In an April 2010 lawsuit, the founder of Mortgage Electronic Registration Systems admitted that the untrained and non-certified “notaries” were allowed to illegally notarize hundreds of documents daily, as well as “robo-sign” up to 4,000 foreclosure documents daily.

Politics / After last week’s cover story on “Foreclosure Fraud,” distressed home loan borrowers are anxiously awaiting the reaction to Sen. Roz Baker’s 95-page legislative bill on mortgage foreclosures to be shared with the House committee on Wednesday.

Over one million homeowners in the nation will face foreclosure this year, with nearly 24,000 foreclosure actions already initiated in Hawaii, according to real-estate research firm RealTrac.

In March, a local nonprofit organization, Faith Action for Community Equity (FACE) completed their own three-month investigation into the local mortgage meltdown. “Facing Hawaii’s Foreclosure Crisis: How Mainland Lenders and Mortgage Servicers are Misleading Hawaii’s Families into Mortgage Default and Foreclosure.” After analyzing 16 local families throughout the state seeking modifications of their home loans–mostly due to injuries, job losses or unexpected loss of income–FACE staff found “a disturbing pattern of deception” on the part of large out-of-state mainland lenders and mortgage servicers.

The study tallied 1,059 foreclosure notices published in the Star Advertiser in November 2010. While local banks were responsible for only 2.5 percent of these notices, out-of-state banks and mortgage lenders accounted for a whopping 97.5 percent of the total.

Of the 42 lenders responsible for the local foreclosure proceedings, Bank of America (BofA), the nation’s largest bank, was the lender responsible for 353, or one-third of all foreclosure notices statewide.

BofA, Wells Fargo, Deutsche Bank, US Bank and One West were the top five off-island lenders driving the foreclosures against Hawaii homeowners. Many of these banks have come under criticism throughout the nation for unwarranted foreclosures related to improper, unethical, and in some cases fraudulent, procedures involving loan modifications.

The lenders’ intent appears to prevent families from taking advantage of the federal programs that pay banks to offer loan modifications to qualified borrowers.

These programs are a part of the Troubled Asset Relief Program (TARP), a federal program to purchase assets and equity from banks to strengthen their weakened financial condition as a result of the subprime mortgage crisis. “TARP legislation bailed out many of the same Wall Street banks that our families are now fighting,” says FACE State President Rev. Alan Mark.

Wall Street’s collapse and the sub-prime mortgage crisis in 2008 continue to place a heavy burden on the commercial banking industry. Nevertheless, during the first nine months of 2010, the banking industry spent more than $42 million on lobbying, according to the advocacy group Consumer Watchdog. During the 2010 campaign cycle, people and political action committees associated with banks throughout the nation gave more than $18.8 million to federal candidates, committees and parties. BofA, the nation’s fourth largest contributor, donated $1,607,728.

In February, corporate disclosures in the annual financial filings of the Securities and Exchange Commission (SEC) warned shareholders with BofA, Wells Fargo and Citigroup that those banks could face sizable financial penalties as a result of state and federal investigations into “abusive” mortgage practices. Until then, the banks had explained the foreclosure controversy to investors as merely “technical glitches” that could threaten their reputation but were not serious financial concerns.

A recent 60 Minutes segment investigated Mortgage Electronic Registration Systems (MERS), a private company that acts as an agent for institutions seeking to speed up the processing of their loan modifications. MERS, which claims to handle about 60 million loans (nearly half of all home loan modifications in the country) with fewer than 50 staff. In an April 2010 lawsuit, the founder of MERS admitted that the untrained and non-certified “notaries” were allowed to illegally notarize hundreds of documents daily, as well as “robo-sign” up to 4,000 foreclosure documents daily.

On April 13, federal government regulators ordered 16 of the nation’s largest mainland mortgage lenders to hire auditors to determine how many homeowners had been harmed by robo-signing and forged or lost documents, ordering them to reimburse homeowners who wrongly lost their homes through foreclosures.

Since then, a task force of federal bank regulators has been reviewing the foreclosure practices and internal controls of the 14 largest off-shore mortgage servicers, identifying careless practices such as inadequate staffing, lax oversight of outside law firms hired to assist with the foreclosure process and inadequate scrutiny of original loans and the modifications of existing loans. Some say the attorney general could order a settlement that could run into tens of billions of dollars.

In Hawaii, at least 30 bills were introduced in the Legislature to help resolve the foreclosure problem, including recommendations to impose a moratorium on repossessing homes and altering the state’s foreclosure law by allowing borrowers to choose judicial foreclosures, which allows their cases to be heard by a judge in court.

FACE is calling for state officials to help in the ongoing struggle with out-of-state lenders that borrowers are unable to speak with face to face. “At the minimum, local residents who are turned down for a loan modification, deserve to see the reason for the denial in writing; and if they feel the denial is incorrect, they should be able to request that the borrower and lender participate in a binding arbitration process,” says FACE Policy Director Kim Harman.

In his first speech before the Supreme Court, Chief Justice Mark Recktenwald said, “Many of Hawaii’s low and moderate income families are unable to obtain the legal services that they need…There are increasing numbers of families in Hawaii facing foreclosures and other economic crises.” Yet, at the same time, he added, state funding for legal service organizations has been sharply reduced.

“There are increasing reports around the country of wrongful foreclosures,” said Recktenwald. “It is especially important to protect our citizens from fraudulent practices.” Recktenwald referred to states that have passed comprehensive legislation and seen dramatic reductions in foreclosures. “I want to express that this is personal for me. Our home is a sacred meeting place for friends, family and community–not a game piece on a Monopoly board. Why I’ve chosen to make Hawaii my home is that I am joined with fellow stewards of the land. Our love of this land is greater than the greed of Wall Street.”

In the meantime, FACE organizers and nervous homeowners await the reaction to the 95-page draft initiated last week by Baker, who is a strong supporter (along with Rep. Robert Herkes) for unfairly treated homeowners.

Her bill includes mandatory mediation for local borrowers and lenders in a mortgage dispute. “It is fantastic,” says Harman. “Sen. Baker closed all of the loopholes we were worried about. I would be interested to know what Bank of America has promised or offered the legislators over the last few months, since they have been hanging around the capitol so much.”

The real test is going to be at 10am on Wednesday morning when the conference committee resumes and Baker’s draft gets its first public discussion. “If Rep. Herkes is OK with it, then it looks like Hawaii will get one of the best foreclosure mediation laws in the country.” On the other hand, says Harman, “Maybe her draft won’t even make it out of conference.”

Get Involved: Call Kim Harman, Policy Director at FACE Hawaii, 375-9560