State bill targets A bill to curb so-called predatory lending practices in Hawaii is getting sharp opposition from local lenders, but appears to have the ear of some state legislators.
deceitful loans
Lenders say the proposal is so
broad it would harm most residents'
ability to get a mortgageBy Tim Ruel
truel@starbulletin.comPredatory lending, a growing concern across the nation, refers to the unscrupulous practice of selling high-priced loans to unsuspecting homeowners who could never pay the money back. The borrowers lose their homes and the lender walks away with up-front fees.
Last month, home equity lender First Alliance Mortgage Corp. agreed to pay up to $60 million to 18,000 people nationwide it is accused of deceiving by hiding high fees and interest rates, the largest settlement reached by Federal Trade Commission in a case involving predatory lending.
Legislation proposed at the state Capitol to deal with predatory lending, called the "Hawaii Home Loan Protection Act," would rewrite Hawaii's home lending laws. For instance, the measure would ban late payment fees that are more than 5 percent of the amount that is past due. The bill also tackles the practice of "flipping," or refinancing loans on terms that have no net benefit to the consumer.
To hear the banks tell it, the measure is so broad that it would have the effect of making it harder for about any resident in Hawaii to get a home loan.
"If this bill were to pass, it just puts a stranglehold on everything that I've been doing," said Corbett Kalama, senior vice president at First Hawaiian Bank. For the past several years, Kalama has been working at the bank to provide loans to low-income markets under the Community Reinvestment Act.
The Home Loan Protection Act would make it harder for banks to sell mortgages on the secondary market to such institutions as Fannie Mae and Freddie Mac, because of conflicts with their policies, said Lance Tanaka, a Bank of Hawaii vice president who spoke against the bill on behalf of the Hawaii Bankers Association, the Hawaii Financial Services Association and the Hawaii Association of Mortgage Brokers. The proposed law would also curtail the practice of using nonjudicial, or out-of-court foreclosure, which has recently gained popularity as a cheaper, easier way for consumers to walk away from a property.
"We may very well see lenders pulling out of the market," Tanaka said yesterday at a joint hearing of the Senate Commerce and Judiciary committees.
The banks, which note that they are against predatory lending, are proposing their own version of a protection act that would essentially bring the definition of a high-cost loan in parity with federal law.
The industry proposal would also force lenders to provide a cautionary notice to borrowers of "high-cost" loans.
"All the laws to punish unethical lenders will not prevent uneducated and/or uncounseled borrowers from getting themselves into trouble," said Bill Ramsey, spokesman for the Hawaii Association of Realtors.
Trouble is, the banking industry's proposal would only cover the 5 percent of home loans that already fall under federal law, and does nothing about the other 95 percent, said George Zweibel, a Big Island attorney who represents homeowners who have fallen victim to predatory lending. The industry's bill would do nothing to prevent predatory lending, he said.
Several people who have lost their homes through predatory lending have come forward to the Legislature to describe their plight, and did so again yesterday.
Crispina Quitoriano, 66, is about to lose the Big Island home she and her husband bought a few years ago when the former Hamakua Sugar Co. plantation went bankrupt. A mortgage broker had appraised the home at $130,000, but the actual value is closer to half that amount, Zweibel said.
Zweibel said local bankers are blowing the Home Loan Protection Act out of proportion. "It is not radical as some people are trying to characterize it," he said.
Zweibel said the measure is similar to a 1999 law enacted by North Carolina, which is considered to be the first comprehensive effort to deal with predatory lending and has been used as a model by other states.
The Senate committees deferred action on the loan protection act until Friday, which is a key deadline before bills cross back to the House. Sen. Ron Menor, chairman of the Commerce committee, said the bill is a work in progress. Sen. Brian Kanno, chairman of the Judiciary committee, said he was disappointed that the lenders had not discussed the issue more thoroughly with advocates such as Zweibel.
If both sides don't reach a consensus before Friday, Kanno said he is inclined to side with the recommendation of Jo Ann Uchida, state complaints and enforcement officer, who supported the stronger measure as an important protection for consumers.
"We're not experts in this area," warned Kanno (D, Ewa Beach). If legislators have to come up with the law on their own, "It's going to be very upsetting for everybody."
