One- to Four-Family Residential Mortgage Loans. We offer conforming, fixed-rate
and adjustable-rate residential mortgage loans with maturities generally up
to 30 years. There has been little demand for adjustable-rate mortgage loans
in our market area.
One- to four-family residential mortgage loans are generally underwritten according
to Fannie Mae and Freddie Mac guidelines, and we refer to loans that conform
to such guidelines as “conforming loans.” We generally originate
both fixed- and adjustable-rate mortgage loans in amounts up to the maximum
conforming loan limits as established by the Federal Housing Finance Agency,
which is currently $625,500 for single-family homes located in the State of
Hawaii. We also originate loans above this amount, which are referred to as
“jumbo loans.” These jumbo loan amounts are generally up to $1.0
million, although we do originate loans above this amount. We generally originate
fixed-rate jumbo loans with terms of up to 30 years. We have not originated
significant amounts of adjustable-rate jumbo loans in recent years due to customer
preference for fixed-rate loans in our market area. We generally underwrite
jumbo loans in a manner similar to conforming loans. Jumbo loans are not uncommon
in our market area.
Home Equity Loans and Lines of Credit. In addition to traditional one- to four-family
residential mortgage loans, we offer home equity loans and home equity lines
of credit that are secured primarily by one- to four-family residential homes.
Home equity lines of credit have a maximum term of 10 years during which time
the borrower is required to make payments to principal based on the amortization
of 0.125% of principal outstanding per month. The borrower is permitted to draw
against the line during the entire term. Our home equity lines of credit are
originated with adjustable rates of interest or with fixed rates of interest
that convert to adjustable rates of interest after an initial period of up to
three years. Our home equity loans are originated with fixed rates of interest
and with terms of up to 30 years. Home equity loans and lines of credit are
generally underwritten with the same criteria that we use to underwrite one-
to four-family residential mortgage loans. Home equity loans may be underwritten
with a loan-to-value ratio of 80% when combined with the principal balance of
the existing mortgage loan, while lines of credit for owner-occupied properties
and investment properties may be underwritten with loan-to-value ratios of 80%
and 65%, respectively, when combined with the principal balance of the existing
mortgage loan. We require appraisals on home equity loans and lines of credit.
At the time we close a home equity loan or line of credit, we record a mortgage
to perfect our security interest in the underlying collateral.
Nonresidential Real Estate Loans. Our nonresidential real estate loans consist
primarily of commercial real estate loans and construction loans for residential
real estate projects.
In the underwriting of commercial real estate loans, we generally lend up to
the lesser of 75% of the property’s appraised value or purchase price.
We base our decision to lend primarily on the economic viability of the property
and the creditworthiness of the borrower. In evaluating a proposed commercial
real estate loan, we emphasize the ratio of the property’s projected net
cash flow to the loan’s debt service requirement (generally requiring
a minimum ratio of 110%), computed after deduction for a vacancy factor and
property expenses we deem appropriate. Personal guarantees are usually obtained
from commercial real estate borrowers. We require title insurance, fire and
extended coverage casualty insurance, and, if appropriate, flood insurance,
in order to protect our security interest in the underlying property. Almost
all of our commercial real estate loans are generated internally by our loan
officers.
Commercial real estate loans generally carry higher interest rates and have
shorter terms than one- to four-family residential mortgage loans. Commercial
real estate loans, however, entail greater credit risks compared to one- to
four-family residential mortgage loans, as they typically involve larger loan
balances concentrated with single borrowers or groups of related borrowers.
In addition, the payment of loans secured by income-producing properties typically
depends, in large part, on sufficient income from the property to cover operating
expenses and debt service. Changes in economic conditions that are not in the
control of the borrower or lender could affect the value of the collateral for
the loan or the future cash flow of the property. Additionally, any decline
in real estate values may be more pronounced for commercial real estate than
for residential properties.