RELATING TO INTEREST ON INSURANCE PROCEEDS RELATED TO A MORTGAGE LOAN.

HB1047

HOUSE OF REPRESENTATIVES

H.B. NO.

1047

THIRTY-THIRD LEGISLATURE, 2025

STATE OF HAWAII

A BILL FOR AN ACT

RELATING TO INTEREST ON INSURANCE PROCEEDS RELATED TO A
MORTGAGE LOAN.

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

����
SECTION 1.
�
Chapter 412, Hawaii Revised Statutes, is amended
by adding to article 14 a new section to be appropriately designated and to
read as follows:

����
"
�412:14
-
�
�
��
Interest on insurance proceeds related
to a mortgage loan
.
�
(a)
�
A Hawaii financial institution shall comply
with the following requirements concerning the handling, processing, and
disbursement of insurance proceeds paid to satisfy a claim associated with the
damage or destruction of a residential property that is the subject of a
mortgage, including but not limited to hazard insurance of any kind.

����
(1)
�
No later than thirty days after the
Hawaii financial institution receives the insurance proceeds the financial
institution must contact the borrower to determine whether or not the proceeds
should be applied to the unpaid principal balance of the existing mortgage loan
or placed in an escrow account if the homeowner intends to use the insurance
proceeds to rebuild or disburse funds in excess of the loan balance.

���������
(A)
�
If the insurance proceeds are
sufficient to pay off the mortgage loan, then the financial institution, with
the borrower
'
s consent, must pay off
the mortgage loan and disburse any excess funds to the borrower; or

���������
(B)
�
If the funds are not sufficient to
pay off the mortgage loan or the borrower intends to use the insurance proceeds
to rebuild, the proceeds must be placed in an escrow account as set forth in
paragraph (2).

���������
(C)
�
In accordance with investor guidelines, if the funds exceed the
amount of the mortgage loan balance, a mortgage

servicer

shall

disburse

to

a

borrower

any

amount

of

insurance

proceeds

in

excess

of

the
remaining amount that the borrower owes on the mortgage.

����
(2)
�
A Hawaii financial institution shall
hold in an interest-bearing account, for the benefit of the borrower, any
insurance proceeds that the financial institution does not immediately disburse
to a borrower pending rebuild of a residential property. Such an account must
generate interest at a rate that is not less than the national rate for money
market accounts, as determined according to title 12 Code of Federal Regulations
section 337.7.
�
The financial institution
shall ensure that the interest that accrues to the account is credited to the
borrower
'
s account monthly.

����
(3)
�
A financial institution shall not
charge the borrower a fee for the maintenance or disbursement of insurance
proceeds.
�
Additionally, the financial
institution shall not charge the borrower a fee for the maintenance or
disbursement of interest earned on the insurance proceeds, as set forth in
paragraph (2), held by the financial institution for the benefit of the
borrower.
"

����
SECTION
2.
�
Section 454M-5, Hawaii Revised
Statutes, is amended to read as follows:

����
"
�454M-5,

�
Additional duties of a mortgage
servicer; good faith and fair dealing; disclosures; payments, accounting, and
records; assignment of servicing rights.
�

(a)
�
A
mortgage servicer licensed or acting under this chapter, has a duty of good
faith and fair dealing in its communications, transactions, and course of
dealings with each borrower in connection with the servicing of the borrower's
mortgage loan.

����
(b)
�
In addition to any other duties imposed by
law, a mortgage servicer shall:

����
(1)
�
Safeguard and account for any money handled for the borrower;

����
(2)
�
Follow reasonable and lawful instructions from the borrower consistent
with the underlying note and mortgage;

����
(3)
�
Act with reasonable skill, care, timeliness, promptness, and diligence;

����
(4)
�
Disclose to the commissioner in the servicer's license application and
each yearly renewal a complete, current schedule of the ranges of costs and
fees it charges borrowers for its servicing-related activities;

����
(5)
�
File a report with each yearly renewal statement in a form and format
acceptable to the commissioner detailing the servicer's activities in this
State, including:

���������
(A)
�
The number of mortgage loans the
servicer is

servicing;

���������
(B)
�
The type and characteristics of loans
serviced in this State;

���������
(C)
�
The number of serviced loans in
default, along with a breakdown of thirty-, sixty-, and ninety-day
delinquencies;

���������
(D)
�
Information on loss mitigation
activities, including details on workout arrangements undertaken;

���������
(E)
�
Information on foreclosures commenced
in this State;

���������
(F)
�
The affiliations of the mortgage
servicer, including any lenders or mortgagees for which the mortgage servicer
provides service, any subsidiary or parent entities of the mortgage servicer,
and a description of the authority held by the mortgage servicer through its
affiliations; and

���������
(G)
�
Any other information that the
commissioner may require; and

����
(6)
�
Maintain an office in the State that is
staffed by at least one agent or employee for the purposes of addressing
consumer inquiries or complaints and accepting service of process; provided
that the mortgage servicer
'
s business constitutes at
least a twenty per cent share of the portion of the total mortgage loan service
market in the State that was serviced by mortgage servicers licensed under this
chapter within the previous calendar year; and provided further that nothing in
this section shall prohibit a mortgagee as defined by section 667-1 or a
mortgage servicer from contracting with a licensee that maintains an office in
this State in conformity with this section for the purposes of addressing
consumer inquiries or complaints and accepting service of process.

����
(c)
�
A mortgage servicer shall comply with the
following requirements concerning handling and processing of mortgage payments:

����
(1)
�
Except as provided in paragraph (4),
all payments received by a mortgage servicer on a mortgage loan at the address
where the borrower has been instructed in writing to make payments shall be
accepted and credited, or treated as credited, on the business day received, to
the extent that the borrower has provided sufficient information to credit the
account.
�
For all mortgage loans
originated after July 1, 2015, except where inconsistent with federal law or
regulation, payments shall be credited to the principal and interest due on the
home loan before crediting the payments to taxes, insurance, or fees;

����
(2)
�
Methods of payment and payment
instruments shall be reasonable;

����
(3)
�
If a mortgage servicer specifies in
writing requirements for the borrower to follow in making payments, but accepts
a payment that does not conform to the requirements, the mortgage servicer
shall credit the payment as soon as commercially practicable, but in no event
later than three business days after receipt;

����
(4)
�
Late payments of principal and interest
shall be credited before any late charge is collected; and

����
(5)
�
If the mortgage servicer receives any
payment on a mortgage loan and suspenses the payment, does not credit the
payment, or does not treat the payment in accordance with this section, the
mortgage servicer, within ten days of receipt, shall send the borrower notice
by mail at the borrower
'
s last known address
indicating the reason the payment was suspensed or was not credited or treated
as credited to the account, and specifying any actions by the borrower
necessary to make the loan current.

����
(d)
�
A mortgage servicer shall comply with the
following requirements concerning escrows for the payment of taxes and
insurance:

����
(1)
�
Any mortgage servicer who receives
funds from a borrower to be held in escrow for payment of taxes and insurance
premiums shall pay the taxes and insurance premiums of the borrower to the
appropriate taxing authority and insurance company in the amount required and
at the time the taxes and insurance premiums are due, in accordance with the
requirements of the Real Estate Settlement Procedures Act, including title 12
C.F.R. section 1024.17,
and shall be liable to the borrower as provided therein;

����
(2)
�
If the amount held in the escrow account as of
the date the taxes and insurance premiums are due is insufficient to pay the
taxes and insurance premiums, the mortgage servicer shall pay the taxes and
insurance premiums from the mortgage servicer
'
s own funds; provided that the borrower has paid to
the mortgage servicer the amounts required to be paid into the escrow account,
as determined by the mortgage servicer, for all amounts scheduled to be paid to
the mortgage servicer prior to the date the taxes and insurance premiums are
due; and

����
(3)
�
Where an escrow account has been established
and a mortgage servicer advances funds in paying a disbursement that is not the
result of a borrower
'
s
payment default under the underlying mortgage document, the mortgage servicer
shall conduct an escrow account analysis to determine the reasons for and
extent of the deficiency and shall provide a written explanation to the
borrower before seeking repayment of the funds from the borrower.
�
The mortgage servicer shall then give the
borrower the option of paying the shortage over a period of not less than one
year.
�
The mortgage servicer shall not
charge or collect interest on any shortage during the payment period.

Any
mortgage servicer who violates any provision of this subsection shall be liable
to the borrower: for any penalties, interest, or other charges levied by the
taxing authority or insurance company as a result of any violation; any actual
damages suffered by the borrower as a result of the violation, including any
amount that would have been paid by an insurer for a casualty or liability
claim had the insurance policy not been canceled for nonpayment by the mortgage
servicer; and, in the case of any successful action to enforce the foregoing
liability, the costs of the action together with reasonable attorney
'
s fees as determined by the court.

����
(e)
�
A mortgage servicer shall comply with the
following requirements concerning the handling, processing, and disbursement of
insurance proceeds paid to satisfy a claim associated with the damage or destruction
of a residential property that is the subject of a mortgage, including but not
limited to hazard insurance of any kind.

����
(1)
�
No later than thirty days after the
mortgage servicer receives the insurance proceeds a mortgage servicer must
contact the borrower to determine whether or not the proceeds should be applied
to the unpaid principal balance of the existing mortgage loan or placed in an
escrow account if the homeowner intends to use the insurance proceeds to
rebuild or disburse funds in excess of the loan balance.

���������
(A)
�
If the insurance proceeds are
sufficient to pay off the mortgage loan, then the servicer, with the borrower
'
s consent, must pay off the mortgage loan and disburse any
excess funds to the borrower; or

���������
(B)
�
If the funds are not sufficient to
pay off the mortgage loan or the borrower intends to use the insurance proceeds
to rebuild, the proceeds must be placed in an escrow account in accordance to
paragraph (2); and

���������
(C)
�
In accordance with investor
guidelines, if the funds exceed the amount of the mortgage loan balance, a
mortgage

servicer

shall

disburse

to

a

borrower

any

amount

of

insurance

proceeds

in

excess

of

the
remaining amount that the borrower owes on the mortgage.

����
(2)
�
A mortgage servicer shall hold in an
interest-bearing account, for the benefit of the borrower, any insurance
proceeds that the mortgage servicer does not immediately disburse to a borrower
pending rebuild of a residential property.
�
Such an account must generate interest at a
rate that is not less than the national rate for money market accounts, as
determined according to title 12 C.F.R. section 337.7.
�
A mortgage servicer shall ensure that the
interest that accrues to the account is credited to the borrower
'
s account monthly.

����
(3)
�
A mortgage servicer shall not charge the
borrower a fee for the maintenance or disbursement of insurance proceeds.
�
Additionally, the mortgage servicer shall not
charge the borrower a fee for the maintenance or disbursement of interest
earned from an interest-bearing account established pursuant to section 454M:-5(e)(2).

����
[
(e)
]

(f)
�
A mortgage servicer shall
comply with the following
requirements concerning statements of account:

����
(1)
�
At least once annually, within thirty days of
the end of the computation year, a mortgage servicer shall deliver to the
borrower a plain language statement of the borrower
'
s account showing the unpaid principal balance of
the mortgage loan at the end of the immediately preceding twelve-month period,
the interest paid during that period, and the amounts deposited into escrow and
disbursed from escrow during the period.
�
The annual escrow statement may be provided
separately from the annual statement showing the unpaid principal and interest
paid.
�
The format and content of the
annual escrow statement shall comply with the Real Estate Settlement Procedures
Act, including title 12 C.F.R. section 1024.17;

����
(2)
�
A mortgage servicer shall promptly provide a
borrower with an accurate accounting in plain English of the debt owed when
requested by the borrower or borrower
'
s
authorized representative.
�
Within thirty
days of receipt of a request from the borrower or the borrower
'
s authorized representative, a mortgage servicer
shall deliver to the borrower a payment history for the last thirty-six months
of the borrower
'
s
account, unless a different period is requested, showing the date and amount of
all payments made or credited to the account and the total unpaid balance.
�
The mortgage servicer shall have sixty days to
deliver a payment history where the request is for a period longer than the
last thirty-six months;

����
(3)
�
A fee shall not be charged to the borrower for
the annual escrow statement or for one payment history furnished to a borrower
in a twelve-month period; and

����
(4)
�
A shortage, surplus, or deficiency in the
escrow account shall be handled in accordance with the

Real Estate Settlement Procedures Act, including title
12 C.F.R. section 1024.17.
�
Alternatively,
with the consent of the borrower, an excess balance may be applied to the
principal balance.

����
[
(f)
]

(g)
�
Except where inconsistent
with the automatic stay provisions of the Bankruptcy Code with respect to a
borrower in a pending bankruptcy proceeding, a mortgage servicer shall send a
payment reminder notice to a borrower at the borrower
'
s last known address no later than seventeen days
after the payment becomes due and remains unpaid; provided that a mortgage
servicer is not required to send a separate payment reminder notice for each
consecutive month in which the mortgage loan continues to remain unpaid

����
[
(g)
]

(h)
�
A mortgage servicer shall
provide a clear, understandable, and accurate statement of the total amount
that is required to pay off the mortgage loan as of a specified date, within a
reasonable time, but in any event no more than five business days after receipt
of a request from the borrower or borrower
'
s
authorized representative.
�
No borrower
shall be charged a fee for being informed or receiving a payoff statement or
for being provided with a release upon full prepayment; provided that a mortgage
servicer may charge a reasonable fee for providing a payoff statement after
five or more requests in any calendar year.

����
[
(h)
]

(i)
�
A mortgage servicer shall
comply with the following requirements concerning handling consumer complaints
and inquiries:

����
(1)
�
A mortgage servicer shall follow the
requirements of the Real Estate Settlement Procedures Act, including requests
for error and information resolution procedures under title 12 C.F.R. sections
1024.35 and 1024.36;

����
(2)
�
In addition to the requirements of the Real
Estate Settlement Procedures Act, a mortgage servicer shall establish and
maintain a system to respond to and resolve borrower inquiries and complaints
in a prompt and appropriate manner;

����
(3)
�
Within ten business days of receiving a
request in writing from a borrower or the borrower
'
s authorized representative, a mortgage servicer
shall provide the borrower with the name, address, phone number, or electronic
mail address, if available, and other relevant contact information for the
owner or assignee of the mortgage loan; and

����
(4)
�
In addition to the information required to be
disclosed under this section, a mortgage servicer may, at its option, provide
any other information regarding the servicing of the loan that the mortgage
servicer believes would be helpful to a borrower; provided that any additional
information does not contradict or obscure the required disclosures.

[
(i)
]
(j)
�
A mortgage servicer shall comply with the
following requirements concerning fees:

����
(1)
�
A mortgage servicer shall maintain and keep
current a schedule of standard or common fees that the mortgage servicer
charges borrowers for the servicer
'
s
servicing-related activities, such as nonsufficient fund fees.
�
The schedule shall identify each fee, provide
a plain English explanation of the fee, and state the amount of the fee or
range of amounts.
�
If there is no
standard fee, the schedule shall explain how the fee is calculated or
determined.
�
A mortgage servicer shall
make its schedule available on the mortgage servicer
'
s website and to the borrower or the borrower
'
s authorized representative upon request;

����
(2)
�
A mortgage servicer may only collect a fee if
the fee is for services actually rendered and one of the following conditions
is met:

���������
(A)
�
The fee is clearly and conspicuously
disclosed by the loan instruments and not prohibited by law;

���������
(B)
�
The fee is expressly permitted by law
and not prohibited by the loan instruments; or

���������
(C)
�
The fee is not prohibited by law or the
loan instruments and is a reasonable fee for a specific service requested by
the borrower that is assessed only after clear and conspicuous disclosure of
the fee is provided to the borrower and the borrower expressly consents to pay
the fee in exchange for the services;

����
(3)
�
In addition to the limitations in paragraph (2),
attorneys
'

fees charged in connection with a foreclosure action shall not exceed
reasonable and customary fees for the work.
�
If a foreclosure action or proceeding is
terminated prior to the public sale because of a loss mitigation option, a
reinstatement, or payment in full, the borrower shall only be liable for
reasonable and customary fees for work actually performed; and

����
(4)
�
A mortgage servicer shall not impose any late
fee or delinquency charge when the only delinquency is attributable to late
fees or delinquency charges assessed on an earlier payment and the payment is
otherwise a full payment for the applicable period and is paid on its due date
or within any applicable grace period.
�
Late
charges shall not be:

���������
(A)
�
Based on an amount greater than the
past due amount;

���������
(B)
�
Collected from the escrow account or
from escrow surplus without the approval of the borrower; or

���������
(C)
�
Deducted from any regular payment.

����
[
(j)
]

(k)
�
Each mortgage servicer
licensee shall maintain adequate records of each residential mortgage loan
transaction at the office named in the mortgage servicer license for seven
years.

����
[
(k)
]

(l)
�
Upon assignment of servicing
rights on a residential mortgage loan, the mortgage servicer shall disclose to
the borrower:

����
(1)
�
Any notice required by the Real Estate
Settlement Procedures Act, including title 12 C.F.R. section 1024.33, within
the time periods prescribed therein; and

����
(2)
�
A schedule of the ranges and categories of the
mortgage servicer
'
s
costs and fees for the servicer
'
s
servicing-related activities, which shall comply with state and federal law
and, if the disclosure is made

by a mortgage servicer licensee, shall not
exceed those reported to the commissioner in accordance with this chapter.

����
[
(l)
]

(m)
�
At the time a servicer
accepts assignment of servicing rights for a mortgage loan, the servicer shall
disclose to the borrower all of the following:

����
(1)
�
Any

notice

required

by

the

Real

Estate

Settlement

Procedures

Act;

����
(2)
�
A
schedule of the ranges and categories of its costs and fees for its
servicing-related activities, which

shall

comply

with

this

chapter

and

which

shall

not

exceed

those

reported

to

the

commissioner;

and

����
(3)
�
A

notice

in

a

form

and

content

acceptable

to

the

commissioner

that

the

servicer

is

licensed

by

the
commissioner and that complaints about the servicer may be submitted to the
commissioner.

����
[
(m)
]

(n)
�
Where this chapter requires a
person to comply with procedures, actions, standards, disclosures, notices,

format,

content,

or

other

requirements

of

the

Real

Estate

Settlement

Procedures

Act,

the

required compliance applies to any person
subject to this chapter, whether or not the Real Estate Settlement Procedures
Act applies to that person or transaction."

����
SECTION
3.
�
Statutory material to be repealed is
bracketed and stricken.
�
New statutory
material is underscored.

����
SECTION
4.
�
This Act, upon its approval, shall
take effect on July 1, 2025.

INTRODUCED BY:

_____________________________

BY REQUEST

Report Title:

Interest on Insurance Proceeds; Mortgage Loans; Mortgage
Servicers Financial Institutions

Description:

Supports mortgagors during disasters and other instances
of damage to property by requiring licensed mortgage servicers and financial
institutions to pay interest on insurance proceeds held for the benefit of
consumers.
�
Provides that a fee shall not
be charged to the borrower in connection with the maintenance or disbursement
of insurance proceeds received by the financial institution.
�
Provides that the minimum interest rate paid
on insurance proceeds be based on the national rate for money market accounts,
as determined according to title 12 C.F.R. section 337.7 and will be credited
to the borrower monthly.

The summary description
of legislation appearing on this page is for informational purposes only and is
not legislation or evidence of legislative intent.