Features

Mending the Mortgage Mess

David Overcomes Goliath

On a rainy January morning in downtown Honolulu, a small group of dejected homeowners met in a coffeehouse to commiserate with each other about the impending foreclosures on their family homes. Each blamed large, deceptive Mainland mortgage lenders for a variety of dishonest actions–and in some cases outright fraud–for the “wrongful” loss of their homes.

They shared similar and repeated instances of unjust treatment by their lending banks, including being misled by faulty recordkeeping, conflicting advice, broken promises and the practice of “robo-signing”–the fraudulent signing of millions of mortgage documents later used to justify hundreds of thousands of foreclosures nationwide.

Eventually, these “talk story” sessions came to the attention of volunteers from the local Faith Action for Community Equity (FACE), a faith-based statewide grassroots organization founded in Hawaii in 1996. In short, FACE “challenges the systems that perpetuate poverty and injustice,” says Kim Harman, the 37-year-old policy director of the nonprofit organization who has worked in community banking and lending for more than a decade.

Valentine’s day gift

On February 14, FACE leaders accompanied a group of 16 desperate and dispirited homeowners into the Merchant Street loan office of Bank of America (BofA)–the nation’s largest bank by assets–in downtown Honolulu. They waved handmade posters saying, “Bank of America–Don’t Break our Hearts!”

Launched about 200 years ago and headquartered in Charlotte, North Carolina, BofA is one of the largest and most powerful financial institutions in the United States. BofA’s reach covers more than 75 percent of the US population and 44 percent of the country’s wealthy households, for a total of more than 55 million consumers and small business owners, according to wikinvst portfolio tracker.

After many months, and in some cases years, of not being able to talk in person with a BofA Mainland executive, the ignored homeowners group now demanded a conference call with a Mainland BofA decision-maker to outline a plan for senior bank representatives to be sent to Hawaii to meet directly with their families. BofA agreed to send an authorized loan modification negotiator to Hawaii by February 28.

Harman completed and shared two land studies on Hawaii’s foreclosure crisis with legislators and the attorney general’s office. Her detailed, statewide statistical reports identified five deceptive practices commonly used by large Mainland lenders and clearly intended to suggest specific actions to Hawaii families, knowing such actions would likely result in the default of their mortgages. Families across the nation were struggling to avoid losing their homes to large lenders such as BofA, Wells Fargo and JP Morgan Chase.

In Hawaii, BofA was the official lender for nine of the 16 families Harman studied, and she sought to discover what factors actively prevented local families from participating in the federal programs intended to help them avoid foreclosure.

Bamboozled

According to the surveyed homeowers in or approaching foreclosure, the most common deceitful actions by their lenders included false information–many were told they were current on their mortgage payments, and that they would have to miss one or two payments before their mortgage could be renegotiated. In some cases, immediately after a missed payment, the homeowner was judged to be in foreclosure. Loan modifications were refused without giving the borrower a reason or as the result of following the bank’s advice. And banks told families to send the same information over and over, claiming that their FedEx’s and faxes never arrived…

Bamboozled continued…

[Note: The following is a continuation of the first part of the Mending the Mortgage Mess feature that ran in the print edition of Honolulu Weekly, 6/8/2011.]

Some lender banks offered homeowners a contract for a temporary loan modification, in which the family made every payment they were asked to make–and they were still denied the modification.

• Lender banks guaranteed they would send necessary materials or have authorized representatives return customers’ calls but the materials never arrived or the calls were never received.

One anonymous local client summed it up: “I want to pay my mortgage. I want the American dream. I am willing to do whatever it takes to save my home, but after having been misled so many times, I can no longer trust the lender to follow through on anything they say or promise me.”

Some off-island banking goliaths opposed to legislative home foreclosure reform were said to be applying pressure to individual state legislators to place a moratorium on all loan modification programs, according to an anonymous elderly man on Maui who has already lost his home through foreclosure.

With each coffee meeting, these local homeowners, who were who were once without hope (one had attempted suicide), became a close-knit group that routinely shared their fears and hopes with each other. Then they got into action with FACE staff to form a grassroots “foreclosure prevention campaign” against the rampant mortgage abuse practices in our state.

Enlighted Legislators

Fortunately, the group found two strong supporters. Sen. Roz Baker passed two important bills. SB652 implemented new provisions that offered additional help to borrowers and added clarity to the complex requirements.

Baker’s second bill, SB651, would establish a dispute resolution program to help legitimate homeowners remain in their homes. A significant feature would allow homeowner-occupants to convert from a non-judicial to a judicial foreclosure, which would allow court oversight of the process. (But it would also allow lenders to seek a monetary deficiency judgment, as opposed to a judicial (court) procedure in which no deficiency is allowed.)

In addition, the bill establishes a dispute resolution (mediation) program. “This is the most difficult bill I have ever worked on,” says Sen. Robert Herkes. “What was sorely lacking, and what this new process provides, is an opportunity for homeowners to communicate face-to-face with someone who actually has the authority to help them with a loan modification. And not someone who keeps losing their paperwork, giving them mixed messages and jerking them around.”

ACT 48 (Hawaii’s Mortgage Foreclosure Dispute Resolution Program) was passed on June 6 and quickly signed into law by Governor Abercrombie. Some economists are calling it “the best foreclosure bill in the nation” for embattled borrowers. In any case, it is a gigantic victory for Hawaii and FACE–and a significant accomplishment for the dozens of courageous families who agreed to help track down legislation, gather supporters and give their personal testimonies over and over at legislative hearings, rallies and meetings during the last year.

Those families who attended the signing of Act 48 into law or watched it on TV reported an “unexpected reaction” to the passage of the law, according to Harman. “Instead of feeling a sense of relief that the fight was over, they felt empowered to take on–and win– more of the big banking issues facing our state and our country.”

It would be easy to say that this complex crisis is too much for a community organization like FACE or a small state like Hawaii to take on, says Harman. “But look what we have already achieved. Act 48 has inspired legislators and organizations around the country. They are already organizing against the bad practices of the big banks.

More problems ahead?

Nevertheless, there are still major problems ahead, according to Harman. “Fannie Mae and Freddie Mac, investors in thousands of Hawaii mortgages, are often cited as standing in the way of qualified families getting the loan modifications they need,” she explains. (Bank of America is a major beneficiary of TARP, the Troubled Assets Relief Program, more commonly known as the “bank bailout.”)

“Many families drained their pensions in an attempt to qualify for a loan modification, only to be foreclosed on anyway. Now with bad credit, no home and no pension, they deserve to have their cases investigated for fraud.”

Harman is also disappointed that the 50-state attorney general settlement discussions with the biggest mortgage holders in the country have not yet resulted in anything substantial for thousands of homeless families in Hawaii and tens of thousands of families across the country that have been harmed by “Wall Street’s new standard of bad lending and even worse servicing.”

For all the grief and pain the foreclosure crisis has caused in Hawaii, it has activated many otherwise quiet, conservative families who had never before held a picket sign or spoken out at a press conference, Harman says.

But there’s another large mountain to climb. FACE will announce its new campaign to hold Wall Street banks accountable to Hawaii’s families at its Annual Equity Summit November 4. Stay tuned.

Harman concludes, “Thank you to the Weekly for all the concentration and work you put into this issue. There is no other press in Hawaii that dug into the details like you and your paper did.”

Mirage of Hope

On March 4, 2009 the Obama Administration announced the “Making Homes Affordable Program,” also called HAMP. With $75 billion in government and private funding, the goal of the program was to stop four million unnecessary foreclosures in the US by reimbursing banks and mortgage servicers who work with families to adjust their monthly mortgage payments to avoid foreclosure. Several similar federal programs have been implemented over the last two years.

Here in Hawaii and across the United States, HAMP has not fulfilled its intended purpose, and instead has led to mass confusion, frustration and a sort of “limbo” for thousands of homeowners who are doing everything they can to participate in the program, but cannot get answers that make sense from their lenders.

Many of them live in constant fear of foreclosure. The Mainland lenders and mortgage servicers featured in the FACE study have created a deceptive process for thousands of Hawaii’s families that is leading our families to make mortgage payments they cannot afford, deplete their savings and pensions and in some cases their children’s education funds. This mirage of hope has also led Hawai’i families to defer short-sales and miss other opportunities to mitigate their losses.

Resources: Kim Harman Policy Director FACE Hawaii 808.375.9560