Tuesday, October 13, 2015         

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Fixing the foreclosure 'mess'

Lawmakers' proposals aim to strengthen those fighting the loss of their home

By Andrew Gomes


Foreclosures that inundated Hawaii like a tidal wave over the past two years have prompted the Legislature to respond with its own wave of bills to deal with the epidemic.

At least 30 bills were introduced this year to attack the problem on a variety of levels — from imposing a moratorium on repossessing homes to overhauling the state's foreclosure law.

Other bills mandate mediation or allow pulling nonjudicial foreclosures into Circuit Court.

Many of the proposals aim to curb abuses and ineffective treatment by predominantly mainland lenders and loan servicers that are frustrating efforts by borrowers desperately trying to keep their homes.

But will meaningful reform or relief occur?

Consumer advocates say it has to — and fast — given that a rapid erosion of home ownership has shaken the foundation of financial stability for so many residents, living in a state with the highest housing costs and some of the weakest homeowner protections.

"The people are getting crushed," said the Rev. Bob Nakata, a longtime affordable housing advocate and former state senator. "We are up against something really big."

Close to 24,000 foreclosure actions have been initiated in Hawaii over the past two years, according to real estate research firm RealtyTrac. Last year, 12,425 foreclosure cases equated to one for every 41 residences in the state, which was the 11th highest rate nationally.

Some consumer advocates fear out-of-state banking giants opposed to reform are applying pressure at the Legislature, but local mortgage industry representatives support several initiatives that would strengthen the position of consumers fighting foreclosure.

Much of the momentum for reform, which had been lacking in prior years, is coming from a task force made up of local lender and borrower interests and chaired by the director of the state's Office of Consumer Protection, Stephen Levins.

Also providing a strong push for action is the organized community-support group Faith Action for Community Equity, or FACE, which is keeping a high profile at the Legislature tracking bills, testifying and encouraging consumers to share their foreclosure stories publicly.

Because of the effort, lawmakers are hearing from people like Eddie Amaral, who suffered an income loss after a car accident but can't get Bank of America to agree on a loan modification for the Kalihi home he has owned for 14 years.


Key foreclosure bills to watch
HB 1411 Omnibus reform bill
HB 894 Five-month moratorium
SB 651 Mandatory mediation
SB 652 Implements task force recommendations

"The loan modification process is a nightmare," he told members of two House committees — Judiciary and Consumer Protection & Commerce — on Wednesday. "It's a game. It's a game that homeowners can't win."

Jade Brown of Kula, Maui, told the committees that she has made 167 phone calls and sent 85 faxes to her lender, Chase, over two years. She said Chase is denying her a fair chance to negotiate a loan modification despite her use of counselors approved by the federal Department of Housing and Urban Development.

Levins testified that he gets at least one phone call every day from a consumer or housing counselor complaining that big lenders or loan servicers are giving them the run around or mismanaging documents critical for determining whether a loan should be modified.

"It's a huge problem," Levins said. "It's just a mess because the right hand doesn't know what the left hand is doing."

Levins said lenders in some instances have agents pushing foreclosure in opposition with other agents from the same company working on loan modifications. Other problems include loan servicers who make more money from foreclosing than modifying a loan, and loan modifications that get nixed by pools of investors after they are negotiated between a loan servicer and borrower.

No free ride

Levins emphasized that foreclosure law reform should not excuse people from legitimate debts, or maintain home ownership for people who cannot afford it. "We're not looking to give people a free ride," he said.

A big criticism of Hawaii's nonjudicial foreclosure law, which is used in the vast majority of residential foreclosure cases, is that borrowers have no reasonable means to contest repossession even in cases where they believe a lender is improperly taking their home.

The most viable options for homeowners to challenge a nonjudicial foreclosure, according to consumer advocates, are hiring an attorney to file a lawsuit or filing for bankruptcy — costly propositions for people struggling with finances.

Michelle Carinio, a military veteran who became unable to work two years ago because of a disability, said she fell behind on her mortgage because of problems obtaining Veterans Affairs and Social Security benefits. She said her loan servicer, Bank of America, initially was supportive and set up a loan modification trial. Then in November, Carinio got a letter from a local debt collection firm informing her it was pursuing foreclosure on behalf of The Bank of New York Mellon as trustee for creditors holding mortgage-backed securities affiliated with an entity called CWABS Inc.

Carinio said BofA incorrectly claimed that she missed a payment under the trial plan, but would not halt foreclosure after admitting the mistake. "I don't know where to turn to for help," she told the Judicial and Consumer Protection committees.

"We're going to try and help you," answered Rep. Bob Herkes (D, Puna-Pahoa), chairman of the Consumer Protection committee.

After soliciting comments on elements of 10 House bills related to foreclosure at the Wednesday hearing, Herkes put forth a revised version of one measure, House Bill 1411, that consolidated elements from other bills as well as some new reform-minded ideas that would replace the state's existing nonjudicial foreclosure law.

Provisions of the new HB1411 include mandatory mediation between a borrower and lender, better foreclosure notification requirements, and an option for borrowers to convert a nonjudicial foreclosure to a judicial foreclosure overseen by a judge.

"We're trying to make the nonjudicial foreclosure law strong enough to protect consumers," Herkes said.

Bills long overdue

Angus McKelvey (D, Olowalu-Kapalua) gave the bill an informal endorsement during the hearing. "This is long overdue," he said.

The bill is expected to be voted on this week by the joint committee, and if passed would be referred to the House Finance Committee.

Another bill, which would impose a five-month foreclosure moratorium, passed the House on Friday and is headed for Senate consideration.

Herkes said he would like to see the moratorium bill, House Bill 894, passed with a provision that it would be set aside if a meaningful reform bill is passed.

In the Senate, a bill introduced by about a dozen senators led by Sen. Rosalyn Baker, (D-W. Maui, S. Maui), would allow homeowners to force mortgage holders to engage in face-to-face dispute resolution overseen by a professional facilitator before a foreclosure could be completed.

This bill, Senate Bill 651, is modeled after a roughly 18-month-old program in foreclosure-plagued Nevada that has resulted in homeowners remaining in their homes in 46 percent of mediated cases.

Alternative dispute resolution is important, the bill states, because it solves one of the chief problems encountered by homeowners pursuing loan modification: poor contact with out-of-state lenders and loan servicers.

Another proposal, Senate Bill 652, would implement recommendations of the task force, including conversion from nonjudicial to judicial foreclosure, a 21-day minimum notice for property auctions and a ban against lenders seeking deficiency judgments against owner-occupant homeowners.

A deficiency judgment occurs when a lender pursues a borrower for the difference between what the borrower owes and what the lender recovers in a sale. Most lenders don't seek such judgments in Hawaii, though state law doesn't prevent it.

Many proposed foreclosure reforms apply only to owner-occupants of a primary residence, and not investors. Some bills aim to strengthen protections for military members. Yet others seek to insulate homeowner associations from losses tied to foreclosure.

Some lender representatives who back the task force recommendations fear that many measures being considered will make matters worse for borrowers. But consumer advocates are confident that appropriate reforms will become law this year.

"You all have constituents who are facing this problem," FACE leaders wrote in a recent letter to lawmakers. "The economic downturn, coupled with widespread fraud in the banking system are causing hundreds of local families to lose their homes, and many thousands more to be stripped of their life savings."

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