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American Dream Turns Into Nightmare

Elected officials should act to prevent bank fraud.

March 24, 2011
Netra Halperin · Kīhei

Unfortunately, Maui has the highest per capita rate of island foreclosures, joining over 20,000 families in Hawaii suffering through this traumatic experience during the last year alone. The federal government gave banks like Bank of America billions of dollars for loan modifications. These financial institutions, instead of providing loan modifications to struggling homeowners, pocketed most of the money, led borrowers to believe that they would be eligible for modification, and then evicted them from their homes anyway!

On the surface, it appears simple: homeowners aren’t paying their mortgages, so they should lose their homes. However, it is actually much more complex.

It all started with banks selling inflated mortgages to Wall Street investors. By the 1980s, investors began suing the banks for fraud. To settle with investors, banks needed to raise money. Starting in 2003, the banks created defective loan products called “ARMs” that were set to explode into higher payments that they knew the borrowers would not be able to afford. Normal income and verification requirements were intentionally eliminated. This lulled people into loans, and they were reassured “not to worry” about the eventual interest rate hike and promised that they could refinance.

Borrowers were duped, much like Hawai‘i’s previous administration, who bought $647 million in securities in mid-2007 after the Wall Street bubble burst, totaling over $1 billion in securities’ loss aka “shortfalls;” or Maui County’s previous administration, who also in 2007, was conned by Merrill Lynch into purchasing $44 million in (what quickly became illiquid) student loan auction rate securities. This bank fraud is the primary reason that the people of Hawai‘i and Maui County had to endure teacher furloughs—and continue to be subjected to devastating reductions in other critical services.

This session, I’m again working at the legislature for the Chair of Housing. Over 50 bills have been introduced relating to foreclosures, including proposals to require mortgagees to enter into mediation, prohibit banks from pursuing deficiency judgments (collecting balance due after sale), a moratorium on non-judicial foreclosures and even a moratorium on foreclosures altogether! A legislator who introduced a bill to hold financial institutions accountable was threatened by a bank, saying that they would foreclose on 100 homeowners in revenge for the proposed legislation!



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