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Hawaii Second Mortgage Foreclosure Rates Rise

If Hawaii home foreclosure rates have begun to increase at a rapid pace and Ewa Beach has become the center for the first and second mortgage loan defaults.  In November 2007, there were three foreclosure filings in Ewa Beach. Last month, there were 55, twice as many as any other community in Hawaii, according to California-based RealtyTrac, which tracks default notices, bank-owned property sales and other actions considered foreclosure filings.  Until recently, Hawaii was near the bottom of the monthly state-by-state ranking of foreclosures.  But in November, Hawaii rose to No. 28 with 393 foreclosures or one for every 1,272 households.  Ewa Beach became the foreclosure capital of Hawaii most likely because of the rapid construction of this area heading out to the West side of Oahu. 

A high percentage of the borrowers who purchased properties in this region used 100% financing with 80-20 loans that included 80% first and 20% second mortgages.  Most of these 80-20 loans were featured with adjustable interest rates for both the first and second mortgage liens.  Countrywide Home Loans provided a lot of these combination loans that used a home equity line of credit for many of the second mortgages.  Home equity lines, also called, HELOC’s are credit lines that revolve like credit cards with variable interest rates. 

During this Hawaiian home construction boom Countrywide was the biggest mortgage lender originating 9,236 residential mortgages worth $2.8 billion from July 2005 to June 2006.  A recent article pointed out that Countrywide pushed the “Pay Option ARM for the first mortgages that featured a negative amortization providing low payments with teaser rates.  In addition to requiring no money down many of these first and second mortgage loans required no income documentation either.  When considering the promotions of these risky home loans, it may not come as much of a surprise that these 2005 and 2006 financings are seeing a significant increase in foreclosure rates. 

Many of the borrowers who financed their purchase with a 1st mortgage and home equity loan, are negotiating loan modification agreements that in some cases allow the 2nd mortgage to be bought out for pennies on the dollars. 

According to Albert Joy, a Honolulu real estate professional, “There are two reasons why foreclosures are increasing.”  Joy continued, “First, mortgage lenders were lending too much money to borrowers who could not afford it, and second, people were borrowing too much.”  Unfortunately Hawaiians who purchased properties in these areas in 2005 and 2006 with little or no down-payments have seen the property values decline to the point where most borrowers are upside down with their 1st and 2nd mortgage balances being much greater than their property values. 

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