under this chapter. These reports shall be submitted no later than February 1 immediately following the period covered by the report."

SECTION 2. There is appropriated out of the general revenues of the State of Hawaii the sum of $ or so much thereof as may be necessary for fiscal year 2014-2015 for deposit into the Hawaii direct home loan special fund established by this Act.

SECTION 3. There is appropriated out of the Hawaii direct home loan special fund the sum of $ or so much thereof as may be necessary for fiscal year 2014-2015 for the Hawaii direct home loan program.

The sum appropriated shall be expended by the Hawaii housing finance and development corporation for the purposes of this Act.

SECTION 4. This Act shall take effect on July 1, 2050.

THE SENATE	S.B. NO.	2538
TWENTY-SEVENTH LEGISLATURE, 2014		S.D. 1
STATE OF HAWAII