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Mortgage giant has found a way around what some consider the nation’s strongest foreclosure law.

Fannie, a government controlled mortgage finance company, which operates in the , the company will convert all of its new and pending non-judicial foreclosures in Hawaii to judicial foreclosures effective immediately — essentially allowing them to skirt Hawaii’s new law.

“Our announcement is consistent with Hawaii law and was made in response to recent Hawaii legislation,” Andrew Wilson, a Fannie spokesman told Civil Beat in an email. “The judicial foreclosure process allows homeowners to raise any challenges to the foreclosure in court. Fannie continues to encourage homeowners to reach out as early as possible to their servicers to pursue modifications and other foreclosure prevention solutions.”

In May, Gov. Neil Abercrombie signed , a measure requiring lenders to meet face-to-face with homeowners for mediation before foreclosing on a property. Additionally, the bill places a moratorium on all new non-judicial foreclosure actions until July 1, 2012, for foreclosures covered under Part 1 of the governing foreclosures, and requires lenders to prove they actually have the authority to foreclose on a property.

“It doesn’t seem like (Fannie) really cares much about our homeowners or assisting homeowners stay in their homes,” Sen. Rosalyn Baker, who co-introduced the mortgage bill, said in an email.

Intended to Hawaii’s foreclosure process, Act 48 has the potential to impact thousands. But the law only applies to non-judicial foreclosures.

Fannie Change Skirts Proof Requirement

One reason supporters of Act 48 were so pleased with its passing was the requirement that lenders prove they have authority to foreclose on a home.

Kim Harman, policy director for Faith Action for Community Equity (FACE), told Civil Beat in May that lenders processed too many mortgages too quickly, resulting in Hawaii residents being foreclosed on by lenders who don’t have legal standing.

Act 48 was based on a 2009 Nevada law, with the exception of the proof of authority to foreclose requirement. Because Fannie hasn’t adopted the same stance in Nevada, Harmon says, it indicates that Fannie is attempting to avoid having to prove that it has the right to foreclose.

“There are thousands more foreclosures in Nevada than in Hawaii and our foreclosure mediation laws are so similar, Fannie Mae must be reacting to Hawaii’s higher standard for lenders and mortgage servicers to prove their legal standing to pursue foreclosures in our state,” Harmon said in a FACE press release. “If Fannie Mae is worried that there are flaws in their legal standing to foreclosure, they should not be foreclosing at all, they should be addressing problems with their mortgages.”

Baker said Fannie will be disappointed if it is, in fact, trying to avoid the proof requirement.

“If Fannie Mae thinks somehow they’re going to get a better deal going through the courts and that they won’t have to present the same documentation demonstrating their legal ability to foreclose, I believe they will be sadly mistaken,” Baker wrote Civil Beat via email. “I expect the courts to look with great scrutiny on any foreclosure matter that comes before them, especially now.

Wilson, the Fannie spokesman, declined to comment on the issue.

Baker told Civil Beat Fannie’s decision will likely lengthen the foreclosure process and possibly pass on more costs to homeowners, who might feel the need to be represented by counsel. She said lawmakers will keep a close eye on Fannie and will work with the Department of Commerce and Consumer Affairs, as well as the judiciary, “to explore options and how best to keep from overwhelming the resources of the Judiciary.”

Baker said getting a judicial foreclosure hearing in Hawaii can take 12-14 months.

“We intend to continue to stand up for the beleaguered homeowners of Hawaii,” Baker said. “We will also enlist the assistance and support of our Congressional delegation.”

Mortgage Expert: Expect Protests

While Fannie isn’t doing anything illegal with the conversions, at least one mortgage expert thinks Hawaii homeowners will not tolerate the decision.

“In Hawaii, this is not going to fly,” Martin Andelman, operator of the mortgage blog , told Civil Beat. “If you treated your spouse the way the servicers treat people, you’d get arrested. It’s abuse. It’s awful. We treat people in the criminal justice system better than servicers treat homeowners.”

“I just know Hawaii,” Andelman said. “Hawaii is not a place where you get away with that stuff. I mean, mainland banks are going to treat people rudely and think everyone is just going to do nothing?”

Andleman said that Fannie’s move essentially renders the intent of Act 48 moot, though Baker disagrees.

“The people of Hawaii today are very proud of their Legislature for (Act 48),” Andleman said. “It was a grassroots movement, they felt like they had a real success on a national scale. I mean it was a big deal. They won and they did something good. And then Fannie just went, ‘(expletive) you.'”

It’s unclear exactly how many foreclosures Fannie’s decision will affect. Wilson said Fannie does not keep individual state statistics on mortgages.

Baker said she heard an estimate that Fannie may have a 20-40 percent share of the Hawaii foreclosure market, but could not verify the figure.

Rep. Bob Herkes, another co-introducer of the mortgage bill, told Civil Beat lawmakers will meet June 29 to have an informational briefing on the law with key players in Hawaii foreclosures, including Andleman.

“We’ve tightened up the law to protect, we think, both sides,” Herkes said. “And I think the lenders were having a little bit of a free ride under Part 1 of the non-judicial (foreclosures) and certainly, they’ve got a wake up call. They say, ‘Oh my. Now we have to prove we’re the lender. How rude.”