By Janis L. Magin

A new report says that Hawaii’s economy could gain nearly 3,300 jobs and get an annual stimulus of $223 million if banks wrote down every underwater mortgage in Hawaii.

A mortgage is underwater if its amount is higher than what a home is currently worth. You could also call it upside down.

Either way, it means that someone is paying more for his or her house than they could sell it for.

Here in Hawaii, there are 22,403 mortgages in that situation, according to the report released by a national campaign called The New Bottom Line, a coalition of community, faith-based and labor groups, including Hawaii’s Faith Action for Community Equity, or FACE Hawaii.

While the number of upside down mortgages in Hawaii is a lot lower than it is in other states — California and Florida each have more than 2 million — it’s still nearly 10 percent of the homes here.

The report says that means $2.2 billion in negative equity for Hawaii.

Getting rid of that negative equity could mean putting $828 back in each homeowner’s pocket each month — money they could presumably spend on other things, stimulating the state economy.

The report argues that by getting the banks to write down all the underwater mortgages in the nation to their current market value, banks can pump $71 billion into the national economy every year and create more than 1 million jobs.

Hawaii would gain 3,292 of those jobs, the report said.

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KITV
June 17th, 2011

HONOLULU — After years of hot water problems at Mayor Wright Homes, the state completed construction of a backup system this week.

Residents at the state housing project have complained for years about the lack of hot water. The tankless water heater backup system was completed on Wednesday.

Gov. Neil Abercrombie met with residents in March to discuss the problem.

“The completion of this project is a temporary solution to a longstanding and unacceptable problem,” Abercrombie said. “This is just one of a long series of investments we will make in our public housing — to ensure that families have safe and dignified housing as they move toward self-sufficiency.”

“We take our responsibility to maintain and improve Hawaii’s public housing seriously and are resolved to move forward in partnership with the residents of these valued communities,” Department of Human Services Director Pat McManaman said.

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Honolulu Civil Beat
June 15th, 2011

By Robert Brown

Mortgage giant Fannie Mae has found a way around what some consider the nation’s strongest foreclosure law.

Fannie, a government controlled mortgage finance company, which operates in the secondary mortgage market, announced this week the company will convert all of its new and pending non-judicial foreclosures in Hawaii to judicial foreclosures effective immediately — essentially allowing them to skirt Hawaii’s new law.

“Our announcement is consistent with Hawaii law and was made in response to recent Hawaii legislation,” Andrew Wilson, a Fannie spokesman told Civil Beat in an email. “The judicial foreclosure process allows homeowners to raise any challenges to the foreclosure in court. Fannie continues to encourage homeowners to reach out as early as possible to their servicers to pursue modifications and other foreclosure prevention solutions.”

In May, Gov. Neil Abercrombie signed Act 48, a measure requiring lenders to meet face-to-face with homeowners for mediation before foreclosing on a property. Additionally, the bill places a moratorium on all new non-judicial foreclosure actions until July 1, 2012, for foreclosures covered under Part 1 of the state statute governing foreclosures, and requires lenders to prove they actually have the authority to foreclose on a property.

“It doesn’t seem like (Fannie) really cares much about our homeowners or assisting homeowners stay in their homes,” Sen. Rosalyn Baker, who co-introduced the mortgage bill, said in an email.

Intended to reform Hawaii’s foreclosure process, Act 48 has the potential to impact thousands. But the law only applies to non-judicial foreclosures.

Fannie Change Skirts Proof Requirement

One reason supporters of Act 48 were so pleased with its passing was the requirement that lenders prove they have authority to foreclose on a home.

Kim Harman, policy director for Faith Action for Community Equity (FACE), told Civil Beat in May that lenders processed too many mortgages too quickly, resulting in Hawaii residents being foreclosed on by lenders who don’t have legal standing.

Act 48 was based on a 2009 Nevada law, with the exception of the proof of authority to foreclose requirement. Because Fannie hasn’t adopted the same stance in Nevada, Harmon says, it indicates that Fannie is attempting to avoid having to prove that it has the right to foreclose.

“There are thousands more foreclosures in Nevada than in Hawaii and our foreclosure mediation laws are so similar, Fannie Mae must be reacting to Hawaii’s higher standard for lenders and mortgage servicers to prove their legal standing to pursue foreclosures in our state,” Harmon said in a FACE press release. “If Fannie Mae is worried that there are flaws in their legal standing to foreclosure, they should not be foreclosing at all, they should be addressing problems with their mortgages.”

Baker said Fannie will be disappointed if it is, in fact, trying to avoid the proof requirement.

“If Fannie Mae thinks somehow they’re going to get a better deal going through the courts and that they won’t have to present the same documentation demonstrating their legal ability to foreclose, I believe they will be sadly mistaken,” Baker wrote Civil Beat via email. “I expect the courts to look with great scrutiny on any foreclosure matter that comes before them, especially now.

Wilson, the Fannie spokesman, declined to comment on the issue.

Baker told Civil Beat Fannie’s decision will likely lengthen the foreclosure process and possibly pass on more costs to homeowners, who might feel the need to be represented by counsel. She said lawmakers will keep a close eye on Fannie and will work with the Department of Commerce and Consumer Affairs, as well as the judiciary, “to explore options and how best to keep from overwhelming the resources of the Judiciary.”

Baker said getting a judicial foreclosure hearing in Hawaii can take 12-14 months.

“We intend to continue to stand up for the beleaguered homeowners of Hawaii,” Baker said. “We will also enlist the assistance and support of our Congressional delegation.”

Mortgage Expert: Expect Protests

While Fannie isn’t doing anything illegal with the conversions, at least one mortgage expert thinks Hawaii homeowners will not tolerate the decision.

“In Hawaii, this is not going to fly,” Martin Andelman, operator of the mortgage blog “Mandelman Matters”, told Civil Beat. “If you treated your spouse the way the servicers treat people, you’d get arrested. It’s abuse. It’s awful. We treat people in the criminal justice system better than servicers treat homeowners.”

“I just know Hawaii,” Andelman said. “Hawaii is not a place where you get away with that stuff. I mean, mainland banks are going to treat people rudely and think everyone is just going to do nothing?”

Andleman said that Fannie’s move essentially renders the intent of Act 48 moot, though Baker disagrees.

“The people of Hawaii today are very proud of their Legislature for (Act 48),” Andleman said. “It was a grassroots movement, they felt like they had a real success on a national scale. I mean it was a big deal. They won and they did something good. And then Fannie just went, ‘(expletive) you.’”

It’s unclear exactly how many foreclosures Fannie’s decision will affect. Wilson said Fannie does not keep individual state statistics on mortgages.

Baker said she heard an estimate that Fannie may have a 20-40 percent share of the Hawaii foreclosure market, but could not verify the figure.

Rep. Bob Herkes, another co-introducer of the mortgage bill, told Civil Beat lawmakers will meet June 28 to have an informational briefing on the law with key players in Hawaii foreclosures, including Andleman.

“We’ve tightened up the law to protect, we think, both sides,” Herkes said. “And I think the lenders were having a little bit of a free ride under Part 1 of the non-judicial (foreclosures) and certainly, they’ve got a wake up call. They say, ‘Oh my. Now we have to prove we’re the lender. How rude.”

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Honolulu Star Advertiser
June 15th, 2011

By Andrew Gomes

One of the nation’s biggest owners of home mortgages has made a move that could add to an already overburdened Hawaii court system’s caseload.

Fannie Mae, a publicly owned company created and overseen by the federal government, recently instructed companies that handle foreclosures for its loans to file all new Hawaii foreclosures in court.

Fannie Mae also told the firms known as loan servicers to cancel any pending nonjudicial Hawaii foreclosures and restart them in court.

Fannie Mae took the steps in response to Hawaii’s new foreclosure law enacted last month. Critics are concerned Fannie Mae might be attempting to sidestep the main intent of the law, which was to engage mediators to help homeowners avoid foreclosure.

The vast majority of residential foreclosures in Hawaii in recent years have been conducted out of court through a nonjudicial process because it was quicker and cheaper than going through court.

The law was changed in part because the nonjudicial foreclosures left borrowers with little opportunity to contest repossessions even in cases where they believed a lender was improperly taking their home.

The new law, Act 48, gives qualified owner-occupants of Hawaii 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.

Fannie Mae’s directive, issued Friday, drew criticism from a local homeowner advocacy group that lobbied for Hawaii’s new law.

The Rev. Bob Nakata, a member of Faith Action for Community Equity, said Fannie Mae is attempting to bypass the new law. “Just two days ago, 25 churches got together from two islands and celebrated our new foreclosure mediation law, and now Fannie Mae is trying to outmaneuver us,” he said. “It stinks. Our government-sponsored enterprises are supposed to help us, not take away everything we have fought for.”

Some supporters of Hawaii’s new law fear the move by Fannie Mae, which buys U.S. single-family home loans from loan originators, could spur similar moves by giant banks and other big holders of Hawaii home mortgages, shunting aside the revamped nonjudicial foreclosure law and overwhelming the state court system.

Fannie Mae declined to say whether it established its new policy to avoid nonjudicial foreclosures in Hawaii under the new law or whether the policy is only temporary until it’s possible to file new nonjudicial foreclosures.

The new law resulted in a de facto moratorium on nonjudicial foreclosures because the state Department of Commerce and Consumer Affairs won’t accept any new nonjudicial foreclosure filings until the mediation program is running. The law also prohibits any nonjudicial foreclosure auctions until borrowers have an opportunity to participate in the program.

The program is expected to be running by Oct. 1.

Fannie Mae spokeswoman Amy Bonitatibus said policies are regularly reviewed and adjusted as needed.

“Our announcement is consistent with Hawaii law and was made in response to recent Hawaii legislation,” she said. “Currently, nonjudicial foreclosures cannot be pursued in Hawaii. There is not currently an end date listed in the announcement we issued, but again, we regularly make updates and changes to reflect the current law and foreclosure processes in a state.”

Kim Harman, Hawaii policy director for Faith Action for Community Equity, questioned whether Fannie Mae is trying to avoid requirements for documenting original and amended mortgage agreements and promissory notes under the new law.

Harman said the documentation requirement is the only substantial difference between Hawaii’s law and a Nevada foreclosure mitigation law upon which Hawaii’s law was modeled. Fannie Mae hasn’t banned nonjudicial foreclosures in Nevada.

State Rep. Bob Herkes, who along with Sen. Rosalyn Baker was a chief architect of the law, said Fannie Mae would be misguided if it intends to avoid better documentation by running foreclosures through Hawaii courts.

Herkes intends to ask the Judiciary to hold mortgage holders to the same documentation standards contained in the nonjudicial foreclosure law.

Some Hawaii foreclosure industry attorneys had warned that lenders might flock to judicial foreclosures, in part because lenders can pursue borrowers for any difference between what a borrower owes and proceeds from selling a foreclosed home. This difference, referred to as a deficiency judgment, could help offset higher expenses of judicial foreclosure.

However, others believe the extra time and expense of judicial foreclosure, especially if Hawaii courts get bogged down, still make judicial foreclosure less attractive than the revamped nonjudicial foreclosure process.

While Fannie Mae seeks to proceed with Hawaii foreclosures in court, it is also offering financial incentives for loan servicers to avoid foreclosure and was instructed by the Federal Housing Finance Agency in April to not start a foreclosure if a borrower and servicer are engaged in a good-faith effort to resolve a mortgage delinquency.

So far, there has not been a huge increase in judicial foreclosures in Hawaii, considering that the new law went into effect May 5.

For all of May, there were 141 judicial foreclosure cases, up from 119 in May 2010, according to Judiciary figures. Nearly all of the increase occurred on the Big Island.

For all of last year, state Circuit Courts handled 1,331 foreclosure cases. That figure is estimated to be around 10 percent of all Hawaii foreclosures.

The Judiciary, in testimony on Senate Bill 651 that became the foreclosure mitigation law, expressed concern that any big increase in judicial foreclosures could dramatically delay cases unless new judges and staff are hired.

According to real estate research firm RealtyTrac, close to 500 new foreclosure cases a month were filed on average this year through April.

The Judiciary estimated it would cost about $4.3 million a year for additional personnel to handle such an increase.

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