Ponciano Mores hugs his wife, Pat, at their Aiea home. She and other victims of predatory loans have formed a support group, sharing experiences about unscrupulous lenders.
Hawaii’s loan sharks
take $37 million bite
More and more unsuspecting
island homeowners fall prey
to deceptive and sometimes
fraudulent lending practices
When Pat Mores' guests gather for turkey and stuffing at her Aiea home this week, they can be excused for not feeling too thankful.
Homeowners beware
Some typical predatory lending practices:
Equity StrippingThis is done by lenders who are after the equity in your home. Lender helps with a loan refinancing or issues a home-equity loan on terms that the lender knows you may not be able to afford. If you can't make the payments, you could end up losing your home and all the equity you've built up.
Loan FlippingLender encourages you to repeatedly refinance with the promise of "a better deal," increasing the loan amount. Borrower incurs additional fees and interest points with each refinance, and falls deeper into debt.
Credit Insurance PackingThe lender unnecessarily packs the loan with charges for credit insurance, which favors the lender and goes toward paying off the loan in the event you are incapacitated. Lender may insist that deleting the charges could jeopardize the loan.
Bait and SwitchLender offers one set of loan terms when you apply, then pressures you to accept higher charges at the signing.
Deceptive Loan ServicingLender fails to provide accurate or complete account statements, making it difficult to determine how much is still owed. You may end up paying more than you owe.Source: Federal Trade Commission
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It'll be a two-turkey affair.
"It might seem like there's little to be thankful for but, well ... we have each other. There are a lot of shoulders to cry on," she says.
Mores' fellow victims now number more than a dozen who get together monthly to commiserate. But they're a drop in the bucket in the overall problem of predatory lending.
The North Carolina-based Center for Responsible Lending says Hawaii homeowners were bilked out of an estimated $37.1 million in fees and home equity due to predatory lending practices in 2000, a figure that is likely far higher today due to the dramatic expansion of the real estate market since then.
"That's a very conservative estimate," says the center's spokeswoman, Sharon Ruth. "The number has undoubtedly grown and grown since then."
Predatory mortgage lending has many forms but generally involves taking advantage of a borrower's ignorance by encouraging them to take out unfair loans that they don't need or ultimately can't afford, usually in home-equity loans or cash-out mortgage refinancings.
The schemes include "equity stripping," in which borrowers are sold a loan based on the equity they have in their home, rather than on their ability to repay. Borrowers often seek such loans to get a chunk of cash back to meet immediate financial needs, but when they can't bear the loan payments later, their home -- and all the equity in it -- can be claimed by the lender.
"I've seen cases in which mortgage brokers have encouraged borrowers to falsify their income statement or to claim falsely that they have a renter on the property so they can get this or that loan," says Gary Dubin, an attorney who specializes in fighting foreclosures.
Other practices involve a bait-and-switch promise of one interest rate, which is then replaced by a higher rate by the time contracts are ready; peppering a contract with hidden extra fees; and "loan flipping," in which mortgagees are encouraged to repeatedly refinance their home with the promise of better terms, but which merely generate more fees for lenders.
Once a borrower gets into trouble, the consequences can be devastating.
"It becomes a social problem because we're talking about people losing not only their biggest investment, but their home, the place that determines where their kids go to school. It's the headquarters of the family," said Dubin.
Mores received a costly education in several of these practices.
Her husband, Ponciano, first bought their home in 1963 for $34,000, but repeated cash-out refinancings over the years have driven the loan amount to close to $300,000. Three years ago, a mainland-based broker offered the retired couple a refinancing at a 7 percent interest rate, which grew to 13 percent by signing time. Feeling pressured, they signed.
The broker later called back to refer them to another broker on the mainland who was promising a better deal.
The mainland broker demanded upfront fees, told them to stop paying their mortgage, but then never followed through. Falling behind on their payments, they were soon foreclosed upon.
"I'm not afraid or ashamed to say this, but we were not educated where mortgages were concerned. We didn't know we were being manipulated," Mores says.
Only a series of lawsuits by Dubin challenging the foreclosure has staved off eviction, but Mores no longer has title to her home and the future is uncertain.
Those familiar with predatory lending in Hawaii say it can be traced to a decision 20 years ago by the state Legislature to allow out-of-state lenders to sell mortgage loans here.
George Zweibel, a former Federal Trade Commission attorney who now represents predatory lending victims on the Big Island, says that opened the door to a host of "bottom feeders" who have found locals, particularly the elderly, to be easy prey. The Filipino, Samoan and other ethnic communities have been particularly hard-hit.
"Local people are vulnerable, especially older folks who have built up a lot of equity in their homes and who may be more trusting and more willing to suffer silently if they get ripped off," Zweibel said.
Adam Cole sits with Ponciano Mores at Mores' home at 99-620 Halawa Drive. Ponciano and wife Pat Mores own the home and Adam Cole is on the verge of losing his Kapolei home. They and other mortgage lending victims have formed a support group.
"It's the law of the jungle. These guys are good at choosing victims: older, weaker people who are not able to defend themselves and generally don't complain," Zweibel said.
Gayle Ishima, acting president of the Mortgage Bankers Association of Hawaii, refers to such predators as "a few bad apples."
"A few people have done wrong and then these reports just come up and explode. But for the most part, lending in Hawaii is being done by lenders that abide by the rules," she said.
Still, Ishima acknowledges the problem is flying under the radar in Hawaii. During a legislative battle two years ago over legislation aimed at curbing predatory lending -- which ultimately failed -- reliable information was scarce, she said.
"We all wanted to know how big it was but nobody really had an answer. There was no one agency that had a handle on it," she said.
A true picture of the problem remains elusive because such cases rarely end up in the courts. Victims are often unwilling to complain out of embarrassment or fear of broadcasting their shattered credit profile.
"Typically there is a certain shame factor associated with it," says Stephen Levins, the state's consumer protector.
More insidiously, many people become victims without realizing it.
"They may not even know that they are being taken advantage of," he said. "(A mortgage contract) might have fees or loan points or pre-payment penalties that are unnecessarily excessive, but not necessarily illegal."
A victim's plight is often compounded by the fact that Hawaii is one of roughly 30 states that allow non-judicial foreclosures, which lets lenders foreclose without going to court.
Elizabeth Cross said she fell behind on the payments on her Wahiawa home after a mortgage broker failed to execute a promised refinancing.
"A month later, I didn't have a home," said Cross, a nurse with Kaiser Permanente.
In non-judicial foreclosures, lenders usually turn around and sell the mortgages at auctions. Former owners are free to try to buy them back, but need to have the full purchase price on hand, a tall task for a person in financial disarray.
"If I had a chance in court I could have at least pleaded my case to someone," she said. "Instead, you suddenly don't own a house and you have nothing to say about it."
Adds Dubin: "The system here is really stacked against the little guy. It's shameful."
The push two years ago for predatory lending legislation hit the rocks after the local financial industry complained that it would make it harder for them to issue loans.
That risk remains, says Ishima, especially since legislation setting national standards on the issue is expected to be introduced during the next session of Congress.
"If we have overlapping rules at the state and national levels, that could cause real problems," she said.
Until then, experts say, borrowers need to be vigilant. They advise shopping around for the best loan terms, exercising one's legal right to demand that every item in a mortgage contract be thoroughly explained, and checking with the Better Business Bureau or Department of Commerce and Consumer Affairs to see if any complaints have been filed against the lender.
"The lesson is to not be so trusting of people saying they're a legitimate broker or lender," says Cross. "Check them out. That's what I should have done."
