Isles see muted effect of subprime troubles

Hawaii developers are offering incentives for second-home buyers

Hawaii so far has escaped the worst of the subprime mortgage crisis that has plagued many mainland markets since summer, but some local effects are being felt, local real estate experts say.

Speakers at a meeting yesterday of the Hawaii Chapter of the National Association of Industrial and Office Properties say the largely mainland crisis is slowing demand among some buyers of second homes in Hawaii, and making financing difficult for very large commercial projects here.

But foreclosures, although running ahead of last year's level, have a limited footprint in the islands, and buyers and developers are getting loans.

"Speculation was not as prevalent in Hawaii," said Jon Whittington, a senior vice president with Countrywide Home Loans.

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The subprime mortgage crisis on the mainland so far has been muted here, but even in Hawaii it is dampening demand among second-home buyers and is making it harder for commercial developers to get big deals funded, real estate industry experts said yesterday.

Until recently, Hawaii enjoyed the boomtown atmosphere also seen in many now-troubled mainland real estate markets like Nevada, California, Arizona and Florida. But while many of those mainland markets have plummeted, Hawaii's market has held.

"Speculation was not as prevalent in Hawaii," said Jon Whittington, senior vice president, regional manager of Countrywide Home Loans in Hawaii. Whittington was one of two speakers at a meeting of the Hawaii Chapter of the National Association of Industrial and Office Properties yesterday.

Mainland markets, where a high percentage of buyers were allowed to buy property without putting money down or undergoing intense underwriting scrutiny, have experienced more delinquency than Hawaii. Although Hawaii's foreclosure rate has continued growing along with the nation as a whole, foreclosures still have a limited footprint here.

"When borrowers' delinquencies began to rise, Wall Street firms cut off lenders' lines of credit and forced, or attempted to force, some lenders to buy back some of the poorly performing loans," Whittington said.

This has led to more than 174 lenders closing or being acquired since 2006, he said.

While the lenders that have remained have tightened their underwriting standards to fund loans that can be sold to agency investors or the more conservative secondary market, Hawaii buyers and homeowners still have many options, he said.

"No longer is there a loan for everyone. Now just 90 percent of everyone," Whittington said.

The biggest impact in Hawaii, aside from the closure of several local subprime mortgage lending offices, has been demand in the lower end of the second-home market, he said.

"Those California buyers who were buying second homes and condominiums in the $400,000s to $500,000s range are susceptible," Whittington said. "Buyers who are going after the more expensive products usually have plenty of money and don't need subprime loans."

By the second quarter of 2007, Hawaii developers and sellers had started to see a decline in demand for the affordable second home market, he said.

In response, Hawaii developers have begun to offer incentives designed to move their product, he said.

In 2004 and 2005 about 40 percent of D.R. Horton's buyers in markets like Kona were second-home buyers, but that's changed now, said Mary Flood, vice president of sales and marketing for D.R. Horton Inc./Schuler Homes LLC.

"We've seen a slowdown in the second-home-buying market," Flood said, but added that Hawaii's kamaaina market has picked up some of the shortfall.

On the commercial side, Hawaii's $100 million-plus-project-developers could face greater equity requirements, higher rates and fees and more resource requirements as a result of the subprime crisis on the mainland, said Curtis Chinn, executive vice president and chief risk officer for Central Pacific Bank.

"It's the larger projects that need to be funded outside of Hawaii that could be affected," Chinn said.

The lending environment for larger projects such as retail complexes, resort development and high-rise condominiums has tightened, he said.

"It could be more challenging to get money out of New York," Chinn said. "However, if you have a project that's less than $100 million, well thought out and economically sound, I think that local lenders will do that all day long."