LIHU‘E — The County Council on Wednesday passed unanimously a resolution to urge the state Legislature to fix defects in laws that govern the state Department of Hawaiian Home Lands that have led to stubbornly high mortgage delinquency and foreclosure rates among Native Hawaiians living on DHHL lands.
The council action — the vote was 6-0, with Councilmember Arthur Brun absent — came only a day before state Senate Hawaiian Affairs Committee was scheduled to hold a hearing on SB2526, the first of three DHHL-reform bills that have been introduced in the new session. The hearing is today at 1:15 p.m.
State Sen. Kaiali‘i Kahele (D-Hawaii Island) is lead sponsor of all three bills. The others are SB2525 and SB2393.
The Kauai council action came after the Maui County Council approved unanimously a virtually identical resolution on Jan. 10. Hawaii County Council members have pledged to consider another carbon-copy resolution at a meeting on Feb. 19, according to Kauai Councilmember Kipukai Kuali‘i, one of the sponsors of the measure passed on Wednesday.
The other sponsor is Councilmember Felicia Cowden. Kuali‘i said the Honolulu City Council is preparing a similar resolution for introduction there. The Oahu version, however, is likely to call on the federal government to force DHHL mortgage-delinquency reforms rather than legislate changes at the state level.
That is because the Hawaiian Homes Commission Act, which established DHHL, is a federal law that can only be substantively changed by Congress, Kuali‘i said. The act was passed in 1920, long before Hawaii achieved statehood in 1959.
Proponents of the county measures on Maui and Kauai say the reforms urged in those resolutions constitute only technical changes in DHHL operating procedures. Such alterations can be mandated at the state level, said Anahola resident Robin Danner, chair of the Sovereign Council of Hawaiian Homestead Associations.
“This is not an issue of Native Hawaiians being a bunch of deadbeats. This is an issue of parity,” Danner said in council testimony. “We have a state agency (DHHL) that is all-powerful and puts us into landlord-tenant status.” She said Native Hawaiian homeowners who fall behind in their mortgages face a situation “like David and Goliath.”
Kuali‘i, who chairs the council’s Housing Committee and resides on DHHL land in Anahola, said Native Hawaiian homesteaders being pursued for mortgage delinquency or forced from their homes by foreclosure add unnecessarily to the island’s homeless population.
“We need to do what we can to help these families stay in the homes they are in,” he said. “People losing their housing on our island is a critical issue and this (DHHL procedure change) is low-hanging fruit.”
Kuali‘i and Danner said there is a fundamental difference between the general population, where people hold fee-simple mortgages on homes and own their properties, and Native Hawaiians, who build homes on land owned by DHHL, where they are considered lessees, not owners.
The DHHL declined to take positions on any of the four various county resolutions passed or under consideration, and it did not respond to questions on its position on the three Senate bills.
Once Native Hawaiians lease DHHL land, for which there is a waiting list that crosses multiple generations, they are entitled to build homes, construction costs of which are mortgage-financed. However, the Native Hawaiian homeowner never owns the land, said Kuali‘i and Danner.
As a result, they said, when a DHHL lessee falls behind in mortgage payments, DHHL routinely treats the situation as a lease default, not a mortgage delinquency in the conventional sense. Under this system, Danner said, DHHL has developed loan-servicing procedures that deny Native Hawaiians the rights to seek loan modifications or forgiveness and other remedies routinely available in the broad mortgage market.
DHHL, for its part, said in a statement originally issued in December that it does negotiate such remedies, but only on a case-by-case basis that is not described in the three-page section of the agency’s loan-servicing manual devoted to foreclosure and delinquency. The only remedy spelled out in the manual is the crafting of a repayment plan, in which the delinquent party’s only option is to catch up to the amount owed on the loan.
If a DHHL mortgage is delinquent for more than 120 days, according to the DHHL manual, the only remedy is a “contested-case hearing,” a court-like, administrative proceeding in which a judge ultimately makes a ruling to modify a loan or permit DHHL to evict the Native Hawaiian family in question. If that happens, the family must leave the home, which DHHL takes over. Danner contended that many such homes languish, boarded up, for years.
She said DHHL lessees who fall into the contested-case category are often bewildered by the complexities of litigation, can’t afford attorneys and may fail to appear for scheduled hearings because they don’t understand the process.
In its December statement, DHHL denied that its processes result in high rates of delinquency and deny mortgagees options to which others may be entitled. “We understand that there are sometimes unavoidable life events that occur, and we have trained staff as well as contracted financial counselors to help,” the release said.
The agency said “it became clear that, in practice, DHHL’s loan program offers borrowers more flexibility and creativity in its mitigation efforts than the current version of the loan manual, and far more than the fee-simple market.” It said it was pursuing revision of the manual.
The agency’s statistics, however, show stunning levels of delinquency. Among 966 mortgage loans made directly by DHHL, 260 — or more than 26% — were in default. Of 406 loans guaranteed, but not made, by DHHL, 89 were in default, as were 334 of 3,135 loans to DHHL lessees made by conventional lenders.
The delinquency rates compare to 3% to to 4.5% for mortgages in general nationally and about 3% in Hawaii. The DHHL rates are higher than the national mortgage implosion of 2007 and 2008, Danner said.
The three newly introduced Senate bills would:
• Mandate revision of DHHL’s lending manual and adoption of “loan loss mitigation policies, procedures and methods, including financial counseling, mitigation analysis, forbearance, loan modification, loan assumption, sale or transfer;”
• Ban DHHL from canceling a lease “based solely on a loan delinquency or default” unless DHHL provably followed all of its published mitigation procedures;
• Emphasize procedures designed to “avoid default, cure delinquencies and avoid cancellation or foreclosure;”
• Require a majority of members of the Hawaiian Homes Commission to be DHHL lessees and require “beneficiary consultations” before changing its procedures.
Allan Parachini, a Kilauea resident, furniture maker, freelance reporter and retired public relations executive, writes periodically for The Garden Island.