Hawaii bill would establish state-run reverse mortgage program

A group of state representatives in Hawaii have introduced a new bill into the legislature, calling for the establishment of a state-specific Home Equity Conversion Mortgage (HECM) program to be managed by the Hawaii Housing Finance and Development Corp. (HFDC).

This is according to the text of the bill reviewed by HousingWire’s Reverse Mortgage Daily (RMD), and a notice sent to National Reverse Mortgage Lenders Association (NRMLA) members.

Initially introduced on Jan. 23 and sponsored by nine members — including Democratic Reps. Kim Coco Iwamoto, Elle Cochran and Tina Nakada Grandinetti, and Republican Reps. Christopher L. Muraoka and Kanani Souza — the bill said such a program would be able to help older Hawaiians, referred to as “kupuna,” with the rising costs of homeownership.

RMD reached out to the offices of several sponsor lawmakers in the state but did not receive an immediate reply.

“The legislature finds that many kupuna in Hawaii with limited retirement income who may have equity in their home are facing challenges in meeting increased costs related to homeownership; whether it’s rising maintenance fees, community assessments, or insurance costs,” the bill reads.

“Establishing a state-administered [HECM] program, similar to the federal Department of Housing and Urban Development (HUD) program for eligible retirees, could provide housing security and relief for some kupuna.”

The program would help “provide a pathway to affordable rental housing for kupuna who have exhausted their home equity, helping to prevent elder displacement and homelessness,” the bill added, and would establish a kupuna HECM program under the purview of the state’s HFDC.

Similar to the HECM program sponsored by the Federal Housing Administration (FHA), the proposed program would carry a minimum age requirement of 62 years and would add HECM insurance authority to the HFDC. Lenders offering the program would have to be approved by the state authority, while borrowers would need to meet the age requirement and separate counseling requirements.

The bill also states that the borrower “shall not be liable for any difference between the net amount of the remaining indebtedness of the kupuna homeowner under the mortgage and the amount recovered by the mortgagee,” language that is similar to the FHA-backed HECM program’s nonrecourse feature.

The bill also calls for the program to carry a variety of disbursement options, including a standby line of credit and various monthly payment options.

And the bill has a provision that would allow for assistance for a borrower at the time that the equity in their home is exhausted. At that point, HFDC would “coordinate with and assist the kupuna homeowner to relocate into an affordable rental housing unit under the corporation and commence the sale of the dwelling unit,” the bill reads.

After that point, the borrower will “not have any debt after sale of the dwelling,” and rental rates in a new dwelling would be “similar to rent rates under tenant-based housing choice voucher program” administered by HUD.

In an email alert to its membership, NRMLA said it will review the bill proposal with its outside general counsel and will weigh in once that review is complete.

State-based reverse mortgage programs are exceedingly rare. One exception is a program in Montana, which sponsors a “Reverse Annuity Mortgage” (RAM) program with lower interest rates and proceeds, along with a higher minimum qualifying age that distinguishes it from the FHA-backed HECM program.

But FHA-backed HECMs are only a small fraction of all U.S. mortgage originations, and the Montana program is so unknown that some area originators were not even aware of it when asked about it by RMD. This is primarily because applications are handled by the state’s Board of Housing. But the state ramped up promotion of the program last summer in an effort to exhaust its budget allocation from the Montana legislature.

“[The RAM program] had an available balance, which is rare because very few of our programs have available funding, and I certainly don’t like to leave any resources on the table when we need to be deploying them to serve our citizens,” Cheryl Cohen, division administrator for the housing division at the Montana Department of Commerce and executive director of the Montana Board of Housing, said in an interview with RMD in August 2024.

But the Hawaii proposal is also larger in scope than the Montana program, which features a more limited eligibility threshold including a higher minimum age and a maximum loan amount of $150,000.