REPORT TITLE:
Cooperative Agricultural Loans


DESCRIPTION:
Creates a program that enables cooperating lenders to provide
loan funds with the department of agriculture providing
counseling, credit underwriting, collection, and loan servicing.

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
                                                        
HOUSE OF REPRESENTATIVES                H.B. NO.1628       
TWENTIETH LEGISLATURE, 1999                                
STATE OF HAWAII                                            
                                                             
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                   A  BILL  FOR  AN  ACT

RELATING TO AGRICULTURAL LOANS.



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

 1      SECTION 1.  The legislature finds that the State's
 
 2 diversified agriculture is at a critical juncture.  Over the
 
 3 years, the State invested public funds for diversified
 
 4 agriculture research and development.  This investment is now
 
 5 coming to fruition.  With the closure of most of the State's
 
 6 sugar plantations, prime agricultural land, water, and an
 
 7 agriculturally oriented labor force are now available for
 
 8 agricultural development and expansion.  One of the factors
 
 9 limiting further growth is the availability of financing at
 
10 reasonable rates and terms.
 
11      The legislature recognizes that during this period of fiscal
 
12 austerity, creativity is needed to provide assistance without
 
13 expending scarce state funds.  In order to achieve this end, new
 
14 funding sources for agricultural loans need to be developed.
 
15 This Act creates a program that enables cooperating lenders to
 
16 provide loan funds with the department of agriculture providing
 
17 counseling, credit underwriting, collection, and loan servicing.
 
18      SECTION 2.  Chapter 155, Hawaii Revised Statutes, is amended
 
19 by adding a new section to be appropriately designated and to
 

 
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 1 read as follows:
 
 2      "§155-     Cooperation in loans by the department.  (a)  The
 
 3 department of agriculture, for a fee, may underwrite and service
 
 4 loans for cooperating private lenders and government loan
 
 5 programs providing loan funds to qualified farmers.  All fees
 
 6 shall be deposited into the agricultural loan reserve fund.
 
 7      (b)  Loans made under this section shall not be subject to
 
 8 the restrictions in section 155-3.
 
 9      (c)  Loans made under this section shall be limited by
 
10 sections 155-1 and 155-9 to 155-12.  No class "D" and "F" loans
 
11 shall be made under this section.
 
12      (d)  Loans made under this section shall bear simple
 
13 interest on the unpaid principal balance charged on the actual
 
14 amount disbursed to the borrower.  The interest rate on class
 
15 "A", "B", "C", and "E" loans shall be at a rate of two per cent
 
16 above the prime rate or at a rate of eight and one-half per cent
 
17 a year, whichever is less.  For purposes of this subsection, the
 
18 prime rate shall be determined on January 1 and July 1 of each
 
19 year and shall be the prime rate charged by the two largest banks
 
20 in the State identified by the department of commerce and
 
21 consumer affairs.  If the prime rates of the two largest banks
 
22 are different, the higher prime rate of the two shall apply.
 
23      The director of commerce and consumer affairs shall publish
 

 
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 1 a notice statewide pursuant to section 1-28.5 to specify the
 
 2 prime rate.
 
 3      (e)  For loans made under this section, funds shall be
 
 4 disbursed in accordance with rules adopted by the department
 
 5 pursuant to chapter 91.
 
 6      (f)  The department and the cooperating lender may charge a
 
 7 filing fee for any application made under this section.  However,
 
 8 the applicant shall pay for any actual expenses incurred.
 
 9      (g)  The department and the cooperating lender may mutually
 
10 agree on underwriting criteria, functions, responsibilities, and
 
11 fees for loan underwriting and loan servicing, by way of a
 
12 memorandum of agreement.  The memorandum of agreement shall be
 
13 approved by the chairperson of the board of agriculture."
 
14      SECTION 3.  Section 88-119, Hawaii Revised Statutes, is
 
15 amended to read as follows:
 
16      "§88-119  Investments.  Investments may be made in:
 
17      (1)  Real estate loans and mortgages.  Obligations (as
 
18           defined in section 431:6-101) of any of the following
 
19           classes:
 
20           (A)  Obligations secured by mortgages of nonprofit
 
21                corporations desiring to build multirental units
 
22                (ten units or more) subject to control of the
 
23                government for occupancy by families displaced as
 

 
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 1                a result of government action;
 
 2           (B)  Obligations secured by mortgages insured by the
 
 3                Federal Housing Administration;
 
 4           (C)  Obligations for the repayment of home loans made
 
 5                under the Servicemen's Readjustment Act of 1944 or
 
 6                under Title II of the National Housing Act;
 
 7           (D)  Obligations secured by mortgages on farm land
 
 8                guaranteed by the department of agriculture under
 
 9                chapter 155;
 
10          [(D)] (E)  Other obligations secured by first mortgages
 
11                on unencumbered improved real estate owned in fee
 
12                simple; provided that the amount of the obligation
 
13                shall not at the time investment is made therein
 
14                exceed eighty per cent of the value of the real
 
15                estate and improvements mortgaged to secure it,
 
16                and except that the amount of the obligation at
 
17                the time investment is made therein may exceed
 
18                eighty per cent but no more than ninety per cent
 
19                of the value of the real estate and improvements
 
20                mortgaged to secure it; provided further that the
 
21                obligation is insured or guaranteed against
 
22                default or loss under a mortgage insurance policy
 
23                issued by a casualty insurance company licensed to
 

 
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 1                do business in the State.  The coverage provided
 
 2                by the insurer should be sufficient to reduce the
 
 3                system's exposure to not more than eighty per cent
 
 4                of the value of the real estate and improvements
 
 5                mortgaged to secure it.  Such insurance coverage
 
 6                shall remain in force until the principal amount
 
 7                of the obligation is reduced to eighty per cent of
 
 8                the market value of the real estate and
 
 9                improvements mortgaged to secure it, at which time
 
10                the coverage shall be subject to cancellation
 
11                solely at the option of the board of trustees.
 
12                Real estate shall not be deemed to be encumbered
 
13                within the meaning of this subparagraph by reason
 
14                of the existence of any of the restrictions,
 
15                charges, or claims described in section 431:6-308;
 
16          [(E)] (F)  Other obligations secured by first mortgages
 
17                of leasehold interests in improved real estate;
 
18                provided that:
 
19                (i)  Each such leasehold interest at such time
 
20                     shall have a current term extending at least
 
21                     two years beyond the stated maturity of the
 
22                     obligation it secures; and
 
23               (ii)  The amount of the obligation shall not at the
 

 
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 1                     time investment is made therein exceed eighty
 
 2                     per cent of the value of the respective
 
 3                     leasehold interest and improvements, and
 
 4                     except that the amount of the obligation, at
 
 5                     the time investment is made therein, may
 
 6                     exceed eighty per cent but no more than
 
 7                     ninety per cent of the value of the leasehold
 
 8                     interest and improvements mortgaged to secure
 
 9                     it;
 
10                provided further that the obligation is insured or
 
11                guaranteed against default or loss under a
 
12                mortgage insurance policy issued by a casualty
 
13                insurance company licensed to do business in the
 
14                State.  The coverage provided by the insurer
 
15                should be sufficient to reduce the system's
 
16                exposure to not more than eighty per cent of the
 
17                value of the leasehold interest and improvements
 
18                mortgaged to secure it.  Such insurance coverage
 
19                shall remain in force until the principal amount
 
20                of the obligation is reduced to eighty per cent of
 
21                the market value of the leasehold interest and
 
22                improvements mortgaged to secure it, at which time
 
23                the coverage shall be subject to cancellation
 

 
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 1                solely at the option of the board of trustees;
 
 2          [(F)] (G)  Obligations for the repayment of home loans
 
 3                guaranteed by the department of Hawaiian home
 
 4                lands pursuant to section 214(b) of the Hawaiian
 
 5                Homes Commission Act, 1920; and
 
 6          [(G)] (H)  Obligations for the repayment of loans
 
 7                guaranteed by the department of agriculture
 
 8                pursuant to chapter 155; and
 
 9          [(H)] (I)  Obligations secured by second mortgages on
 
10                improved real estate for which the mortgagor
 
11                procures a second mortgage on the improved real
 
12                estate for the purpose of acquiring the
 
13                leaseholder's fee simple interest in the improved
 
14                real estate; provided that any prior mortgage does
 
15                not contain provisions which might jeopardize the
 
16                security position of the retirement system or the
 
17                borrower's ability to repay the mortgage loan.
 
18           The board of trustees may retain such real estate,
 
19           including leasehold interests therein, as it may
 
20           acquire by foreclosure of mortgages or in enforcement
 
21           of security, or as may be conveyed to it in
 
22           satisfaction of debts previously contracted; provided
 
23           that all such real estate, other than leasehold
 

 
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 1           interests, shall be sold within five years after
 
 2           acquiring the same, subject to extension by the
 
 3           governor for additional periods not exceeding five
 
 4           years each, and that all such leasehold interests shall
 
 5           be sold within one year after acquiring the same,
 
 6           subject to extension by the governor for additional
 
 7           periods not exceeding one year each;
 
 8      (2)  Government obligations, etc.  Obligations of any of the
 
 9           following classes:
 
10           (A)  Obligations issued or guaranteed as to principal
 
11                and interest by the United States or by any state
 
12                thereof or by any municipal or political
 
13                subdivision or school district of any of the
 
14                foregoing; provided that principal of and interest
 
15                on such obligations are payable in currency of the
 
16                United States; or sovereign debt instruments
 
17                issued by agencies of, or guaranteed by foreign
 
18                governments;
 
19           (B)  Revenue bonds, whether or not permitted by any
 
20                other provision hereof, of the State or any
 
21                municipal or political subdivision thereof,
 
22                including the board of water supply of the city
 
23                and county of Honolulu, and street or improvement
 

 
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                                     H.B. NO.1628       
                                                        
                                                        

 
 1                district bonds of any district or project in the
 
 2                State; and
 
 3           (C)  Obligations issued or guaranteed by any federal
 
 4                home loan bank including consolidated federal home
 
 5                loan bank obligations, the Home Owner's Loan
 
 6                Corporation, the Federal National Mortgage
 
 7                Association, or the Small Business Administration;
 
 8      (3)  Corporate obligations.  Investments may be made in
 
 9           below investment grade or nonrated debt instruments,
 
10           foreign or domestic, in accordance with investment
 
11           guidelines adopted by the board of trustees;
 
12      (4)  Preferred and common stocks.  Shares of preferred or
 
13           common stock of any corporation created or existing
 
14           under the laws of the United States or of any state or
 
15           district thereof or of any country;
 
16      (5)  Obligations eligible by law for purchase in the open
 
17           market by federal reserve banks;
 
18      (6)  Obligations issued or guaranteed by the International
 
19           Bank for Reconstruction and Development, the Inter-
 
20           American Development Bank, the Asian Development Bank,
 
21           or the African Development Bank;
 
22      (7)  Obligations secured by collateral consisting of any of
 
23           the securities or stock listed above and worth, at the
 

 
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                                     H.B. NO.1628       
                                                        
                                                        

 
 1           time the investment is made, at least fifteen per cent
 
 2           more than the amount of the respective obligations;
 
 3      (8)  Insurance company obligations.  Contracts and
 
 4           agreements supplemental thereto providing for
 
 5           participation in one or more accounts of a life
 
 6           insurance company authorized to do business in Hawaii,
 
 7           including its separate accounts, and whether the
 
 8           investments allocated thereto are comprised of stocks
 
 9           or other securities or of real or personal property or
 
10           interests therein;
 
11      (9)  Interests in real property.  Interests in improved or
 
12           productive real property in which, in the informed
 
13           opinion of the board of trustees, it is prudent to
 
14           invest funds of the system.  For purposes of this
 
15           paragraph, "real property" includes any property
 
16           treated as real property either by local law or for
 
17           federal income tax purposes.  Investments in improved
 
18           or productive real property may be made directly or
 
19           through pooled funds, including common or collective
 
20           trust funds of banks and trust companies, group or unit
 
21           trusts, limited partnerships, investment trusts, title-
 
22           holding corporations recognized under section
 
23           [501(c)(2) or section 501(c)(23)] 501(c) of the
 

 
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                                     H.B. NO.1628       
                                                        
                                                        

 
 1           Internal Revenue Code of 1986, as amended, and other
 
 2           pooled funds invested on behalf of the system by
 
 3           investment managers retained by the system;
 
 4     (10)  Other securities and futures contracts.  Securities and
 
 5           futures contracts in which in the informed opinion of
 
 6           the board of trustees it is prudent to invest funds of
 
 7           the system, including currency, interest rate, bond,
 
 8           and stock index futures contracts and options on such
 
 9           contracts to hedge against anticipated changes in
 
10           currencies, interest rates, and bond and stock prices
 
11           that might otherwise have an adverse effect upon the
 
12           value of the system's securities portfolios; covered
 
13           put and call options on securities; and stock; whether
 
14           or not the securities, stock, futures contracts, or
 
15           options on futures are expressly authorized by or
 
16           qualify under the foregoing paragraphs, and
 
17           notwithstanding any limitation of any of the foregoing
 
18           paragraphs (including paragraph (4)); and
 
19     (11)  Private placements.  Investments in institutional blind
 
20           pool limited partnerships or direct investments which
 
21           make private debt and equity investments in privately
 
22           held companies."
 
23      SECTION 4.  Statutory material to be repealed is bracketed.
 

 
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 1 New statutory material is underscored.
 
 2      SECTION 5.  This Act shall take effect upon its approval.
 
 3 
 
 4                           INTRODUCED BY:  _______________________