Home/Mortgages/Hawaii Considers Foreclosure Moratorium

March 8, 2011 (Shirley Allen)
With out of every nine homes sold in Hawaii last year in foreclosure, state legislators are considering temporarily banning foreclosures and creating a system for homeowners to seek mediation and loan modifications. The idea has already passed the state House of Representatives, sending notice to lenders and bankers they need to start working with families.

Bank of America, which holds 62,000 loans in Hawaii, has sent a senior vice president to talk with the legislators, update them on the banks focus on distressed borrowers, and listen to concerns about geographical areas that will get attention next month.

A separate bill pending a vote before the full state Senate calls for a six-month moratorium while the state sets up a mediation process modeled on a system used in foreclosure-plagued Nevada.

But, instead of a moratorium, it appears more likely that lawmakers will seek to enact several reforms to the foreclosure system:

– Allowing borrowers to force the lender and a mediator to gather for dispute resolution discussions, with loan modification plans as a possible outcome to prevent foreclosure.
– Permitting borrowers to switch from a non-judicial foreclosure to a judicial process, which would allow a judge’s review before the foreclosure could proceed.
– Calling for home auction notices to be posted in the newspaper of the island where the resident lives to provide more awareness before a home is put up for public sale.
– Requiring mortgage servicers to have a physical presence in the state.

The bills don’t guarantee that a homeowner will get a loan modification, but the mediation process would provide an opportunity for borrowers to keep their homes and lenders to continue getting paid.

One of the main points of contention is homeowners have complained about the difficulties of contacting mainland banks and receiving inconsistent information.

“Homeowners contact the lenders repeatedly, get very inconsistent information, are told to provide documents, documents are lost, then they’re told that everything looks OK, then they find out everything isn’t OK, and it becomes a total quagmire,” said Steve Levins, who served as chairman for the Mortgage Foreclosure Task Force, which recommended the reforms.

A trained mediator would have the final say on loan restructuring, and both borrowers and lenders would be brought together to work out their differences.

“If somebody has a willingness and ability to pay, we want to work with them to keep them in their homes,” said Gary Fujitani, executive director for the Hawaii Bankers Association, whose members include the nine Hawaii-based banks. “A moratorium is the wrong action to take. It would just reinforce the message that Hawaii is a very difficult place to do business.”

Hawaii had the 11th highest foreclosure rate in the nation last year, with 12,425 foreclosure actions, according to research firm RealtyTrac.

Tags: Hawaii, loan modifications, foreclosures, mediation, loan restructuring, distressed borrowers, lenders and bankers, mainland banks