This floor speech was submitted by Hawaii House Representative, Rida T.R. Cabanilla

            Mr. Speaker, colleagues, I appreciate the intent of SB651.  While it may not be the instantaneous answer to our foreclosure crisis, it has furthered the conversation. This measure will lead to a foundation of effective reforms, from both the judicial and the administrative branch. This bill acknowledges that there are serious problems with how foreclosures have been handled in Hawaii. Our non-judicial foreclosure process, one of the most draconian in the country, was originally designed to make it easy to take land from Native Hawaiians. Repealing the non-judicial foreclosure law is a step in the right direction.

            It is important to remember that banks from the mainland do not own most of these properties or even the mortgages. They are only servicers. The loans were sold to investors or paid for by TARP and/or insurance funds in some cases thirty times the value. 

            In a complex Wall Street ponzi screen, together with Mortgage Electronic Registration System (MERS) and large insurance companies, the homeowner is doomed to fail from the first instance while the top New York Wall Street investment bank CEOs  and big banks financially benefited from this crisis; all while knowing that the overall economy was in a steep decline, causing massive unemployment and ultimately borrowers to default on loans. 

            In a delusional “too big to fail” state of mind, hoping to stave off a complete collapse, Wall Street developed the defective financial products known as subprime loans (also known as ARMs, HIBORs, LIBORs, HELOCs). They bundled millions of mortgages into thousands of trusts, insured them and falsely rated these securitized mortgages triple A; which enabled Wall Street to attract TRILLIONS of dollars in investor funds and peel off their risks – in just a little over 5 years.

            By Friday, September 12, 2008 Wall Street knew that the game of intentionally inflating appraisals, lowering lending standards, and overrating trust bonds was over.   These were wrongdoings in which the Hawaii borrower had no control.  From that point forward the foreclosure devastation in Hawaii began to get ugly. 

            Mr. Speaker, this ponzi scheme induced many mortgage brokers to fabricate information for their borrowers; it seduced some borrowers to agree to lie about income.  They were all told from the top, “don’t worry about the loan now, they don’t care how much money you make, just maintain your credit and you can always refinance later”.  Others were coerced into wrapping their unsecured credit card debt in to their secured mortgage loan, essentially eating up whatever equity they may have had – and paying a lot more in the long run.  The borrowers maintained their payments and their credit scores until they lost their jobs and wages as the economy collapsed.

            This is not only a financial crisis, but also a moral one, in which deceit was encouraged from the top of our financial system all the way down to the homeowner. Borrowers were offered candy and then, by the very mechanisms purposely set in place, lost their investments and their homes.

            Although the intent of SB 651 is beneficial to Hawaii, in order to save our economy and our precious land from being taken over by mainland banks we must take further and more dramatic steps. I am committed to taking whatever steps are necessary next session, to bring accountability to the banking industry and to retain Hawaiian land in the hands of our locals.

            My concern, as explained to me by a local foreclosure defense attorney, is that with SB651 there will be a rush to file thousands of Part I non-judicial power of sale action notices immediately before its effective date if it passes, and after the Bill becomes effective the bill's dispute resolution procedures will look like a ghost town as intelligent lenders will just bypass it entirely, rendering the moratorium useless, by filing judicial foreclosures instead, which could further harm the homeowner in  that the bill then allows the taking of deficiency judgments.

            I am also concerned that come October 1, 2011 if the DCCA has not been able to put its dispute resolution program into operation it appears the entire Bill evaporates.

            Mr. Speaker, the mortgage foreclosure task force included numerous banking industry representatives, including a representative of the Hawaii Financial Services Association, of which Bank of America, one of the most egregious players in this mess, is a member. This is basically allowing the fox to guard the henhouse.

            Mr. Speaker, again, while I support the intent of this measure, and will vote yes, since it is the only serious foreclosure bill that we have at this time, I am concerned that it won’t stop foreclosures to a large enough degree, and I urge my colleagues to work on a stronger legislation in the immediate future.