At noon on Tuesday, a man began taping pieces of paper to one of the concrete columns outside the courthouse on Punchbowl Street as some 20 people crowded around.
Six of the seven sheets of paper announced a postponement to a later date. The seventh described a house that would be auctioned off that day with the bidding starting at $672,300.
The high price announced by the auctioneer put off the only potential bidder, and so after a quick “going, going, gone,” the home on Kai Uhu Street in Ewa Beach was returned to Citibank, which will now try to sell it.
If Hawaii home foreclosures were an earthquake, Ewa Beach would be its epicenter.
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 Irvine, Calif.-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.
How Ewa Beach earned the unhappy distinction of being Hawaii’s foreclosure capital — and by extension, how the nation’s financial machinery broke down — can be understood through the events leading to the unsuccessful auction this week of the four-bedroom house at 91-1005 Kai Uhu St. in the Ocean Pointe subdivision.
The couple who owned the 3,000-square-foot house, Analeseanoa and Toalua Tuiasosopo, purchased it new in August 2006 for $878,990. They borrowed 100 percent of the purchase price from Countrywide Home Loans in the form of a $703,192 adjustable-rate mortgage and a second mortgage of $175,798.
At the time, Countrywide was Hawaii’s biggest residential lender, writing 9,236 residential mortgages worth $2.8 billion from July 2005 to June 2006.
Countrywide specialized in “exotic” mortgages that required no money down and minimal documentation, and developments like Ocean Pointe and Ewa by Gentry that offered townhouses and smaller “starter” homes pulled in thousands of buyers. For families like the Tuiasosopos, the mortgages that back-loaded interest payments allowed them to buy much more home than they could with a conventional mortgage.
Still, the payments came to more than $5,000 a month. The Tuiasosopos began falling behind after Analeseanoa, who works for a paving contractor, became ill earlier this year and was unable to work. Toalua Tuiasosopo, who sells real estate, said she was also out of work because of illness for part of the year.
“I blame the mortgage industry for why we’re in this mess,” said Toalua Tuiasosopo, who did not attend Tuesday’s auction. “I blame them because being stupid and ignorant to the lending, I trusted the person who helped me get my loan, and didn’t realize the negative amortization until it was too late.”
Among Countrywide’s specialties were so-called “neg-am” mortgages, which enabled borrowers to pay less than the actual amount owed each month on the principal and interest, significantly lowering mortgage payments. But because the interest continued to accrue, borrowers actually dug themselves deeper into debt with each house payment.
Countrywide’s lending practices drove it to the edge of bankruptcy as more borrowers defaulted on loans. It was acquired earlier this year by Bank of America.
The Tuiasosopos’ mortgages were bundled with other sub-prime loans and sold by Countrywide to Bear Stearns, which rolled it into one of its many mortgage-backed securities. When homeowners stopped making payments, those securities became practically worthless and Bear Stearns crumbled, its few remaining assets picked up for pennies on the dollar by J.P. Morgan.
The Bear Stearns collapse in March is seen as one of the triggers for the financial crisis that will cost taxpayers at least $700 billion to clean up.
According to the legal notice on the foreclosure of 91-1005 Kai Uhu St., Citibank is now the trustee overseeing the Bear Stearns fund that held the Tuiasosopos’ mortgages.
‘Liar loans’ flourished
“There’s two reasons why foreclosures are going the way they are,” said Albert Joy, a Honolulu real estate professional who sells bank-owned properties on four islands for 36 Mainland lenders. “One, lenders were lending too much to people who couldn’t afford it, and two, people were borrowing too much.”
People who bought at the peak of the market in 2005 and 2006 with little or no equity have found themselves in an upside-down situation, owing more than they could get if they sold the house today.
Others borrowed money using three- and five-year adjustable rate mortgages, ARMs, that started adjusting this year, causing monthly payments to sharply increase, sometimes to double.
Still others didn’t have the income in the first place to support a large loan payment, but were able to get financing using “stated income,” telling the lender how much money was coming in each month without having to document it with pay stubs or tax returns. The stated-income loans were set up for self-employed professionals, but became known as “liar loans” as widespread fraud and misuse was documented.
Stated-income loans will no longer be available as of Jan. 2, according to mortgage giant Freddie Mac, which sells loans for lenders on the secondary market. And on its Web site, Countrywide says “neg-am” are no longer available.
“It takes an awful amount of money for you to make every year to be able to afford a $500,000 house and a lot of us don’t have that kind of income,” said Georgia Roberson of Coldwell Banker Pacific Properties, who sells bank-owned properties for about 30 lenders.
Most affordable, hardest hit
An analysis of data provided by RealtyTrac, as well as anecdotal evidence from real estate experts, shows that the majority of foreclosure filings in Hawaii are on Oahu, and the majority of Oahu filings are for homes in Ewa Beach, Waipahu, Waianae, Kapolei and Aiea.
Those areas are hardest hit because they were seen as the most affordable when prices began running up in 2003. Many buyers used an ARM or a balloon mortgage, which offered low initial payments, Roberson said.
“Today, they couldn’t qualify for a loan,” she said.
But there are foreclosed homes in every corner of Oahu including areas such as Waikiki, Kahala, Hawaii Kai, Mililani, Kaneohe and Kailua.
While there is no authoritative data on exactly how many people are in danger of losing their homes to foreclosure, RealtyTrac’s figures are often cited as the barometer for the market. Other data indicators include the legal notices of foreclosure published in the Honolulu Star-Bulletin, which currently number more than 400, the weekly foreclosure lawsuits listed in PBN, and real estate listings that specify whether a property is bank-owned or a short sale.
Many public auctions are postponed for weeks, or months, while the homeowner attempts to save his or her home. At least six of the 32 auctions scheduled for this week alone were postponed until January, February or March.
Peak may be yet to come
While the courts document judicial foreclosures in which the lender files a lawsuit against the borrower, there is no data on non-judicial foreclosures, in which the lender simply posts a legal advertisement and holds a public auction without going through the courts.
Realtor Abe Lee estimated that more than 95 percent of all foreclosures are nonjudicial actions, which makes them hard to quantify until the end of the process, when the home goes on the market as a bank-owned property.
Lee and others say it’s difficult to judge whether foreclosures are peaking or if a huge number are still to come.
Roberson said her highest number of sales were in 2001, when she sold 416 bank-owned properties.
To put this year in perspective, to date in 2008 she has closed on 43 homes with an average sales price of $410,000 and a total volume of $17.5 million. She currently has 78 properties either listed or in escrow.
Joy has closed 57 bank-owned sales this year, and has 100 other properties in various stages of the process.
“It’s been slow for about four or five years and then within the last two years it really went through the roof,” he said.
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