In our Legislature this year, there is a bill advancing that contains an innovative (or horrible, depending on your point of view) idea for financing certain home improvements.
Let’s say you own a home and you need or want a septic system, connection to a sewer system, clean-energy technology, efficiency technology, or a resiliency measure (whatever that means). The bill, HB2088, creates a program where you could go to a lender, borrow money to make that improvement, and then repay the loan with payments that are added to your property-tax bill.
If you have a mortgage on the home, like most folks do, you won’t have to worry about your mortgage lender getting upset about a new loan coming on to the property. The bill provides that although the new loan would be repaid through the property-tax system, and property-tax payments get paid first if something bad happens and the property is foreclosed, the new lender only has to notify the mortgage holder of the new loan and the mortgage holder would not be able to do anything about it.
In that way, the supporters of the bill say, the governments can help homeowners obtain loans for socially desirable improvements to the property that would make the home safer or enable it to use green energy. For example, the bill recites that there are 11,000 cesspools on O‘ahu that all must be upgraded by 2050 to preserve the integrity of our ground water.
In other states, as of 2019, over 200,000 homeowners have made $5 billion in energy-efficiency and other improvements to their homes through this kind of financing. Typical home-improvement projects include replacement of broken or failing heating and cooling systems and hot-water heaters; air sealing and insulation; Energy Star doors, windows, roofing; Energy Star appliances; solar-photovoltaic systems; and water-conservation and resiliency measures (e.g., seismic retrofits and wind-hazard protection). This type of program is now available in California, Florida and Missouri.
The banks, in the meantime, are screaming bloody murder. They point out that when they analyze a potential mortgagor’s collateral and ability to repay a loan, they assume that there will be no other, later loan that will hop ahead of the mortgage in lien priority. There will be situations where the bank will be confident that the borrower would be able to repay both loans, and in those the bank would be willing to voluntarily consent to the non-ad valorem property-tax financing. But the banks are worried about the parts of the bill that would force them to accept a new loan that they wouldn’t otherwise consent to, and they say it’s unfair and unconstitutional for the government to come in and alter their contractual relationships with their borrowers in that way. So the Hawai‘i Bankers Association, the Hawai‘i Credit Union League, the Mortgage Bankers Association of Hawai‘i, and the Hawai‘i Financial Services Association submitted testimony opposing the bill; and even the state Department of the Attorney General has weighed in with some concerns that the bill might be unconstitutional because it impairs the obligation of contracts.
So what is going to happen here? Is the dogfight between the bill-supporters and the lenders going to continue? Will there be a compromise legislation that satisfies all interests? The bill is set to cross over into the Senate, where there will be further testimony and debate.
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Tom Yamachika is president of the Tax Foundation of Hawai‘i.
