A task force representing mortgage lenders and borrowers is recommending changes to a state law enacted last year that effectively cut the number of foreclosures in half.

Since the new law was enacted in May, foreclosures have dropped to around 400 per month, down from nearly 1,000.

While fewer foreclosures might help delinquent homeowners in the short term, negative effects on the housing market could be prolonged, depending on how delinquencies are resolved.

The Mortgage Foreclosure Task Force recommended the law be tweaked to open the door a little wider for lenders to pursue foreclosures by clarifying penalties for improper filings.

But some members of the group aligned with the mortgage industry say the changes proposed by a majority of 18 task force members won’t fix the problematic law.

The Hawaii law, Act 48, overhauled rules for conducting foreclosures out of court, so-called nonjudicial foreclosures that used to be the way lenders handled the vast majority of foreclosures in Hawaii because the process was quicker and cheaper than going through court.

The new law gives qualified owner-occupants of homes the option of having a dispute resolution professional assist with foreclosure mitigation in front of a lender representative before a foreclosure sale can proceed.

Such mediation was supposed to curb what consumer advocates said were lender abuses, while allowing foreclosures to proceed in cases where homeowners had no realistic prospect of maintaining their mortgage.

But lenders balked at a provision that could render a foreclosure sale under the mediation process void if they violated any part of the law, no matter how trivial. Instead, most foreclosures in Hawaii have been filed in court since the law took effect in May.

The most contentious recommendation involved stiff penalties. Several task force members, including the Hawaii Bankers Association, Hawaii Financial Services Association and Hawaii Credit Union League, insist the provision allowing invalidation of a foreclosure sale needs to be eliminated.

"If the Legislature intended to end all nonjudicial foreclosures, this has been accomplished," the bankers association said in a statement attached to the report. "If the Legislature, however, recognizes that there is a place for nonjudicial foreclosures in certain situations, (the harsh penalty provision) must be repealed."

But 13 of the 18 task force members agreed to a compromise that specifies about 20 violations that constitute unfair or deceptive acts that would be subject to invalidation of a foreclosure sale.

George Zweibel, a Hawaii island attorney representing borrowers, said the recommendation represents a fair and reasonable balance between lenders’ concerns and the need to protect borrowers.

Jeff Gilbreath, executive director of Hawaiian Community Assets, a housing counseling organization, said the compromise will allow for effective implementation of nonjudicial foreclosures in Hawaii.

The task force issued its recommendations in a report recently submitted to the 2012 Legislature.

Everett Kaneshige, task force chairman and deputy director of the state Department of Commerce and Consumer Affairs, said he was impressed with the effort to improve on the law.

"Everybody tried to come up with something practical and workable," he said.

The task force was created in 2010 to help deal with the flood of Hawaii home foreclosures hurting borrowers and the housing market.

The Legislature last year passed the law overhauling the state’s lightly regulated nonjudicial foreclosure process, incorporating some initial task force suggestions but also other ideas, including mediation.