Hedge funds — huge, nearly unregulated financial institutions that control billions of dollars in capital — are now capitalizing on the misfortunes of the estimated 11 million families nationwide who are struggling to pay for underwater loans on homes worth far less than their mortgages.

These funds are buying batches of these underwater loans at deep discounts, then selling them at a profit.

Families across Hawaii are struggling to make high mortgage payments to keep current on their underwater mortgages to lenders who have failed to maintain the proper chain of title. Mainland lenders have sold and re-sold these mortgages multiple times, often into securitized trusts with such great speed, carelessness and sometimes even outright fraud that the final owners of the mortgage debt are having trouble proving they have legal authority to foreclose. But they still wring the mortgage payments out of these families before foreclosing on them.

A family in Ewa Beach could not get a mortgage modification even as the wife lay on her deathbed and her husband told the lender that her life insurance would enable him to become solvent. Only the threat of public exposure made the lender relent. Granted, this is an extreme case, but thousands in Hawaii face foreclosure and extreme pressure and what to them is public exposure of their shameful situation.

The mortgage foreclosure program in Senate Bill 2394 HD3 would do what the hedge funds are doing, but only with homeowners who can pay for a modified mortgage, not with those who have no way of paying for a mortgage no matter how discounted. The state would buy these mortgages at a discount where the lender cannot easily sell these mortgages, then sell them to the owners at a slightly higher rate in cases where the owner can pay a modified mortgage. The homeowner gets to keep his house, the state makes a small profit to keep the program going, and local banks can service the loans for a fee.

The lenders cut their losses but save their reputations and possibly still make a profit on the whole deal. The housing industry will also rebound faster as borrowers recover faster financially.

We commend state Reps. Bob Herkes, Marcus Oshiro and Ryan Yamane for their compassion and courage in championing this bill in the face of opposition from the financial industry.

Thousands of families in Hawaii have these underwater loans. An estimated 6,000 face foreclosure in the immediate future. This bill will help ease the plight of many of them.

Efforts are going on nationally for mortgage principal reduction, which will help many more. SB 2394 is one of many efforts going on nationally to these millions of underwater homeowners. Please urge our legislators to pass it.