Under New Foreclosure Law, Lenders Giving Families Day in Court
Following Fannie Mae’s lead, Freddie Mac has just announced that it, too, will convert all non-judicial foreclosures to judicial and file all future foreclosures judicial. Both Fannie and Freddie (the Federal National Mortgage Association and the Federal Home Loan Mortgage Corporation, the two largest buyers of home mortgages on the secondary market) have made these Hawaii-specific announcements and, though Mapquest tells me that Fannie Mae’s office is just six miles away from Capitol Hill, neither of these government sponsored enterprises discussed these major policy changes with Hawaii’s congressional delegation before making them public.
The Hawaii state legislature held a three-hour briefing on Act 48, Hawaii’s new mortgage foreclosure prevention law, last week which featured presentations from more than a dozen of the key players carrying out and working with Act 48, from the Hawaii Bankers Association to the courts, to my own organization where I am a volunteer, Faith Action for Community Equity. The overwhelming perspective from the legislators and presenters was that the law is on track, the mediation program is developing according to its prescribed timeline and while Fannie Mae’s conversion announcement requires some attention, it in no way derails Act 48.
In fact, Act 48 is on its way to providing exactly what it was intended to provide: the elimination of a major loophole in Hawaii’s non-judicial foreclosure laws that gives Hawaii’s families the opportunity to meet their lender or mortgage servicer face to face to plead their case before any foreclosure can proceed, whether that is in foreclosure mediation or in court through a judicial foreclosure.
For years, offshore lenders and mortgage servicers have used Hawaii’s non-judicial foreclosure loophole to rush through foreclosures without any real oversight or chance for Hawaii’s families to question the handling or mishandling of the process. In fact, even in cases where families qualified for the federal HAMP program or were willing make sizable lump sum payments to catch up on their mortgage, they could still be foreclosed on in Hawaii. Act 48 closes that non-judicial loophole by adding a mediation program requirement for all non-judicial foreclosures. Now for the first time ever, Fannie Mae and Freddie Mac have decided that they would prefer the judicial foreclosure process in Hawaii over the non-judicial process they have used for years.
There was some difference of opinion at last week’s legislative briefing about whether Fannie’s conversion to all judicial foreclosures was a “business decision” or if it was an attempt to circumvent the new non-judicial requirements because Fannie Mae (and now Freddie) are worried that they will not be able to prove legal standing to foreclosure, that too many of the mortgages they hold contain fraudulent or missing documents, or that Hawaii’s UDP laws will prove too strict for their casual record keeping.
I think it was both. It was a business decision to try to save time and avoid oversight, just like Fannie and Freddie’ private sector counterparts would also prefer. Both Freddie and Fannie are hoping that Hawaii’s judiciary will speed through these foreclosures without paying attention to the chain of title, accuracy and authenticity of documents, and that our judiciary does not hold them accountable for missing or fraudulent documents that their servicers introduce to the courts. In Florida, speeding through judicial foreclosures has been dubbed “rocket docket”. In New York, judges have started requiring that the lawyers representing the lenders and mortgage servicers sign affidavits that the documents they are presenting to the courts are authentic and accurate, and as a result the number of foreclosures moving through those courts have been reduced by 80 percent.
We do not know yet exactly how our court system is going to handle the massive increase in cases that Fannie and Freddie will be attempting to drive through our courts. The wait for a judicial foreclosure to move through the courts is already 12-14 months, if you add thousands more cases, there will certainly be more cost and delay.
I have heard a few people say that Fannie and Freddie’s recent decisions to convert to judicial means that Act 48 somehow missed the boat. On the contrary, Act 48 is so thorough that lenders who just a few months ago would never have wanted to allow our families their day in court are paying for the chance to do just that.
I want to remind us all that every foreclosure filed, judicial or non-judicial, on a family’s home represents a threat to that family’s hopes and dreams. And while some families refinanced or got in over their heads with a mortgage they never should have signed, attorneys general and judges across the country are finding significant deceptive practices, fraud, and abuse on the part of lenders and mortgage servicers, many of whom make more money by speeding through a foreclosure than by making sure they got it right.
Our economic recovery as a state and maybe even as a nation depends on our willingness and ability to make sure that each and every foreclosure is as accurate and efficient as possible, that families are allowed to stay in homes if they can pay, that they are allowed to move on if they cannot pay, and that lenders and mortgage services no matter how big are held accountable for all fraud and abuse that has led us to this crisis.
About the author: Bob Nakata is member of the Faith Action for Community Equity’s Steering Committee and the Housing Committee, which took on the foreclosure issue. He is also a former president Of FACE Oahu. Bob has served in both the Hawaii Senate and House. He is presently Pastor of the Kahaluu United Methodist Church.
