REPORT TITLE:
Housing loan/mortgage prog.


DESCRIPTION:
Allows short-term floating bonds for repair of public housing;
requires finance institutions to re-finance mortgage if mortgagee
becomes unemployed or underemployed or the interest rate is 1.5%
below the mortgage current rate; authorizes $         in bonds
for Hula Mae Program; authorizes $          in G.O. Bonds to the
Rental Housing Trust Fund. (SD1)

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
                                                        1017
HOUSE OF REPRESENTATIVES                H.B. NO.           H.D. 1
TWENTIETH LEGISLATURE, 1999                                S.D. 1
STATE OF HAWAII                                            
                                                             
________________________________________________________________
________________________________________________________________


                   A  BILL  FOR  AN  ACT

RELATING TO THE HOUSING LOAN AND MORTGAGE PROGRAM.



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

 1      SECTION 1.  The legislature finds that general obligation
 
 2 bonds have terms of fifteen and twenty years and are not
 
 3 applicable to repairs and maintenance of government owned
 
 4 housing.  Unfortunately, the repair and maintenance of government
 
 5 owned housing has been neglected, causing extensive damage.  
 
 6      Therefore, repair and maintenance is needed to extend the
 
 7 life of these buildings.  The legislature further finds that the
 
 8 issuance of short-term bonds appropriated for the repair and
 
 9 maintenance of government owned housing is the solution to our
 
10 public housing that has fallen into a state of disrepair.
 
11 Consequently, interest rates are currently low, which is the best
 
12 opportunity to borrow funds and the increased construction
 
13 activity will promote economic growth.
 
14      The legislature further finds that unemployment and
 
15 underemployment have created too many low-income families who are
 
16 experiencing foreclosure actions by financial institutions.  The
 
17 legislature further finds that foreclosure actions prevent our
 
18 State's economic recovery.  The legislature further finds that
 
19 the mission of financial institutions should be to help families
 

 
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 1 through these difficult economic times.  
 
 2      The legislature further finds that financial institutions
 
 3 are refusing to allow mortgagees to refinance their mortgage if
 
 4 their income is too low (low-income families).  The legislature
 
 5 further finds that this results in families paying higher monthly
 
 6 mortgage payments, resulting in less disposable income.
 
 7 Consequently, this hinders our State's economic recovery, and may
 
 8 result in the loss of a residence or bankruptcy. 
 
 9      The legislature finds that under the Hula Mae Single Family
 
10 Mortgage Purchases Program, the HCDCH is authorized to issue tax
 
11 exempt mortgage revenue bonds and to make funds available through
 
12 mortgage lenders at affordable interest rates to households with
 
13 low to moderate incomes.  As of June 30, 1998, over 8,000 first
 
14 time home buyers have been provided mortgages through the Hula
 
15 Mae program.  In 1997 and 1998, lenders and private developers
 
16 requested over $1 billion of Hula Mae funds, yet only
 
17 approximately $283 million was actually available for lending.
 
18      The legislature finds that authorizing more mortgage revenue
 
19 bonds to be issued will assist the Hula Mae program.
 
20      The legislature further finds that it is in the best
 
21 interest of the State to encourage rental housing that does not
 
22 compete with private developers in the housing sales market.  
 
23      The legislature further finds that the greatest need for
 

 
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 1 housing in the State of Hawaii is for families below eighty per
 
 2 cent of the median income and that the most effective way to
 
 3 perpetuate housing for low-income families is through nonprofit
 
 4 development. 
 
 5      In 1992, the rental housing trust fund was created under
 
 6 Act 308, Session Laws Hawaii, 1992.  The legislature created this
 
 7 fund to provide loans and grants for the development,
 
 8 pre-development, construction, acquisition, preservation, and
 
 9 substantial rehabilitation of rental housing units.
 
10      As of June 30, 1998, the rental housing trust fund
 
11 commission had committed project award loans to twenty-one
 
12 affordable rental developments.  Together they total 1,473 units
 
13 of affordable rental housing.  Projects assisted by the rental
 
14 housing trust fund, provide low interest, flexible term loans for
 
15 low-income housing on Oahu, Maui, Kauai, and Hawaii.
 
16      The purpose of this Act is to:
 
17      (1)  Authorize the state finance director to issue
 
18           short-term floating rate interest general obligation
 
19           bonds for the repair and maintenance of State owned
 
20           public housing; and
 
21      (2)  Require financial institutions to restructure a
 
22           mortgage loan when a mortgagee becomes unemployed or
 
23           underemployed;
 

 
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 1      (3)  Require financial institutions to refinance a mortgage
 
 2           loan if the current market interest rate is at least
 
 3           one and one-half per cent lower than the existing
 
 4           mortgage rate;
 
 5      (4)  Authorize the Housing and Community Development
 
 6           Corporation to issue an additional $           in tax
 
 7           exempt revenue bonds for the Hula Mae Single Family
 
 8           Mortgage Purchase Program; and
 
 9      (5)  Authorize general obligation bonds and to appropriate
 
10           money to the rental housing trust fund to encourage the
 
11           development and availability of low-income rental
 
12           housing throughout the State of Hawaii.
 
13      SECTION 2.  Chapter 201G, Hawaii Revised Statutes, is
 
14 amended by adding a new section to part III, subpart A, to be
 
15 appropriately designated and to read as follows:
 
16      "§201G-     Issuance of bonds for the repair and maintenance
 
17 of public housing.  The state finance director is authorized to
 
18 issue five to ten year, floating interest rate general obligation
 
19 bonds for the purpose of financing the repair and maintenance of
 
20 State owned public housing."
 
21      SECTION 3.  Section 412:5-302, Hawaii Revised Statutes, is
 
22 amended to read as follows:
 
23      "§412:5-302  Limitations on loans and extensions of credit
 

 


 

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

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

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

 
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                                     H.B. NO.           H.D. 1
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 1 partner or member, by law, by the terms of the partnership, joint
 
 2 venture, or membership agreement, or by the terms of an agreement
 
 3 with the bank, is not to be held liable to the bank for the debts
 
 4 of the partnership, joint venture, or association.
 
 5      (e)  Alternatively, a bank may, with the prior approval of
 
 6 the commissioner, comply with the lending limits applicable to
 
 7 national banking associations, as and to the same extent it
 
 8 would, at the time, be so required by federal law or regulation
 
 9 if it were a national banking association.  In monitoring a
 
10 bank's compliance with the national banking association lending
 
11 limits, the commissioner shall give substantial weight to the
 
12 Office of the Comptroller of the Currency's regulations and
 
13 opinions interpreting the national banking association lending
 
14 limits and will regard them as strong evidence of safe and sound
 
15 banking practices. 
 
16      (f)  A bank shall restructure a mortgage note for a
 
17 mortgagee who becomes unemployed or underemployed, subject to
 
18 these conditions:
 
19      (1)  The restructuring period shall not exceed five years;
 
20      (2)  The new mortgage payment shall not be more than thirty
 
21           per cent of the total family household income; and 
 
22      (3)  Household income shall exclude part-time student
 
23           income.
 

 
Page 9                                                     1017
                                     H.B. NO.           H.D. 1
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 1 The mortgagee shall submit proof of unemployment furnished by the
 
 2 state department of labor and industrial relations.  In the case
 
 3 of underemployment, the mortgagee shall furnish proof that the
 
 4 mortgagee's annual income has been reduced by     per cent when
 
 5 compared to the income the mortgagee indicated in obtaining the
 
 6 mortgage.
 
 7      (g)  A bank shall re-finance or restructure a mortgage loan
 
 8 without requalification to a lower interest rate when the
 
 9 prevailing interest rate for mortgages is at least one and
 
10 one-half per cent below the mortgagee's current interest rate."
 
11      SECTION 4.  Section 412:6-302, Hawaii Revised Statutes, is
 
12 amended to read as follows:
 
13      "§412:6-302  Requirements and limits for certain loans.  (a)
 
14 Not less than fifty per cent of the amount of loans and
 
15 extensions of credit made by a savings bank shall be in loans and
 
16 extensions of credit secured by real estate.
 
17      (b)  The aggregate amount loaned by any savings bank for the
 
18 following types of loans, whether secured or unsecured, shall not
 
19 exceed the following limits:
 
20      (1)  Commercial loans:  fifteen per cent of the savings
 
21           bank's total assets.  For purposes of this section
 
22           "commercial loan" means any loan primarily for
 
23           business, corporate, commercial, or agricultural
 

 
Page 10                                                    1017
                                     H.B. NO.           H.D. 1
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 1           purposes where the savings bank substantially relies on
 
 2           the borrower's general credit standing for repayment of
 
 3           the loan and, if the loan is secured by real property,
 
 4           does not primarily rely on the value of or income or
 
 5           projected income from the security for repayment of the
 
 6           loan; and
 
 7      (2)  Education loans:  ten per cent of the savings bank's
 
 8           total assets.  For purposes of this section, "education
 
 9           loan" means any loan the proceeds of which are used to
 
10           pay for tuition, fees, books, and other expenses
 
11           related to primary, secondary, vocational, and
 
12           undergraduate and postgraduate college or university
 
13           education.
 
14      (c)  A savings bank may reclassify or apportion a loan from
 
15 one category to another in this section.
 
16      (d)  A savings bank shall restructure a mortgage note for a
 
17 mortgagee who becomes unemployed or underemployed, subject to
 
18 these conditions:
 
19      (1)  The restructuring period shall not exceed five years;
 
20      (2)  The new mortgage payment shall not be more than thirty
 
21           per cent of the total family household income; and
 
22      (3)  Household income shall exclude part-time student
 
23           income.
 

 
Page 11                                                    1017
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 1 The mortgagee shall submit proof of unemployment furnished by the
 
 2 state department of labor and industrial relations.  In the case
 
 3 of underemployment, the mortgagee shall furnish proof that the
 
 4 mortgagee's annual income has been reduced by     per cent when
 
 5 compared to the income the mortgagee indicated in obtaining the
 
 6 mortgage.
 
 7      (e)  A savings bank shall re-finance or restructure a
 
 8 mortgage loan without requalification to a lower interest rate
 
 9 when the prevailing interest rate for mortgages is at least one
 
10 and one-half per cent below the mortgagee's current interest
 
11 rate." 
 
12      SECTION 5. Section 412:7-302, Hawaii Revised Statutes, is
 
13 amended to read as follows:
 
14      "§412:7-302  Requirements and limits for certain loans.  (a)
 
15 Not less than sixty per cent of the amount of loans and
 
16 extensions of credit made by a savings and loan association shall
 
17 be in loans and extensions of credit secured by real estate.
 
18      (b)  The aggregate amount loaned by any savings and loan
 
19 association for the following types of loans, whether secured or
 
20 unsecured, shall not exceed the following limits:
 
21      (1)  Commercial loans:  twelve and one-half per cent of the
 
22           savings and loan association's total assets.  For
 
23           purposes of this section "commercial loan" means any
 

 
Page 12                                                    1017
                                     H.B. NO.           H.D. 1
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 1           loan primarily for business, corporate, commercial, or
 
 2           agricultural purposes where the savings and loan
 
 3           association substantially relies on the borrower's
 
 4           general credit standing for repayment of the loan and,
 
 5           if the loan is secured by real property, does not
 
 6           primarily rely on the value of or income or projected
 
 7           income from the security for repayment of the loan;
 
 8      (2)  Education loans:  five per cent of the savings and loan
 
 9           association's total assets.  For purposes of this
 
10           section, "education loan" means any loan the proceeds
 
11           of which are used to pay for tuition, fees, books, and
 
12           other expenses related to primary, secondary,
 
13           vocational and undergraduate and postgraduate college
 
14           or university education;
 
15      (3)  Unsecured construction loans:  five per cent of the
 
16           savings and loan association's total assets.  For
 
17           purposes of this section, "unsecured construction loan"
 
18           means any loan to provide financing for what is
 
19           expected to be residential real estate and where the
 
20           savings and loan association relies primarily on the
 
21           borrower's general credit and projected future income,
 
22           if any, from such completed construction.
 
23      (c)  A savings and loan association may reclassify or
 

 
Page 13                                                    1017
                                     H.B. NO.           H.D. 1
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 1 apportion a loan from one category to another in this section.
 
 2      (d)  A savings and loan association shall restructure a
 
 3 mortgage note for a mortgagee who becomes unemployed or
 
 4 underemployed, subject to these conditions:
 
 5      (1)  The restructuring period shall not exceed five years;
 
 6      (2)  The new mortgage payment shall not be more than thirty
 
 7           per cent of the total family household income; and
 
 8      (3)  Household income shall exclude part-time student
 
 9           income.
 
10 The mortgagee shall submit proof of unemployment furnished by the
 
11 state department of labor and industrial relations.  In the case
 
12 of underemployment, the mortgagee shall furnish proof that the
 
13 mortgagee's annual income has been reduced by     per cent when
 
14 compared to the income the mortgagee indicated in obtaining the
 
15 mortgage.
 
16      (e)  A savings and loan association shall re-finance or
 
17 restructure a mortgage loan without requalification to a lower
 
18 interest rate when the prevailing interest rate for mortgages is
 
19 at least one and one-half per cent below the mortgagee's current
 
20 interest rate."
 
21      SECTION 6.  Section 412:9-405, Hawaii Revised Statutes, is
 
22 amended to read as follows:
 
23      "§412:9-405  Loans and extensions of credit fully secured by
 

 


 

Page 14                                                    1017
                                     H.B. NO.           H.D. 1
                                                        S.D. 1
                                                        

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

 
Page 15                                                    1017
                                     H.B. NO.           H.D. 1
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 1 property securing those loans. 
 
 2      (d)  A financial services loan company shall restructure a
 
 3 mortgage note for a mortgagee who becomes unemployed or
 
 4 underemployed, subject to these conditions:
 
 5      (1)  The restructuring period shall not exceed five years;
 
 6      (2)  The new mortgage payment shall not be more than thirty
 
 7           per cent of the total family household income; and
 
 8      (3)  Household income shall exclude part-time student
 
 9           income.
 
10 The mortgagee shall submit proof of unemployment furnished by the
 
11 state department of labor and industrial relations. In the case
 
12 of underemployment, the mortgagee shall furnish proof that the
 
13 mortgagee's annual income has been reduced by     per cent when
 
14 compared to the income the mortgagee indicated in obtaining the
 
15 mortgage.
 
16      (e)  A financial services loan company shall re-finance or
 
17 restructure a mortgage loan without requalification to a lower
 
18 interest rate when the prevailing interest rate for mortgages is
 
19 at least one and one-half per cent below the mortgagee's current
 
20 interest rate."
 
21      SECTION 7.  Section 412:10-409, Hawaii Revised Statutes, is
 
22 amended to read as follows:
 
23      "§412:10-409  Real estate mortgage loans.  (a)  The amount
 

 
Page 16                                                    1017
                                     H.B. NO.           H.D. 1
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 1 of any credit union loan secured by a mortgage on real property
 
 2 shall be limited to the following percentages of the appraised
 
 3 value of the property:
 
 4      (1)  Ninety per cent of the value of any residential real
 
 5           property; and
 
 6      (2)  Eighty per cent of the value of any non-residential
 
 7           real property.
 
 8 The principal amount of the loan shall be added together with the
 
 9 outstanding balances of all prior liens on the real property to
 
10 determine the loan to value ratio.
 
11      (b)  The amount of a loan secured by residential real
 
12 property may be increased by the unencumbered share or deposit
 
13 balances of the borrowing member that are pledged to the loan.
 
14      (c)  Loans secured by real property other than residential
 
15 real property shall provide for the regular reduction of
 
16 principal.
 
17      (d)  For loans secured by real property, the credit union
 
18 may require the borrower to make regular deposits for the payment
 
19 of insurance, taxes, and other expenses assessed against the
 
20 property.
 
21      (e)  A credit union shall restructure a mortgage note for a
 
22 mortgagee who becomes unemployed or underemployed, subject to
 
23 these conditions:
 

 
Page 17                                                    1017
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 1      (1)  The restructuring period shall not exceed five years;
 
 2      (2)  The new mortgage payment shall not be more than thirty
 
 3           per cent of the total family household income; and
 
 4      (3)  Household income shall exclude part-time student
 
 5           income.
 
 6 The mortgagee shall submit proof of unemployment furnished by the
 
 7 state department of labor and industrial relations.  In the case
 
 8 of underemployment, the mortgagee shall furnish proof that the
 
 9 mortgagee's annual income has been reduced by     per cent when
 
10 compared to the income the mortgagee indicated on obtaining the
 
11 mortgage.
 
12      (f)  A credit union shall re-finance or restructure a
 
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 8.  Section 7 of Act 50, Session Laws of Hawaii
 
17 1979, as amended by section 3 of Act 288, Session Laws of Hawaii
 
18 1980, as amended by section 2 of Act 13, First Special Session
 
19 Laws 1981, section 1 of Act 224, Session Laws of Hawaii 1984,
 
20 section 1 of Act 171, Session Laws of Hawaii 1991, and section 7
 
21 of Act 1, Special Session Laws of Hawaii 1995, is amended to read
 
22 as follows:
 
23      "SECTION 7.  Issuance of revenue bonds; amount authorized.
 

 
Page 18                                                    1017
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 1 Revenue bonds may be issued by the housing [fin] and community
 
 2 development corporation of Hawaii pursuant to part III, chapter
 
 3 39, and subpart B of part [II] III of chapter [201E,] 201G,
 
 4 Hawaii Revised Statutes, in an aggregate principal amount not to
 
 5 exceed [$1,775,000,000] $           at such times and in such
 
 6 amounts as it deems advisable for the purpose of undertaking and
 
 7 maintaining any of its housing loan programs in subpart B of part
 
 8 [II] III of chapter [201E,] 201G, Hawaii Revised Statutes,
 
 9 relating to the funding or purchasing of eligible loans."
 
10      SECTION 9.  The director of finance is authorized to issue
 
11 general obligation bonds in the sum of $          , or so much
 
12 thereof as may be necessary, and the same sum, or so much thereof
 
13 as may be necessary, is appropriated for fiscal year 1999-2000 to
 
14 be paid into the rental housing trust fund created in section
 
15 201G-432, Hawaii Revised Statutes.
 
16      The sum appropriated shall be expended by the housing and
 
17 community development corporation of Hawaii for the purpose of
 
18 this Act.
 
19      SECTION 10.  Statutory material to be repealed is bracketed.
 
20 New statutory material is underscored.
 
21      SECTION 11.  This Act shall take effect upon its approval,
 
22 except section 9 shall take effect on July 1, 1999.