Hula Mae mortgage
program has tough time
attracting borrowers
With home mortgage interest rates hitting all-time lows, the state's Hula Mae mortgage program is having difficulty attracting new business and is looking at ways to become more competitive.
"The program has basically come to a standstill," said Darren Ueki, finance manager at the Housing and Community Development Corporation of Hawaii, which oversees the program.
Compared to conventional 30-year mortgage rates that range around 5 percent, Hula Mae's current 30-year interest rate is fixed at 5.76 percent and not very attractive to would-be home buyers, Ueki said.
"When we started this program in 2002, at that point in time we were seeing conventional rates in the 6 1/2 to 6 5/8 range so there was enough spread between us and the conventional market that it was enticing," he said.
That's no longer the case. Conventional lenders are also more flexible now, offering a wide variety of programs tailored to individual situations.
The program
Elements of the state Hula Mae program, which is designed to help first-time home buyers who have low or moderate incomes:>> Loans can only be used for owner-occupied dwellings in Hawaii.
>> On Oahu, the maximum loan amounts are $266,740 for existing residents, and $241,480 for newly built homes.
>> To be eligible on Oahu, families of three members or fewer must have income of $75,120 or below; for families of more than three, income cannot exceed $87,640. On neighbor islands, income caps are $71,160 for families of three or fewer members, and $83,020 for larger families.
"I don't think lenders are quite as stringent as was the case in the past," Ueki said. "They're more willing to take a calculated risk knowing that people have the wherewithal to pay even if they don't have the large down payment."
Unlike conventional mortgage rates, the rates for Hula Mae mortgages, which are financed through government bonds, are fixed for the period of the particular loan program and do not float with the market, Ueki said.
The current 42-month Hula Mae loan program, which began with just over $50 million in available funds, was set up in March 2002. It has another 30 months to run and has loaned about $20 million so far, Ueki said.
The department estimates the $50 million would have allowed about 335 families to purchase homes based on a loan amount of around $150,000 Ueki said.
There are about 10 lenders who participate with the program. All have noted the drop in business when they send in monthly reports, he said.
In the past, large Hula Mae loan programs with about $100 million in available funds have run for longer periods, Ueki said. But with interest rate instability, particularly in the past five to seven years, smaller, more frequent programs make sense, he said.
"It's a way for us to react with the ups and downs of the conventional market short of having a floating rate. If we can come out every 12 to 18 months we can be semi-competitive," he said.
Ueki said he, his staff and underwriters are in the process of coming up with some re-structuring recommendations to take to the program's board for approval.
He said one option would be to allow Hula Mae interest rates to float with the market as conventional loan rates do.
"That's one of the issues we'll speak with our underwriters and our corporate board about potentially re-structuring," he said.
But in spite of the drop in attracting new business, the program has not had a large number of people with existing Hula Mae mortgages looking to re-finance with other institutions, Ueki said.
"We see a certain amount of pre-payment of Hula Mae loans but it's the normal pattern and it's not like we've seen any great spike in activity. Most choose to stay in," he said.
One reason may be the costs associated with re-financing, Ueki said.
The Hula Mae loan program was created in 1979 to offer families with low and moderate income a a way to become home owners. In past years, interest rates have been competitive with or below market rates, making the program an attractive option. However, there are some drawbacks. There are income restrictions to qualify for the loans and borrowers must be occupy the home for the life of the Hula Mae mortgage.
