POSTED: 1:30 a.m. HST, Apr 15, 2011
Hawaii homeowners facing foreclosure appear close to gaining more protection against losing their homes to lenders, as three bills that would overhaul the state's residential foreclosure process enter the final stretch at the Legislature.
The bills proposing various reform measures — including options for mediation and judicial oversight — have advanced through House and Senate committees despite strong objections from mortgage industry representatives.
Passage, however, isn't a sure thing. That's because House and Senate negotiators will need to settle differences created when House bills were amended in the Senate and vice versa. Settling on one bill could present a challenge.
That the bills advanced this far suggests that consumer advocates who contend that some homeowners need help dealing with shoddy or abusive lender practices have made a convincing argument to state lawmakers.
Criticism leveled during legislative hearings on the bills has largely been directed at big mainland banks accused of stringing some borrowers along in frustrating loan modification programs that ultimately are terminated in favor of foreclosure.
Keone Palama, a 43-year old Kauai resident who works in the food and beverage industry, said he sought a loan modification in 2009 after his work hours and income were cut back to a point where he wouldn't be able to sustain roughly $2,500-a-month mortgage payments on a home he bought in 2007.
MEASURES INCLUDE DISPUTE RESOLUTIONKey foreclosure bills pending at the Legislature:
HB 1411: Allows transfer of nonjudicial foreclosure cases into state court, alternative dispute resolution, enhanced notice to borrowers, fines for violations and a three-month moratorium on foreclosures.
SB 651: Similar to HB 1411 but without a moratorium.
SB 652: Implements recommendations by a state foreclosure task force, including transfer of nonjudicial foreclosure cases into state court and enhanced notice to borrowers.
Palama said he met guidelines qualifying him for the federal government-sponsored relief program called Home Affordable Modification Program, or HAMP, and he applied through an agent for his lender, Bank of America.
A four-month trial period began in January 2010, reducing Palama's monthly mortgage payment to $1,475. But instead of getting a decision on a permanent modification, Palama said, the lender's agent dragged out the trial period for a year without explanation. Palama said he made all the payments.
Palama said he got a letter from the agent in January saying essentially that investors who own his loan calculated they probably would earn more money by foreclosing.
The calculation is known as net present value, which makes assumptions as to foreclosure sale proceeds, costs and the odds of a homeowner defaulting on or refinancing a modified mortgage.
"They strung me out and let me hang for a year," Palama said. "If I couldn't make the net present value, why did they put me in a loan modification in the first place? They failed me."
Palama said BofA's agent told him in February it was proceeding with foreclosure unless he could pay back $19,000 that accrued under the trial modification. Later, the agent agreed to reconsider Palama for an "in-house" loan modification and put foreclosure on hold.
"It's crazy," he said. "I want to save my house. They (the lender's agents) are not promising me anything."
Supporters of the Hawaii foreclosure reform bills suggest that Palama and others struggling with lenders would be better able to avoid foreclosure if any of the bills become law.
Two bills — Senate Bill 651 and House Bill 1411 — 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.
Proponents of this idea say it would solve one of the chief problems encountered by homeowners pursuing loan modification: poor contact with out-of-state lenders and loan servicers. The dispute resolution provisions are modeled after a roughly 18-month-old program in Nevada that claims 46 percent of mediated cases kept homeowners in their homes.
The two bills also contain enhanced notification requirements, fines for violating the law and an option for homeowners to have state judges step in and decide foreclosure cases that lenders began in a nonjudicial process.
The vast majority of home foreclosures in Hawaii are nonjudicial, which homeowner advocates say doesn't give borrowers much say in the outcome.
Trade groups representing Hawaii lenders oppose SB 651 and HB 1411, and say the bills will make loans harder to obtain and hurt home sales in a recovering market.
The Hawaii Bankers Association testified that the bills will force lenders to raise interest rates and down-payment requirements. The association has, along with the Hawaii Credit Union League, asked that local lenders be excluded from the legislation.
Particularly troubling to the association is the dispute resolution provision. The association said the process similar to mediation shouldn't be available to borrowers who have sought pre-foreclosure loan modifications because most borrowers are denied a loan modification based on insufficient income.
"Mediation does not solve the problem of lack of income," the association said in written testimony.
Advocates of dispute resolution and court oversight expect that only some borrowers — those who believe lenders are improperly pursuing foreclosure — will use the options.
The option to convert nonjudicial foreclosures to judicial cases is a recommendation made in December by a state task force representing borrower and lender interests.
Senate Bill 652 proposes implementing task force recommendations, which don't include dispute resolution.