Hawaii families in danger of losing their homes will be able to meet their lenders face-to-face in an attempt to avoid foreclosure, according to a broad overhaul of state foreclosure laws nearing approval.
The 102-page bill calls for a dispute resolution process to begin facilitating potential loan modifications by October.
Residential owner-occupants also would have the option to convert their nonjudicial foreclosures to a process overseen by the courts.
The measure, modeled on a similar mediation system used in foreclosure-plagued Nevada, is scheduled for final votes in the House and Senate on Tuesday.
“More people will be able to enter into loan modifications and will be allowed to stay in their homes,” said Kealii Lopez, director for the state Department of Commerce and Consumer Affairs, which will handle dispute resolution.
Consumer protections written into the legislation aim to prevent loan servicing companies from enforcing foreclosures before homeowners have a chance to contest them, said Sen. Roz Baker, chairwoman of the Commerce and Consumer Protection Committee. Residents could continue living in their homes, and lenders would still get paid if dispute resolution is successful.
“It gives them an opportunity for a face-to-face discussion on either modifying their loan or working out some other payment plan,” said Baker, D-Honokohau-Makena. “Even if this process only helps a few hundred or a few thousand people, it’s worth it.”
There were 12,425 properties in Hawaii affected by foreclosure last year, but foreclosures have been declining so far this year, according to real estate research firm RealtyTrac Inc. Hawaii had the nation’s 16th-highest foreclosure rate last month.
Opponents of the legislation said it could result in new home buyers facing larger down payments and stricter loan requirements if lenders have to wait longer to get paid by borrowers in default.
“The intent is to help a few people, but unfortunately, it’s going to be at the expense of future borrowers,” said Gary Fujitani, executive director for the Hawaii Bankers Association, whose members include the nine Hawaii-based banks. “It just adds unnecessary time for us to collect loans.”
He also warned that homeowners who have fallen behind on their payments are unlikely to be able to catch up on their owed money after the foreclosure process begins.
But advocates argue that because the bill requires borrowers to first meet with a credit or borrowing counselor, they won’t advance far in the dispute resolution process unless they have enough income to justify it.
Dispute resolution would take less than three months to resolve, compared with times that can exceed a year under the state’s existing foreclosure rules.
“We did this bill for the borrower. We didn’t do it for the Realtor, the mortgage broker, the banks or anyone on the lending side,” said Rep. Bob Herkes, D-Volcano-Kainaliu, chairman for the House Consumer Protection and Commerce Committee. “Ideally, if the borrower has income, you can find some level where they can amortize the loan and stay in their homes.”
The bill also requires large licensed loan servicing companies doing business in Hawaii to have a physical presence to address consumer complaints. Foreclosure notices would have to be published in county newspapers.
Its cost of up to $1.8 million a year will be paid from the state’s mortgage foreclosure dispute resolution fund, which will be refilled by dispute resolution and foreclosure filing fees.