Many not ready for mortgage rate jump

2,400 homeowners have adjustable-rate mortgages that are due to be recast

A significant portion of Hawaii homeowners who have adjustable-rate mortgages will find themselves facing higher monthly payments by the end of the year -- and many aren't prepared, state and industry experts say.

According to data compiled for the Star-Bulletin by First American LoanPerformance, some 12 percent of the estimated 20,000 adjustable rate mortages in Hawaii are slated to have their rates reset over the next three months.

So far, Hawaii mortgage industry professionals and state agencies have heard from only a few Hawaii consumers seeking help over mortgage-rate increases.

FULL STORY »

About 12 percent of Hawaii homeowners with adjustable-rate mortgages will be facing interest rate hikes and higher payments in the next three months. And local experts say many of them may not have realized what they're in for.

According to data prepared for the Honolulu Star-Bulletin by First American LoanPerformance, a California-based research firm, Hawaii residents hold an estimated 20,000 adjustable-rate mortgages with an estimated loan value of $7 billion. Of these mortgages, 11.9 percent, or nearly 2,400, are slated to be recast between now and the end of December.

On the mainland, thousands are bracing for mortgage rate jumps which could add hundreds, even thousands of dollars, to monthly payments.

Hawaii mortgage and lending experts have shied away from estimating the scope of the problem here. But the state Division of Financial Institutions (DFI) issued a consumer advisory earlier in the year urging kamaaina homeowners with adjustable-rate mortgages to plan for scheduled recasts.

"While we just don't know how many loans are out there and how many consumers will be impacted in Hawaii, I'm sure that we'll see some activity," said Nick Griffin, Commissioner of the State's Division of Financial Institutions.

"Consumers may not react until their monthly payment changes and hits them in the pocketbook," he said. "When that happens, some people will see the reset and think it's reasonable and go on, others will obtain another loan and some may find that they are stuck."

Stephen Higa, a mortgage broker with Point Financial, concurred. Higa said most of the refinancing that he has handled for Hawaii homeowners has come after their adjustable-rate mortgages have already been recast.

"They want to know what happened and than they refinance," said Higa, who has 26 years of experience in Hawaii's mortgage industry. "Most don't do it ahead of time, they do it after."

If there is to be a big mortgage refinancing rush in Hawaii, Higa said that he expects to see it after January.

"We won't see it until most of them have already readjusted," he said.

Both the Hawaii DFI office and the Hawaii HomeOwnership Center -- a nonprofit consumer education agency that has helped 350 families close on homes since opening in 2003 -- have fielded calls from consumers who face loan recasts.

However the number of consumers seeking help has been relatively small so far, as has the number of actual foreclosures in the islands, Griffin said.

"We've taken about 40 calls since July," said Reina Miyamoto, program director for the HomeOwnership Center.

The center has offered free counseling to Hawaii consumers facing loan recasts or has referred them to the Hope Hotline. The hotline, (888) 995-HOPE, has certified counselors who can help consumers attempt to work out payment plans with lenders 24 hours a day, seven days a week.

While consumers in Hawaii historically have been more conservative than on the mainland, the real estate boom from 2003 onward led to a proliferation of creative financing, Griffin said. Consumers were offered everything from adjustable-rate mortgages, teaser interest rates, interest-only loans and even loans that allowed you to choose your monthly payment, he said.

Now, the bill for those glory days is coming due for some Hawaii consumers, especially those who were lured into buying more expensive properties or into amateur investments by the glittering prospect of easy money.

Claude Phillips, a mortgage broker at Mortgage Plus, said the company began actively marketing to consumers who are facing recasts about two months ago.

"We just came off one of the most incredible mortgage lending periods a year and a half ago, but the game has changed," Phillips said. "We began trying to generate recast leads to provide some additional filler business."

Phillips, who has about 20 years of experience in the mortgage industry, gets about three to four calls a day from consumers who are looking for a way out of higher payments.

"We are starting to run into some people that we can't help," he said, adding that hefty prepayment penalties and low equity have created challenges for some consumers.

Others simply aren't ready to accept the only solution available. Phillips cited one client with an investment property under a mortgage that allowed him to set his own payment.

"He's been paying $2,000 a month but he should have been paying $4,100 to keep from going negative," he said. "He's got about a year and a half before he's in the soup."

Phillips said he found the client a 7-percent fixed-rate mortgage which he balked at, because it will push his monthly payment up to $3,000 a month.

"Actually, it's a better rate than he has now, but he can't see it because it's so much more than he's been paying," he said. "In another 18 months, he'd be paying $4,100 a month on his current loan."

While Phillips doesn't think Hawaii will experience the kind of recasting crisis that has hurt some mainland markets, there's still a relatively unknown component, he said.

"There's about a three-year ticking time bomb on these things," he said, adding that the bulk of Hawaii's creative financing only goes back about three years and that there are many consumers who took out such loans as recently as six months ago.