Chapter 27

HAWAII ADMINISTRATIVE RULES
TITLE 6
DEPARTMENT OF BUDGET AND FINANCE
EMPLOYEES’ RETIREMENT SYSTEM
CHAPTER 27
MEMBER HOME LOAN PROGRAM
§6-27-1 	Scope
§6-27-2 	Definitions
§6-27-3 	Purpose of program
§6-27-4 	Operation of program; in general
§6-27-5 	Purpose of loan
§6-27-6 	Persons eligible for member home loans
§6-27-7 	Eligibility for another loan; limitations
§6-27-8 	Property qualifying under program; construction by owner
§6-27-9 	Co-ownership of mortgaged property
§6-27-10 	Creditworthiness
§6-27-11 	Monthly mortgage payment to income ratio
§6-27-12 	First mortgage loans; minimum and maximum loan amounts
§6-27-13 	Leasehold conversion loans; minimum and maximum
amounts
§6-27-14 	Term
§6-27-15 	Sale or transfer of mortgaged property
§6-27-16 	Assumption
§6-27-17 	Certification of applicant’s eligibility; delivery of loan
§6-27-18 	Precertification of applicant’s eligibility
§6-27-19 	Insurance
§6-27-20 	Security for loans
§6-27-21 	Interest rate
§6-27-22 	Prepayment penalty; allowable loan charges
§6-27-23 	Affidavit of occupancy
§6-27-24 	Sanctions
§6-27-25 	Request for review
§6-27-1 	Scope. This chapter shall govern the administration of
the member home loan program adopted by the board of trustees of the
system. [Eff 2/9/89] (Auth: HRS §§88-28, 88-119.5)

§6-27-1
(Imp: §§88-119, 88-119.5)
§6-27-2 	Definitions. As used in this chapter:
“Active member” means a member who is an employee within the
meaning of section 88-21, Hawaii Revised Statutes, and does not include
a member who ceases to be an employee, notwithstanding the member’s
establishment of vested benefit status provided in sections 88-96 and 88-
281, Hawaii Revised Statutes.
“Board” or “board of trustees” means the board of trustees of the
system.
“Borrower” means the person who signs the note evidencing the
loan and the mortgage securing it.
“Eligible member” means a person who meets the eligibility
requirements of section 6-27-6.
“Home improvement” means an addition made to the property and
shall not include renovations, maintenance, repairs, or replacement of
furniture, fixtures, or appliances.
“Leasehold conversion loan” means:
(1) 	To purchase the fee simple interest where there is an
existing first leasehold mortgage loan:
(2) 	To satisfy an agreement of sale for the purchase of the fee
simple interest where there is an existing first leasehold
mortgage loan; or
(3) 	To refinance a loan made for the purchase of the fee simple
interest where there is an existing first leasehold mortgage
loan.
“Lender” means a financial institution which may by law make loans
secured by first or second mortgages on real estate and which
participates in the member home loan program under an agreement with
the system.
“Loan” or “member home loan” means a loan made under the
member home loan program.
“Member” means an active member or retirant.
“Program” means the member home loan program.
“Retirant” means a member who has retired and becomes a
beneficiary of the system and includes an elective officer or judge who
terminates membership in the system as provided in section 88-61(c),
Hawaii Revised Statutes.
“System” means the employees’ retirement system of the State of
Hawaii. [Eff 2/9/89] (Auth: HRS §§88-28, 88-119.5) (Imp: HRS §§88-
119, 88-119.5)

§6-27-4
§6-27-3 	Purpose of program. The purpose of the home loan
program is to facilitate investment of system funds in a well-secured,
prudent, and historically sound investment vehicle, and at the same time
to assist eligible members of the system in the purchase, construction, or
improvement of a principal home, the purchase of leasehold land on
which existing homes are located, and in refinancing certain mortgage
loans. [Eff 2/9/89] (Auth: HRS §§88-28, 88-119.5) (Imp: HRS 88-119,
88-119.5)
§6-27-4 	Operation of program; in general. (a) Periodically, the
board of trustees of the system may allocate as part of its overall
investment program, and under the limitations as are set forth in section
88-119(1), Hawaii Revised Statutes, a portion of its investment funds for
investment in the member home loan program. Funds so allocated shall
be further allocated to participating financial institutions.
(b) 	Members of the system desiring a member home loan shall
apply to a participating financial institution for a member home loan. A
participating financial institution shall not accept a loan application from a
member unless the participating financial institution has an office on the
island which the member is residing.
(c) 	The participating financial institution shall:
(1) 	Apply to the system for certification of the applicant’s
eligibility for a loan;
(2) 	Ensure the purpose for which the loan is sought is an eligible
purpose under this chapter;
(3) 	Determine the applicants’ creditworthiness;
(4) 	Make the loan in its own name as lender;
(5) 	Forward the note, mortgage and the documentation as shall
be required by the system to the system for its approval.
(d) 	Providing the loan and the mortgage securing the loan are
made in accordance with the requirements of this chapter, the lending
institution shall endorse the note and assign the mortgage and note to the
system which shall purchase the same from the lending institution.
(e) 	The system may, in its discretion, service the loan or forward
it to a financial institution having a servicing agreement with the system.
[Eff 2/9/89] (Auth: HRS §§88-28, 88-119.5)

§6-27-4
(Imp: HRS §§88-119, 88-119.5)
§60-27-5 	Purpose of loan. Member home loans shall be made
for the following verified purposes only:
(1) 	To purchase, construct, or improve a principal home;
(2) 	To satisfy an outstanding agreement of sale to buy a
principal home;
(3) 	To convert a construction loan not made under the program
for the construction of a principal home or home
improvement loan to a permanent member home loan;
(4) 	To purchase the fee simple interest in a principal home
situated on leasehold land;
(5) 	To refinance an existing first mortgage loan which was not
made under the program;
(6) 	To refinance an existing member home loan if the purpose is
to finance proposed or prospective home improvements
amounting to at least the minimum loan amount set by the
board of trustees or to purchase the leasehold property in
fee;
(7) 	To refinance an existing second mortgage loan not made
under the program and convert it to a first mortgage member
home loan if the second mortgage loan was made for the
purpose of:
(A) 	Making the down payment for the subject property;
(B) 	Purchasing leasehold property in fee; or
(C) 	Making home improvements;
(8) 	To purchase the fee simple interest where there is an
existing first leasehold mortgage loan;
(9) 	To satisfy an agreement of sale for the purchase of the fee
simple interest where there is an existing first leasehold
mortgage loan; or
(10) 	To refinance a loan made for the purchase of the fee simple
interest where there is an existing first leasehold mortgage
loan.
Cash take out shall not be permitted under the member home loan
program. [Eff 2/9/89; am 12/24/90; am 6/11/92] (Auth: HRS §§88-28, 88-
119.5) (Imp: HRS §§88-119, 88-119.5)
§6-27-6 	Persons eligible for member home loans. To be
eligible for a member home loan, the applicant shall be a retirant or an
active member of the system with at least twelve continuous months of

§6-27-8
membership service immediately before certification by the system that
the applicant is eligible for the loan, provided that:
(1) 	An active member whose appointment (employment) is for a
fixed period of time or to a fixed date shall have had at least
eighteen continuous months of membership service
immediately before certification and, in addition, shall have
at least six months remaining in the period of appointment.
If the remaining period of appointment is less than six
months, the system may waive the six month requirement
upon presentation of written assurance of reappointment
given by the appointing authority;
(2) 	An active member on leave without pay shall not be eligible;
(3) 	A member who has an outstanding member home loan shall
not be eligible, except as otherwise provided in section
6-27-7;
(4) 	A member shall not be eligible to apply for or obtain a loan
for another person. [Eff 2/9/89] (Auth: HRS §§88-28, 88-
119.5) (Imp: HRS §88-119, 88-119.5)
§6-27-7 	Eligibility for another loan; limitations. A member who
once had a member home loan or who has an outstanding member home
loan shall not be eligible for another member home loan unless both of the
following conditions are met:
(1) 	The expiration of two years after the date the system
purchased the prior or outstanding loan from the lender:
(2) 	Full satisfaction of the prior or outstanding loan. [Eff 2/9/89]
(Auth: HRS §88-28, 88-119.5) (Imp: HRS §88-119.5)
§6-27-8 	Property qualifying under program; construction by
owner. (a) To qualify under the member home loan program, the
property securing the loan shall be located in the State of Hawaii and shall
be held in fee simple or on an acceptable leasehold upon which there is
located:
(1) 	A one- to four-family dwelling or structure which may be
attached or detached;

§6-27-8
(2) 	A one-family dwelling unit in a planned development; or
(3) 	A one-family unit in a condominium project or townhouse;
occupied or to be occupied by the member as the member’s principal
home. The appraisal shall include the value of all improvements but the
value of the unit or units not occupied by the member shall be deducted in
computing the loan-to-value ratio.
(b) 	The system may refuse to purchase a loan secured by
property which is not served by any utilities, lacks or has difficult access to
or from a paved public road, does not conform to all applicable zoning and
use restrictions, is located on a substandard lot, is a lodging unit, or has
any other unusual characteristic which may affect its value. The lender
may request the system’s prior written approval as to whether a specific
property qualifies for purchase by the system before issuing a loan
commitment to the applicant.
(c) 	The system shall not purchase any member home loan
made for the construction of or improvements to a principal home, where
the construction was done or improvements were made by the owner as
contractor. [Eff 2/9/89] (Auth: HRS §§88-28, 88-119.5) (Imp: HRS §§88-
119, 88-119.5)
§6-27-9 	Co-ownership of mortgaged property. The member or
the member and the member’s spouse, if married, shall have at least a
fifty per cent interest in the mortgaged property. If the member is not the
sole owner of the mortgaged property, all persons whose signatures are
required to create a valid first mortgage lien upon the mortgaged property
shall sign the mortgage. [Eff 2/9/89] (Auth: HRS §§88-28, 88-119.5)
(Imp: HRS §§88-119, 88-119.5)
§6-27-10 	Creditworthiness. The lender shall be responsible for
determining the creditworthiness of each applicant who applies to it for a
member home loan. In making that determination the lender shall take
into consideration:
(1) 	The applicant’s monthly debt payment to income ratio;
(2) 	The applicant’s credit reputation; and

§6-27-11
(3) 	Any other factor considered by a prudent lender. [Eff 2/9/89]
(Auth: HRS §88-28, 88-119.5) (Imp: HRS §§88-119, 88-
119.5)
§6-27-11 	Monthly mortgage payment to income ratio. (a) As
used in this section:
“Applicant” means any person signing the note or mortgage, or
both, and occupying the subject property, including an eligible member.
“Guarantors, endorsers, or co-signers” means the persons signing
the note or mortgage, or both, but who may or may not be occupying the
subject property.
(b) 	As a general rule, the lender shall require that the applicant’s
monthly mortgage payment does not exceed twenty-eight and one-half
percent of the applicant’s stable monthly income less any monthly debt
payments.
(c) 	Monthly mortgage payment shall include first mortgage
payment, hazard and flood insurance payments, lease rent, property
taxes, and monthly dues for common element/property charges and
maintenance, but excluding unit utility charges for condominiums and
property with similar dues and charges.
(d) 	Monthly debt payment shall include all monthly payments on
installment debts having a remaining term of one year or more.
Secondary financing for the subject property, mortgage loan payment for
other properties, alimony, child support, and separate maintenance
payments shall be considered installment debts, unless the obligations
terminate within one year.
(e) 	Stable monthly income is the applicant’s gross monthly
income from the applicant’s primary employment base earnings plus
recognizable secondary income averaged for the past twelve months.
Secondary income of the applicant, such as rental income, overtime or
part-time employment may be included in stable monthly income only if
those items of secondary income are substantiated by written evidence of
the applicant’s previous year’s earnings and that the continuation thereof
is probable. Interest and dividends may be considered if substantiated by
written evidence and averaged for the past two years. Rental income for
the subject property may be considered if substantiated by written
evidence.
(f) 	If the applicant chooses to disclose income from alimony,
child support, or maintenance payments, the lender may consider those

§6-27-11
payments as income to the extent that they are likely to be consistently
made. Factors which the lender may consider in making that
determination include, but shall not be limited to:
(1) 	Whether the payments are received pursuant to written
agreement or court decree;
(2) 	The length of time the payments have been received;
(3) 	The regularity of payments;
(4) 	The availability of procedures to compel payment;
(5) 	Whether full or partial payments have been made;
(6) 	The age of any child; and
(7) 	The creditworthiness of the payer, including the credit history
of the payer where available to the lender under the Fair
Credit Reporting Act (15 USC §§1681-1681t) or other
applicable laws. The lender shall submit to the system
evidence to support its determination.
(g) 	Factors such as expected pay increases under union or
other contract terms, education, training, technical skills, occupation,
potential or expected pay increases, past employment history, and future
employment expectations may be taken into account on a case-by-case
basis in determining stable monthly income. Income necessary to qualify
the borrower from sources not substantiated in the credit report shall be
verified in writing from a reliable source. When the borrower is self-
employed, the minimum acceptable documentation to verify income shall
be the:
(1) 	Profit and loss statements for the prior two years, the last
statement covering the year ending before the applicant’s
application; or
(2) 	Tax returns for the previous two years.
(h) 	If the applicant does not qualify for the loan under the above
credit underwriting guidelines, the system shall consider purchasing on a
case-by-case basis a loan with no more than two personal guarantors,
endorsers or other co-signers. The guarantee, endorsement or
agreement shall not be qualified or limited in any manner. All credit
underwriting standards shall apply to the credit evaluation of a guarantor,
endorser, or co-signer. The monthly mortgage payment shall not exceed
twenty-eight and one-half per cent of the combined stable monthly income
of the applicant and the guarantor, endorser, or co-signer less any
monthly debt payments. In addition, the

§6-27-12
applicant’s monthly mortgage payment shall not exceed forty per cent of
the applicant’s stable monthly income less any monthly debt payments.
(i) 	If an eligible member is already liable for a member home
loan and wishes to guarantee, endorse or co-sign the note for another
member home loan, the mortgage loan payment for both loans shall not
exceed twenty-eight and one-half per cent of the eligible member’s stable
monthly income less any monthly debt payments.
(j) 	If an eligible member has guaranteed, endorsed, or co-
signed for an existing member home loan and is applying for his own
member home loan, the mortgage loan payment for both loans shall not
exceed twenty-eight and one-half per cent of the eligible member’s stable
monthly income less any monthly debt payments.
(k) 	If the applicant is applying for a leasehold conversion loan,
the monthly mortgage payment shall not exceed twenty-eight and one-half
per cent of the applicant’s stable monthly income less any monthly debt
payment including the first mortgage payment for the subject property.
[Eff 2/9/89] (Auth: HRS §§88-28, 88-119.5) (Imp: HRS §§88-119, 88-
119.5)
§6-27-12 	First mortgage loans; minimum and maximum loan
amounts. (a) No member home loan secured by a first mortgage on
unencumbered improved real estate owned in fee simple shall exceed
eighty per cent of the lesser of the purchase price or the appraised value
of the real estate mortgaged to secure it.
(b) 	No member home loan secured by a first mortgage on
leasehold interest in improved real estate shall exceed eighty per cent of
the lesser of the purchase price or the appraised value of the leasehold
interest and improvements.
(c) 	If the purpose of the member home loan is to satisfy an
agreement of sale, the loan-to-value ratio shall be the lesser of the
purchase price, if purchased less than one year ago, or the appraised
value.
(d) 	If the loan-to-value ratio is over eighty per cent, lenders shall
obtain the system’s prior written approval for mortgage insurance. The
mortgage insurance shall be obtained from a mortgage insurer licensed to
do business in the State of Hawaii and shall insure or guarantee against
the borrower’s default or loss sufficient to reduce the system’s exposure

§6-27-12
to not more than eighty per cent of the value of the mortgaged property.
Mortgage insurance coverage shall remain in force until the principal
amount of the loan is reduced to eighty per cent of the market value of the
mortgaged property, at which time the coverage shall be subject to
cancellation solely at the board’s option. The borrow shall pay for the
premiums for the insurance.
(e) 	No member home loan secured by a first mortgage shall be
made in an amount which is less than or greater than the minimum or
maximum loan amounts set by the board of trustees. The minimum and
maximum loan amounts shall be set and may be periodically adjusted by
the board of trustees at any of its regularly scheduled meetings. Notice of
the board’s intention to adjust the minimum and maximum loan amounts
shall be included in the agenda for the meeting at which loan amounts
shall be set or adjusted.
(f) 	There shall be a minimum cash equity of ten per cent of the
purchase price for home purchases. [Eff 2/9/89; am 12/24/90; am
6/11/92] (Auth: HRS §§88-28, 88-119.5) (Imp: HRS §§88-119, 88-
119.5)
§6-27-13 	Leasehold conversion loans; minimum and maximum
amounts. (a) The collateral shall be a first mortgage on the fee simple
interest and a second mortgage on the leasehold interest on improved
real estate.
(b) 	No leasehold conversion loan shall be made in an amount
less than the minimum loan amount set by the board of trustees.
(c) 	No leasehold conversion loan shall be made which, when
combined with the outstanding balance of a first leasehold member home
loan, exceeds the maximum loan amount set by the board of trustees, or
when the combined balances of the first leasehold mortgage loan and the
amount of the leasehold conversion loan exceeds eighty per cent of the
appraised value of the real estate mortgaged to secure it. [Eff 2/9/89; am
12/24/90; am 6/11/92] (Auth: HRS §§88-28, 88-119.5) (Imp: §§88-119,
88-119.5)
§6-27-14 	Term. (a) The term of any member home loan shall
not exceed thirty years or the lesser period as may be determined
appropriate upon consideration of the character and economic life of the

§6-27-15
property securing the loan. There shall be no minimum term requirement.
(b) 	If the loan is secured by first mortgage on leasehold
property, the fixed rental term of the lease shall extend at least five years
after the date of the execution of the note and mortgage, and the
remaining term of the lease shall extend at least two years after the stated
maturity date of the note and mortgage.
(c) 	The term of any leasehold conversion loan shall not exceed
fifteen years. [Eff 2/9/89] (Auth: HRS §§88-28, 88-119.5) (Imp: HRS
§§88-119, 88-119.5)
§6-27-15 	Sale or transfer of mortgaged property. (a) Every
mortgage shall contain a due-on-sale clause giving the system the right to
require the borrower to make immediate payment in full of the entire
indebtedness secured by the mortgage if the borrower sells or transfers all
or a part of the mortgaged property, including any equitable or beneficial
interest, without first obtaining the system’s prior written consent.
(b) 	The requirement for prior consent shall not apply to a
transfer to an inter vivos trust in which the borrower is and remains the
beneficiary and which does not relate to the transfer of the borrower’s
occupancy of the mortgaged property. The attorney preparing the inter
vivos trust document shall issue a statement acknowledging that he or she
has read the provisions of this section, and represents that the transfer of
the interest in the mortgaged property into the inter vivos trust conforms to
the limitations under this section. This statement shall be submitted to the
participating financial institution. The due-on-sale clause shall be fully
effective as to any sale or transfer of the mortgaged trust property by the
trustee, or sale or transfer of the borrower’s equitable or beneficial interest
in the property, without the prior written consent of the system.
(c) 	The system’s consent shall be subject to the member home
loan program policy in effect on the date a request for consent is received
by the system.
(d) 	The system’s right to require the borrower or trustee to make
payment in full with respect to the sale or transfer shall be subject to any
applicable federal or state laws which restrict or prohibit the system’s
exercise of the right.
(e) 	The system shall not unreasonably withhold its consent to

§6-27-15
the borrower’s sale or transfer of the mortgaged property by agreement of
sale, provided the system’s mortgage priority is not affected by the sale or
transfer, the borrower is not in default of the loan or has not broken any
promises made in obtaining the loan, has notified the system within a
reasonable time of the proposed transaction, and agrees to:
(1) 	The shortening of the remaining loan term to the earlier of:
(A) 	The term of the agreement of sale: or
(B) 	Three years and to make immediate payment in full of
all amounts due if the buyer under the agreement of
sale is not an eligible member;
(2) 	The increase of the interest rate for the loan to the lesser of
either four per cent above the interest rate then in effect or
the interest rate then in effect for the program; except if the
result is less than the interest rate for the loan in effect there
shall be no change in the interest rate;
(3) 	Pay or reimburse the lender, servicer, or the system, as the
case may be, for all costs or expenses, including reasonable
attorney’s fees and consent fees incurred to review the
proposed transaction and draft documents;
(4) 	Acknowledge that the system shall not consent to any
assumption of the loan or to any further sale or transfer of
the mortgaged property;
(5) 	Acknowledge that as a condition for the system’s consent,
the buyer shall sign a certification of occupancy in which the
buyer represents and agrees to occupy and use the
mortgaged property as a principal home for at least one year
after the closing of the agreement of sale;
(6) 	Sign the documents as may be necessary, including a loan
modification agreement; and
(7) 	Give assurances as the lender or servicer may require to
protect the system’s lien priority in the mortgaged property.
If any of the foregoing conditions require the borrower to pay an
interest rate or finance charge which would exceed the highest rate
permitted by law, then the borrower’s obligation to pay interest or finance
charge shall be reduced to the highest permitted by law, so that the
borrower is not obligated to pay any interest or finance charge which

§6-27-16
would result in the payment of interest or finance charge in excess of the
limit so permitted. [Eff 2/9/89] (Auth: HRS §§88-28, 88-119.5) (Imp:
HRS §§88-119, 88-119.5)
§6-27-16 	Assumption. (a) No assumption shall be allowed of
any loan made after June 30, 1974.
(b) 	The system may consent to only one assumption of a loan
made before July 1, 1974, upon the following conditions:
(1) 	The borrower and buyer shall agree that the interest rate for
the loan shall be increased to the interest rate in effect for
new loans being made during the allocation period, if the
interest rate for the allocation period is more than the
interest rate specified in the loan. The borrower and buyer
shall agree to sign all documents required to reflect any
modification in interest rate;
(2) 	The buyer shall have the creditworthiness to assume the
loan;
(3) 	If the buyer is an eligible member, the buyer shall meet the
underwriting requirements as the applicant, pursuant to
section 6-27-11;
(4) 	If the buyer is not an eligible member, the buyer’s monthly
mortgage payment shall not exceed twenty-five per cent of
the buyer’s stable monthly income less any monthly debt
payments. If the buyer does not qualify for the loan, the
system shall consider on a case-by-case basis a loan with
no more than two personal guarantors, endorsers or other co-
signers. The guarantee, endorsement or agreement shall
not be qualified or limited in any manner. All credit
underwriting standards shall apply to the credit evaluation of
a guarantor, endorser, or co-signer. The monthly mortgage
payment shall not exceed twenty-five per cent of the
combined stable monthly income of the buyer and the
guarantor, endorser or co-signer less any monthly debt
payments. In addition, the buyer’s monthly mortgage
payment shall not exceed forty per cent of the buyer’s stable
monthly income less any monthly debt payments;
(5) 	The buyer shall agree to pay a loan assumption fee of one
per cent of the loan balance, plus all costs and expenses,
including attorney's fees, related to the assumption of the
loan;
(6) 	The buyer shall promise the system in writing to occupy the

§6-27-16
mortgaged property as a principal home for at least one year
after the date the assumption of mortgage becomes
effective;
(7) 	The mortgage shall continue to be a first lien on the
mortgaged property; and
(8) 	The buyer shall agree to make immediate payment in full of
all amounts due under the loan upon a further sale or
transfer of the mortgaged property.
A loan may not be assumed if the person who is applying initially
acquired the mortgaged property by way of an agreement of sale and is
requesting the system to consent to the buyer’s assumption of the
underlying loan. [Eff 2/9/89] (Auth: HRS §§88-28, 88-119.5) (Imp: HRS
§§88-119, 88-119.5)
§6-27-17 	Certification of applicant’s eligibility; delivery of loan.
(a) The lender shall be responsible for obtaining from the system
certification as to whether the applicant is eligible for a member home
loan. The name of every applicant who is a member shall be submitted to
the system for certification.
(b) 	Before the applicant’s name is submitted for certification, the
lender shall obtain the sales contract, agreement of sale document,
construction contract, plans and specifications, whichever applies. Until
certification of eligibility is obtained from the system, the lender shall not
incur any costs chargeable to the applicant.
(c) 	The terms and conditions of a member home loan shall be in
accordance with this chapter in effect on the date of the applicant’s
certification of eligibility.
(d) 	The lender shall disburse the loan proceeds within four
months after date of the certification, or within ten months where new
home construction is involved under this program, or within six months
where home improvement is involved under this program.
(e) 	The lender shall deliver the loan file to the system for
approval to purchase within six months after the date of certification, or
within fourteen months after the date of certification where new home
construction under this program is involved, or within ten months after the
date of certification where home improvement under this program is
involved.
(f) 	The lender shall sell the loan to the system within one month

§6-27-18
after the date of the letter of approval to purchase by the system.
(g) 	The lender may request a precertification of eligibility if the
lender anticipates that the loan proceeds cannot be disbursed within four
months after the date of certification. [Eff 2/9/89] (Auth: HRS §88-28, 88-
119.5) (Imp: HRS §§88-119, 88-119.5)
§6-27-18 	Precertification of applicant’s eligibility. (a)
Precertification against future allocations may be obtained from the
system for the following purposes:
(1) 	To purchase a principal home which is under construction or
will be constructed and will be conveyed to the borrower
upon completion of construction;
(2) 	To finance the purchase of the fee simple interest on
leasehold land which is located a principal home.
(b) 	If the system precertifies the applicant as an eligible
member, the lender may issue a precommitment to make the applicant a
member home loan, subject to the following conditions:
(1) 	The availability of funds for the allocation period when the
member is recertified;
(2) 	The eligibility and qualification of the member to take out a
loan at loan closing;
(3) 	The possibility that the interest rate may have changed when
the member is recertified as still being eligible.
(c) 	The lender shall recertify the member to assure that the
member is still eligible to obtain a member home loan within thirty days of
the date the loan proceeds are anticipated to be funded.
(d) 	The terms and conditions of the member home loan shall be
in accordance with this chapter in effect on the date of the member’s
recertification of eligibility.
(e) 	The application, credit report, appraisal reports, verification
of employment and deposits shall be updated if made more than three
months before the request for recertification.
(f) 	The lender shall deliver the loan file to the system for
approval to purchase within three months after the date of recertification
of member’s eligibility or within four months where construction is
involved.
(g) 	The lender shall sell the loan to the system within one month

§6-27-18
after the date of the letter of approval to purchase by the system. [Eff
2/9/89] (Auth: HRS §§88-28, 88-119.5) (Imp: HRS §§88-119, 88-119.5)
§6-27-19 	Insurance. (a) Each member home loan shall be
covered by a title insurance policy on the current standard American Land
Title Association (ALTA) form issued by a title insurer licensed to do
business in the State of Hawaii. The amount of coverage shall be at least
equal to the amount of the loan and the benefits of the policy shall run to
the system. The Alta Policy shall insure against any mechanic’s and
materialman’s lien.
(b) 	The mortgaged property shall be covered by fire and
extended coverage insurance equal to the full replacement costs of the
improvements on the mortgaged property without deduction for
depreciation. If the mortgaged property is located in an area identified
and designated as a flood hazard area by the Federal Department of
Housing and Urban Development, flood insurance under the Federal
Flood Disaster Protection Act of 1973, Public Law No. 93-234, shall be
obtained. If the mortgaged property is a condominium apartment, the
association of owners shall have and keep in full force and effect a
blanket fire and extended coverage insurance policy. The lender shall
assure that the system is named as loss payee on the policies. [Eff
2/9/89] (Auth: HRS §§88-28, 88-119.5) (Imp: HRS §§88-119, 88-119.5)
§6-27-20 	Security for loans. (a) Member home loans shall be
secured by:
(1) 	First mortgages on unencumbered improved real estate
owned in fee simple; or
(2) 	First mortgages on leasehold interests in improved real
estate.
(b) 	Leasehold conversion loans shall be secured by a first
mortgage on the fee simple interest and a second mortgage on the
leasehold interest on improved real estate.
For the purpose of this section, improved real estate owned in fee
simple is unencumbered notwithstanding the existence of:
(1) 	Instruments reserving mineral, oil, timber, or similar rights,
rights of way, sewer rights, rights in walls;

§6-27-21
(2) 	Any liens for taxes or assessments not yet due;
(3) 	Liens not delinquent for community recreation facilities or for
the maintenance of community facilities;
(4) 	Building restrictions or other restrictive covenants common
to the community in which the property is located;
(5) 	Liens for service and maintenance of water rights where not
delinquent. [Eff 2/9/89] (Auth: HRS §§88-28, 88-119)
(Imp: HRS §§88-119, 88-119.5)
§6-27-21 	Interest rate. (a) The interest rate for member home
loan mortgages shall be set and may be periodically adjusted by the board
of trustees at any of its regularly scheduled meetings. Notice of the
board’s intention to adjust the interest rate shall be included in the agenda
for the meeting at which the rate will be set or adjusted.
(b) 	An active member of the system or retirant may apply with
the lender servicing the loan for an interest rate reduction if the system’s
prevailing interest rate is less than the interest rate on the borrower’s
original note, subject to all of the following conditions:
(1) 	The active member of the system or retirant shall be
currently residing on the mortgaged property;
(2) 	The lender servicing the loan, may charge a fee of one-half
of one per cent of the loan balance, but in no event more
than $300;
(3) 	Only one interest rate reduction shall be allowed during the
term of the loan;
(4) 	The borrower(s) shall complete a loan application and
execute a revision agreement;
(5) 	The loan shall be reamortized over its remaining term;
(6) 	The new interest rate shall become effective the first day of
the month after the borrower’s execution of the revision
agreement;
(7) 	The mortgage loan shall be current in monthly installments;
(8) 	The revision agreement shall be executed by all the
borrower(s). [Eff 2/9/89; am 6/11/92] (Auth: HRS §§88-28,
88-119.5) (Imp: HRS §§88-119, 88-119.5)

§6-27-22
§6-27-22 	Prepayment penalty; allowable loan charges. (a) If
the borrower pays off the entire member home loan balance within one
year after the date of the note or, when a construction loan is made under
the program, the date the Notice of Completion was filed with the court,
there shall be a prepayment penalty of six per cent.
(b) 	The lender may require the borrower to pay all reasonable
fees and charges ordinarily charged to and paid by a borrower for a loan.
However, the lender may not charge the borrower any more than the
amounts shown below for the following items:
Item 	Amount
Loan origination fee 	$300 or one per cent of the loan
amount, whichever is larger.
Loan origination fee for
construction loans and home
$300 or two per cent of the loan
amount, whichever is larger.
improvement loans
(c) 	The lender may charge a deposit fee when the application is
made. The deposit shall be credited towards the closing costs if the loan
is made. If the loan is not made, the deposit shall be returned to the
applicant, less any costs chargeable to the applicant. [Eff 2/9/89; am
1/29/90; am 6/11/92] (Auth: HRS §§88-28, 88-119.5) (Imp: HRS §§88-
119, 88-119.5)
§6-27-23 	Affidavit of occupancy. Consistent with the purpose of
the member home program, every applicant who will reside on the
mortgaged property applying for a member home loan shall file with the
lender an affidavit stating that:
(1) 	The applicant will occupy the mortgaged property as the
applicant’s principal home within forty-five days after the
notice from the contractor or developer that the residence is
ready for occupancy or within forty-five days after the date of
closing of the loan where an existing structure of residence
is acquired;
(2) 	The applicant will occupy the residence as a principal home
for at least one year;
(3) 	If the applicant fails to comply, any and all indebtedness
owing by and chargeable to the applicant by way of a
mortgage loan made on the basis of the application filed in
§6-27-25

connection with the loan shall become immediately due and
payable in full, unless for good cause shown, the period to
occupy is extended by the system in writing. [Eff 2/9/89]
(Auth: HRS §§88-28, 88-119.5) (Imp: HRS §§88-119, 88-
119.5)
§6-27-24 	Sanctions. (a) The applicant shall sign the application
for a mortgage loan. By doing so, the applicant shall be considered to
have verified the truth of all statements made in the application. The
applicant shall be subject to the sanctions of section 710-1063, Hawaii
Revised Statutes, for any false statements.
(b) 	If an applicant or a borrower makes any false or untrue
statement, intentionally or otherwise, for a mortgage loan, the system
may, after hearing held in accordance with chapter 6-23, determine that
the applicant or borrower shall not be eligible for a mortgage loan for a
period up to five years after the date the system actually learns of the
false or untrue statement, or if the system has already purchased the
mortgage loan made to the applicant or borrower, up to five years after the
applicant or borrower has made immediate payment in full of all sums
secured by the mortgage pursuant to this section.
(c) 	The borrower shall be required to make immediate payment
in full of all sums secured by the mortgage if the borrower breaks any
promise for a mortgage or with respect to a mortgage loan or makes or
has made a false or untrue statement to qualify or be eligible for a
mortgage loan or with respect to the mortgage loan. [Eff 2/9/89] (Auth:
HRS §§88-28, 88-119.5) (Imp: HRS §§88-119, 88-119.5)
§6-27-25 	Request for review. (a) An applicant for a member
home loan may request the board to review or reconsider any decision or
determination relating to the application, except that the applicant’s
creditworthiness shall be a matter solely for the lender to determine.
(b) 	A borrower under an existing member home loan may
request the board to review or reconsider any decision or determination
relating to the loan.
(c) 	The request shall be in writing, shall be filed with the system
within sixty days of the decision or determination sought to be reviewed,

§6-27-25
and shall contain a statement of the facts and include copies of all
documents upon which the applicant or borrower relies in support of the
request.
(d) 	The board may request the submission of additional
information or documents and may request the applicant or borrower to
appear at a specified place, date and time to submit oral testimony in
support of the request for review. [Eff 2/9/89] (Auth: HRS §§88-28, 88-
119.5) (Imp: HRS §§88-119, 88-119.5)