The Impassioned Words of Rep. Bob Herkes & Sen. Roz Baker on SB 651

Last night, as I hope you already know, the State of Hawaii’s legislature overwhelmingly passed SB 651, which I think is unquestionably the toughest foreclosure prevention bill in the country.  The bill was the work product of a special task force, several religious and community organizations, a group of over a hundred homeowners, supported by Kim Harman of FACE, and Rev. Bob Nakata.

In the legislature, SB 651 was proposed by Rep. Bob Herkes and Sen. Roz Baker, and on the day of the floor vote, each offered their own impassioned discourse on the pressing need for such legislation.  Being someone who has covered the financial and foreclosure crisis for close to three years, I’ve listened to many elected representatives share their thoughts on the foreclosure crisis… and none, in my view could stand up to the words of Rep. Herkes and Sen. Baker.

In fact, my biggest criticism of those in government today has been that their level of understanding related to the foreclosure crisis is consistently abysmal… and after three years of utter tragedy all around them… I find such a lack of understanding and apparent absence of compassion, wholly inexcusable.

Rep. Herkes and Sen. Baker do not belong in that category.  They obviously took the time to research independently, and learn from others, what was really happening and why, and I believe they stand alone in terms of their understanding of the crisis, and their vision of what needs to be done to correct the inequity and restore the fundamental fairness that has always made me proud of my country.

My heartfelt thanks goes out to Rep. Harkes and Sen. Baker… the people of Hawaii are very lucky to have you serving in their state’s legislature.  My sincere hope is that you will be recognized for your work so that perhaps elected representatives for the other 49 states will come to see what it means to truly serve the people.

What follows are the words of Rep. Bob Herkes and Sen. Roz Baker, which were delivered in Hawaii’s State legislature just before the vote on SB 651, on May 3, 2011.

Mandelman out.

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Rep. Bob Harkes, Speaking on behalf of SB 651

Mr. Speaker, I rise in Support of Senate Bill 651, SD2, HD2, CD1.

Let me start by clearing up the BS of this SB.

We have heard: “This will depress mortgage lending in the State.”

Are we to believe that banks will not lend money anymore?  This is a knee-jerk reaction Mr. Speaker.  Lenders will always lend to people that have the ability to pay.  Banks need to lend, and people need to borrow.  Bottom line.  Are the banks going to cut off their foot to protest this bill?

We also have heard:  “This bill will raise your down payment.”

Mr. Speaker, part of the problem was that banks made loans to people by building a house of financial cards.  Down payments may increase because banks need to know that borrowers can afford the house.  Lending needs to make sense.  If this legislation ends the practice of loose loans and fast money, we all benefit.

We have also heard:  “This bill will lead to endless mediation.”

Mr. Speaker, this bill is not drafted to create an endless process.  We put very clear timelines on dispute resolution and require the advanced assistance of housing and credit counselors.  All the financial information is required up-front.  A third party neutral will have enough information to determine whether a work-out is possible even before the first face-to-face meeting.  But what was sorely lacking, and what this process provides is an opportunity for homeowners to communicate with someone – face-to-face – who actually has the authority to help them with a modification.  And not someone who keeps losing their paperwork, giving them mixed messages, and jerking them around.  Through dispute resolution, the banks will have an opportunity to live up to what they’ve been professing through this whole crisis, which is:  the last thing they want to do is foreclose.  Also Mr. Speaker, this is only a 3-year program — it will not last forever.  It will not be endless.

We also have heard:  “This is a one-size fits all legislation.”  This message is echoed by our local banks… the do-no-wrong banks.  If they do no wrong, how will this bill hurt them?  The local banks opposed dispute resolution.  So we asked them why?  If the local banks are in contact with borrowers, they should be able to work out a loan modification before it even gets to dispute resolution.  Then we asked them, how many foreclosures do you have?  Mr. Speaker, they do not have many – only a handful each year.  Then they told us that they only foreclose through the judicial process, they go to court!  Imagine our surprise when we told them dispute resolution does not apply in a judicial foreclosure.  Simply stated: It doesn’t apply to them.  So what is the problem?  They still have not given me a straight answer besides the same “economic doomsday” sound bites.

So Mr. Speaker, who is this bill for?

This bill is not for realtors, the people who encouraged their clients to purchase expensive homes by saying: “Don’t worry, your property will increase in value and give you instant equity.”  They were wrong.

This bill is not for the national banks, Mr. Speaker.  Our pillars of the economy, the same lending institutions that required millions of dollars in bail-out money to fix their mistakes, told our neighbors “You can afford this home.”  They offered loans with no money down and brokered deals that we couldn’t afford.  They said “don’t worry, the housing market is hot.”  They were wrong.

This bill is not for investors and real estate speculators.  This bill only requires dispute resolution for owner-occupants, people who live in their home, raise their families, and people who we call neighbors.  All those critics who believe that we wanted to protect investors as well, they were wrong.

This bill is not for the local banks either, Mr. Speaker.  Throughout this session, the local banks pointed out that they were not the problem.  But they also offered no solutions.  We did not want to hurt them, but they could not tell us how this bill hurt them.  All they wanted was a carve-out.  An exemption was the only answer because it hurts them.  But if you look at the bill and how they foreclose, there is no problem.  They were wrong.

Mr. Speaker, let’s do something right.  Let’s help those who truly need our help.  So who is this bill for?  This bill is for the thousands of people like Marcy, a resident of Maui, who wrote to me and said:

“Mahalo Rep Herkes!  I have not yet met you, but feel I almost know you from following these bills foreclosure bills so closely.  Thank You SO Much for all your hard work and for fighting for us on SB 651!  Your efforts have saved people uncountable dollars and hardships and will stop the rain of fraud that has been happening to the people of Hawaii by the banks!  I know the pressure had to be strong and you proved the system does work and fought for us!  I am SO Proud of You and Hawaii, this might be the strongest bill in the nation and a model for other States!  This is so much bigger than most people realize right now, thanks for being a true leader!  Aloha from Maui!

Mr. Speaker, our people needed help.  We stepped up.  The DCCA, Judiciary, and my staff have spent countless hours working on this bill.  The dispute resolution program is the result of a collaborative effort between the Legislative, Executive, and the Judicial branches all working together.  Hawaii expects its government to work hard for its people, and I am proud to report today that this bill is the result of that hard work.

Thank you Mr. Speaker

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Sen. Roz Baker, speaking on behalf of SB 651… Floor Remarks for SB651 SD2 HD2 CD1

Mr. President I rise in strong support of SB 651 SD 2 HD 2 CD 1

Over the past year, mortgage foreclosures in Hawaii have increased rapidly so that this state now holds the unfortunate distinction of having one of the highest foreclosure rates in the nation.  While a portion of foreclosures in the state represent second homes, vacation homes, or timeshares, many more affect island families.  Residential foreclosures also have an impact beyond the individuals and families who are directly affected.

Widespread foreclosures disrupt communities by creating empty properties in neighborhoods and leaving the remaining members of planned community and condominium associations accountable for a disproportionate share of common expenses and responsible for additional maintenance on foreclosed units.  Large numbers of foreclosures also impact this state’s already overburdened housing market by forcing former homeowners into the rental market where their financial distress can be compounded by Hawaii’s high rental costs.

In the 2010 regular legislative session, the Legislature authorized the creation of a Mortgage Foreclosure Task Force through Act 162.  Act 162 directed the Task Force to undertake a study to develop general and specific policies and procedures necessary to improve the manner in which mortgage foreclosures are conducted in the State and to submit reports of its findings to the Legislature prior to the 2011 and 2012 regular sessions.  The task force has worked diligently at its assignment and has submitted recommendations for legislation.  Some of these recommendations, as well as other policies, are contained in SB 651.  The Task Force has reported that it plans to submit further recommendations for, among other things, reforming the nonjudicial foreclosure process and the impacts on condominiums, planned communities and cooperatives its final report before the Legislature convenes in 2012.

SB 651 addresses the state’s foreclosure crisis by providing a means for some homeowners to avoid foreclosure and for many more to mitigate the damage of foreclosure when it is not avoidable.  Federal programs exist to assist distressed homeowners, but these programs have proven inadequate to meet real-world needs.  Homeowners still report bad-faith behavior by lenders and a lack of oversight in the foreclosure process, especially in nonjudicial power of sale foreclosures.  SB 651 provides opportunities for meaningful negotiation between homeowners and lenders as well as oversight mechanisms through its three major components: dispute resolution, conversion of nonjudicial power of sale foreclosures to judicial actions, and a moratorium on new nonjudicial foreclosures under section 667-5, HRS.

SB 651 creates the mortgage foreclosure dispute resolution program to be administered by the DCCA.  Based on a successful program initiated in Nevada and tailored to Hawaii’s unique needs through input from lenders, advocates for homeowners, the Judiciary, and DCCA, this program makes a facilitated dispute resolution process and an accompanying stay of the foreclosure available upon request to all owner-occupant homeowners who have received a foreclosure notice.  At the election of an owner-occupant, a foreclosing mortgagee will be required to participate in dispute resolution for the purpose of avoiding foreclosure if possible or coming to a negotiated agreement if foreclosure is inevitable.

This program recognizes that foreclosure is not always avoidable but that it is almost always possible for the parties to reach an agreement that reduces long-term damage and preserves a homeowner’s dignity.  Oversight of the process is provided by a trained facilitator who will ensure that the foreclosing mortgagee and homeowner comply with all program rules and participate in good faith in the process.  Enforcement is provided by the possibility of sanctions against each party, including a bar on completing the foreclosure against the foreclosing mortgagee and a lift of the stay triggered by the dispute resolution program against an owner-occupant.  The mortgage foreclosure dispute resolution program will be operative no later than October 1 of this year and will sunset three years later on September 30, 2014, in anticipation that the State and national economy will have stabilized by that time and the foreclosure crisis will have abated.

As another means of introducing third-party oversight into a nonjudicial foreclosure, SB 651 enacts a recommendation by the Mortgage Foreclosure Task Force to authorize an owner-occupant homeowner to file a petition with the Circuit Court to convert a nonjudicial power of sale foreclosure into a judicial action.  The vast majority of nonjudicial foreclosures in this State are conducted pursuant to section 667-5, HRS, under a process that includes minimal notice and oversight.  Conversion to a judicial action subjects these foreclosures to the oversight inherent in any judicial process.

The conversion authorization contained in SB 651 will be effective upon approval of this measure and will sunset on December 31, 2012.  SB 651 envisions a dual function for conversion. First, it will serve as a bridge measure that will provide immediate relief to owner-occupant homeowners who are currently involved in a pending nonjudicial foreclosure or will be involved in a nonjudicial foreclosure before the mortgage foreclosure dispute resolution program becomes operative.  Second, it will provide an additional avenue of relief in the nonjudicial foreclosure process in anticipation of more sweeping reforms that may be recommended by the Mortgage Foreclosure Task Force.  The sunset of conversion authorization ensures that the resources of the Judiciary will have to accommodate a potential increase in its foreclosure case load for only a finite period of time.

The final major innovation contained in SB 651 is a moratorium on new power of sale foreclosures brought under section 667-5, HRS, to commence upon the effective date of SB 651 and to expire on July 1, 2012.  These types of foreclosures have been the source of most of the reported problems with foreclosures in this state and will most likely be the focus of the broad reforms to the foreclosure system that the Task Force is expected to recommend prior to the convening of the next regular legislative session.  The purpose of the moratorium is two-fold.  It avoids a situation where mortgagees rush to beat the clock and foreclose prematurely in cases where they may have otherwise been willing to come to an agreement with a distressed homeowner in order to avoid the new requirements created by SB 651.  It also allows the Task Force to develop recommendations for broad reforms without risk of disrupting on-going actions in an operative system.

The moratorium imposed by SB 651 allows for the continuation of nonjudicial foreclosures under section 667-5 that were commenced before the effective date of SB 651, subject to an owner-occupant’s right to pursue conversion to judicial foreclosure or dispute resolution, upon that program becoming operative.  The moratorium on section 667-5 nonjudicial foreclosures will particularly affect condominium and planned community associations that use that process to foreclose on liens for past-due fees for common expenses payable to the association.

The intention of the moratorium is not to burden associations when they take action to protect the interests of the majority of their members who have not defaulted on fees by collecting past-due amounts.  Any actions under 667-5 that have already begun before SB 651 takes effect may continue.  Further, nonjudicial lien foreclosures by an association are exempt from the dispute resolution and conversion requirements applicable to nonjudicial mortgage foreclosures, leaving nonjudicial foreclosure under part II of chapter 667, HRS, or judicial foreclosure free of those requirements.  Finally, to account for the increased time and expense of meeting the requirements of the available foreclosure processes, the cap on the amount of past-due fees that an association may collect has been doubled.

SB 651 also contains additional reforms to the mortgage foreclosure system such as requirements for the location of public sale of property following a power of sale foreclosure and strengthened regulations on mortgage loan servicers to provide additional consumer protections.  These improvements to specific portions of the foreclosure system will continue to be applicable regardless of larger systemic changes that may be suggested by the Task Force.  While SB 651 is not able to address every aspect of the mortgage foreclosure system that is in need of reform, it provides immediate and long-term relief to local homeowners in a manner that is fair to mortgage lenders, state regulators, and the Judiciary.

I strongly urge all of my colleagues to support SB 651.