The Hawaii Model Succeeds

Posted by Laura Barrett on November 15, 2012

Before Hawaii's new foreclosure prevention law passed, Hawaii had the 11th highest foreclosure rate in the nation. One in every 41 homeowners was losing their largest asset. Banks argued that it was "no use" to give families loan modifications because they would just fall behind again. 

It's a different world in Hawaii today, thanks to FACE, a faith-based community organization, and the vision of community-minded legislators. Foreclosures have dropped by 74 percent in the state. It shows that community organizing can improve not only our neighborhoods, but also our economy, as a recent study by Gamaliel has proven. 

As reported in Shelterforce, in 2011 FACE’s volunteer members celebrated the passage of the stiffest state foreclosure prevention law in the country.  The landmark measure – along with other bills over the last two years – requires greater transparency and flexibility by lenders. It also gives struggling homeowners more time to sit with lenders and come up with viable solutions.

FACE's goal with the legislation was not just to avoid foreclosure. (Short sales and 'cash for keys' all technically avoid foreclosure).  FACE wanted to keep families in their homes and help to protect the equity they had built.

According to FACE policy director, Kim Harman, "After the law was passed, we were able to see if the banks' worst case scenario would come true—that families in trouble just wouldn't be able to keep up with the new terms of their loan. In fact, the first families that got the loan modification after the law passed have stayed current ever since.  What makes our law successful is the requirement that the banks prove the proper chain of title and the legal right to foreclose. Also, there is a penalty to the lawyers who introduce fraudulent or forged documents in court or mediation proceedings."

Mitzi and Joey Toro, long time Maui residents—a small business owner and a public school teacher—were hit by the recession early.  After nine months of trying on their own to get a loan modification, a free HUD-approved councilor was able to get them their mod soon after the law passed.  They are still in their home today.

"The Hawaii Model is to slow the foreclosure process down, hold all parties accountable to fairness and transparency, require face to face negotiations before a foreclosure can proceed, and agree that the goal is to keep the family in the home whenever possible,” said FACE State President Rev. Alan Mark. “We also have significant penalties for forged documents or violating the process. Just like families need to apply and get approved for their mortgage, banks now have to apply and get approval to foreclose in Hawaii. The banks have to prove that they followed the proper chain of title. Justice takes time, the old foreclosure process did not give families enough time or respect."

Other Gamaliel affiliates are taking on the foreclosure issue as well.  Metropolitan Congregations United in St. Louis, MCU, was a key player in an anti-foreclosure measure passed by the St. Louis County Council this fall.  The ordinance is tied up in court, but promises relief to troubled homeowners.  It would let homeowners to enter formal mediation with their lenders, with the banks footing the bill for the process and under penalties if they do not participate.   MCU president Jim Sahaida says "While this bill is not perfect, it is a real step forward.  We thanked County Executive Charlie Dooley and Councilwoman Hazel Erby at our 500-person public meeting this year for their leadership on the issue.  What we need now is action on payday lenders from our state legislature."

MCU had worked with a large state-wide coalition to restrict the interest that payday lenders can charge in Missouri.  The coalition had garnered more than 350,000 signatures on an initiative petition, only to see it thrown out by the Secretary of State after a last minute challenge brought by the banking industry's attorneys.  The coalition wanted to cap the interest rate of pay day loans at 36%.  Missouri's current cap is 1,950 percent, with the average loan clocking in at 444%. 

Father Creason of MCU says the group won't stop fighting.  "This measure is too important.  Our faith values teach us that usury is wrong.  MCU and our partners in the coalition will continue to fight on this issue until we defeat the out-of-control payday lenders in Missouri."

About the author more »

Laura Barrett is the National Campaign Director for Gamaliel and Transportation Equity Network.

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