Raising Cane
By Rob Perez
Sunday, October 7, 2001
About six years ago displaced workers of bankrupt Hamakua Sugar Co. on the Big Island were able to purchase the company's plantation homes for dirt cheap. Homeowners fall prey to
high-priced loan fraudThe program was part of a community effort to help the jobless employees get back on their feet.
Once the deeds were transferred, however, the hucksters came calling. They began hawking high-priced loans to the new homeowners, and many took the bait.
Today dozens of the former Hamakua workers are on the verge of losing their dwellings, apparent victims of so-called predatory lending practices. Some already have been forced to give back their homes, unable to afford the loan payments.
The Big Island cases underscore what is a statewide problem:
Unscrupulous or overly aggressive mortgage brokers and lenders are targeting unsophisticated or overly trusting homeowners, usually with poor credit histories, and persuading them to take out high-priced loans, using their homes as collateral.
The loans typically don't pencil out and would not have been made had the lenders used standard measures to determine the borrower's ability to repay. But brokers and others go to unusual lengths, sometimes falsifying income information on loan applications, to push the financing through so they can pocket the fees.
Overwhelmed by the paperwork, the homeowners often don't realize they are getting in over their heads. Eventually, they default on the loans, and the lenders take the dwellings back through foreclosure.
"It's a very large problem," said attorney Gary Dubin, who helps homeowners defend against foreclosures.
Just how big of a problem is unclear, partly because it's difficult sometimes to distinguish between what are legitimate and what are predatory loan practices.
Lending to people with poor credit is called subprime lending, and those type of loans entail greater risk for lenders, justifying higher fees. But what is reasonable and what is excessive?
Some in the mortgage business say the industry in recent years has improved efforts to police itself and weed out loan applications that don't make sense.
Because of that, they say, the problem of predatory lending isn't as great in Hawaii as it was five years ago.
But consumer lawyers and advocates say they still regularly see evidence of the problem, which can be reflected in excessive fees, "loan flipping" (refinancing repeatedly to generate more fees) or exorbitant interest rates. The elderly and immigrants often are targeted.
"What I see isn't pretty," said George Zweibel, a Big Island attorney who has expertise in predatory lending issues and represents some of the Hamakua homeowners. "People are losing their homes on a steady basis."
That pace likely will escalate if Hawaii's economy continues to falter and more people lose their jobs in the wake of the Sept. 11 terrorist attacks.
Predatory lending isn't a problem that typically involves the state's major lenders, such as Bank of Hawaii or First Hawaiian Bank. It usually involves small mortgage brokerages or subprime lenders, and only a subset of them.
"It's probably a small group of (loan) originators causing 80 percent of the problem," said Marie Imanaka, president of Wells Fargo Home Mortgage of Hawaii and past president of the Mortgage Bankers of Hawaii.
The problem persists partly because some subprime lenders don't supervise brokers and don't care what the brokers do to get the loans, said John Paer, a consumer attorney.
"Fees are often times padded and fabricated," he said.
Allegations of fee padding, among other things, are being raised in a pending lawsuit involving an elderly Waipahu couple who took out a $250,000 refinancing mortgage in 1997. Paer is one of the attorneys representing the homeowners.
The couple ended up paying more than $23,000, or 9 percent, in fees and points for the loan, well above the roughly 3 percent to 4 percent more typical for refinancings.
The couple's loan settlement documents reveal fees that mortgage officials not connected with the case say seem excessive.
The couple, for instance, paid $225 for postage fees. Usually, postage expenses total $35 to $50 at the most, the mortgage officials say.
The couple also was charged $1,300 for the home appraisal, even though the appraiser in a deposition said he charged the mortgage company only half that amount, according to Janis Fenton, legal assistant with the law firm Bronster Crabtree & Hoshibata, which also represents the Waipahu couple.
Amresco Residential Mortgage Corp., the lender in the case, denied wrongdoing, according to court documents. An attorney for Amresco didn't respond to a request for comment. Mortgages of America, the broker involved, could not be reached for comment.
In the Hamakua cases, questions have been raised on how some of the loans were approved in the first place.
One home, for instance, had no electricity, something that should have been a red flag to the lender.
Also, Hamakua Housing Corp., the nonprofit entity formed to make the sales to the displaced workers, was supposed to provide consent if any loans were made on the homes during the first five years the workers owned them, according to Henry Nakamoto, an attorney for the organization.
Its consent was never sought on any of the loans.
Regarding the problem of predatory lending, Fenton said companies have developed a variety of techniques to boost loan profits. Some methods are cleverly hidden in the voluminous loan documents.
"They have a lot of different tricks," Fenton said. "They're geniuses at it, I must say."
What's even more appalling, consumer advocates say, is that people victimized by such techniques can lose their homes in relatively quick fashion without ever having their day in court.
That's because Hawaii allows use of nonjudicial foreclosures, something that isn't legal in some states.
Once a loan is in default, a consumer can lose a home in as little as a month or two through the nonjudicial process.
With interest rates falling and more Hawaii homeowners considering refinancing their mortgages, consumer advocates and industry officials warn people to be wary of unscrupulous lenders.
Borrowers could end up with loans they think are good deals but actually are devastating to their finances.
Mark James, vice president of Irwin Mortgage Corp. in Hawaii, uses this analogy: "It's like going to the hospital totally well and then coming out dead."
In other words, buyer beware.
Star-Bulletin columnist Rob Perez writes on issues
and events affecting Hawaii. Fax 529-4750, or write to
Honolulu Star-Bulletin, 500 Ala Moana Blvd., No. 7-210,
Honolulu 96813. He can also be reached
by e-mail at: rperez@starbulletin.com.
