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Wednesday, April 16, 2014         

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Reform rules for foreclosures


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With the financial cataclysm of late 2008, job losses swept through the country and housing markets nationally were undermined. For an alarming number of Hawaii residences, one in every 41 homes, this perfect storm of calamity led to foreclosure.

Yet despite a foreclosure rate that's 11th highest in the nation, Hawaii seems particularly ill-equipped to offer needed protections to homeowners. Last session there was a rush of legislation seeking to correct that, but lawmakers -- wisely -- sought to clear the path to reform by having a task force bring together the disparate interest groups, consumer advocates and industry leaders, to produce a consensus.

That agreement, the preliminary report of the Mortgage Foreclosure Task Force to the Legislature, amounts to a credible first step toward reform and should be adopted into law. Its provisions were supported by representatives of lenders, homeowner associations, mortgage counselors and the judiciary system.

Among its principal proposals is for legislation to enable non-judicial foreclosure proceedings to convert to a process that goes before a judge. The overwhelming majority of Hawaii foreclosures are non-judicial, which makes sense in most straightforward cases as being a more efficient process.

However, as many homeowners can attest, the wheels of the non-judicial system can turn far too rapidly, meaning that they get run over while trying to correct a lender's error or pursue a loan modification under an Obama administration program.

Stephen Levins, who directs the state Office of Consumer Protection and chaired the task force, said some lenders employ agents pushing foreclosure in direct opposition with others in the same firm who are working on loan modifications.

Someone needs to hit the brakes in circumstances like these. Senate Bill 651 seeks to model a foreclosure mediation program for Hawaii after a successful system in Nevada. In that state, about 4,200 mediations have taken place between homeowners and foreclosing mortgagees since the program's launch in September 2009. In 46 percent of these cases, homeowners have been able to negotiate an agreement to remain in the home, and another 16 percent found a less damaging resolution through mediation, according to the bill's preamble.

Other proposals being floated are harder to justify. Another section of SB 651 as well as separate measures such as House Bill 894 seek a moratorium on foreclosures pending the resolution of probes in other states concerning lenders who have violated consumer protection laws. In written testimony, Levins called such an action unwarranted. Despite enforcement actions, he said, the department "is unaware of any which has resulted in a mandated foreclosure moratorium," a move that "could cripple an already slow recovery of the U.S. housing market."

Foreclosure reform is a contentious subject and in this session, even seems to be a moving target. An omnibus package proposing ways to improve the non-judicial process, House Bill 1411, has been constantly morphing over the past few weeks and is likely to change further before it reaches a key vote before the House Finance Committee. The contents of that package will need further review. And the task force stands ready to continue its work making further proposals, which likely will be needed in the coming years.

But at the very least, a way to opt into a more deliberative judicial review and a mediation program that has been tested elsewhere should be passed by the Legislature. The rush to foreclose can do damage that, at least in some cases, is undeserved. These are people who should be able to call for a time out, so that the disposition of their home loan -- for most, the largest investment of their lives -- is handled fairly.






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