STAND. COM. REP. NO. 2374

Honolulu, Hawaii

RE:    S.B. No. 3026

       S.D. 1

Honorable Colleen Hanabusa

President of the Senate

Twenty-Fourth State Legislature

Regular Session of 2008

State of Hawaii

Madam:

     Your Committee on Commerce, Consumer Protection, and Affordable Housing, to which was referred S.B. No. 3026 entitled:

"A BILL FOR AN ACT RELATING TO THE PREVENTION OF MORTGAGE RESCUE FRAUD,"

begs leave to report as follows:

     The purpose of this measure is to protect Hawaii consumers from property consultants who prey on homeowners facing foreclosure by requiring these consultants to provide homeowners with a written contract spelling out services and with the right to cancel at any time before the services are actually performed.

     Specifically, this measure establishes a new chapter under title 26, Hawaii Revised Statutes, to set forth the Mortgage Rescue Fraud Act to:

     (1)  Require mortgage rescuers to provide homeowners with a written contract that spells out the services the mortgage rescuer is expected to provide and allow the homeowner the right to cancel the contract at any time before the services are rendered; and

     (2)  Limit the amount that the mortgage rescuer can make if the homeowner is successful in buying back the home to one hundred twenty-five per cent of the total debt on the home paid by the mortgage rescuer, and require that the mortgage rescuer provide the homeowner with at least eighty-two per cent of the value of their home if the homeowner is eventually unable to buy back the home from the mortgage rescuer.

     Testimony in support of this measure was submitted by the Department of Commerce and Consumer Affairs, the Hawaii Association of Realtors, the Legal Aid Society of Hawaii, and the Hawaii Credit Union League.

     Scammers called "mortgage rescuers" seek to take advantage of desperate homeowners trying to save their property from foreclosure by offering phantom help to homeowners, and taking a fee of a few thousand dollars for supposedly negotiating with the homeowners' creditors.  After collecting the money, many mortgage rescuers do little or no work and essentially abandon the homeowners.  In the most insidious cases, the mortgage rescuer will persuade families to deed their home to investors for a year to supposedly allow families time to clear up their credit and refinance the property, and then take back title free and clear.  In many cases, the homeowners wind up becoming tenants and then being evicted from their own home.

     Your Committee finds that this measure addresses both forms of trickery by forcing the mortgage rescuers to provide homeowners with a written contract that spells out the services the mortgage rescuer is expected to provide and allowing the homeowner the right to cancel the contract at any time before the services are rendered.  Your Committee notes that the Hawaii Association of Realtors suggested a rescission period of fifteen days rather than five days as indicated in the measure.  Your Committee encourages the Office of Consumer Protection of the Department of Commerce and Consumer Affairs to work together with the Hawaii Association of Realtors and continue discussion on this matter with the Committee on Judiciary and Labor.

     Your Committee has amended this measure by making technical, nonsubstantive amendments for the purposes of clarity and style.

     Your Committee believes that this measure, as amended, fulfills the intent of this measure, which is to protect Hawaii consumers from property consultants who prey on homeowners facing foreclosure.

     As affirmed by the record of votes of the members of your Committee on Commerce, Consumer Protection, and Affordable Housing that is attached to this report, your Committee is in accord with the intent and purpose of S.B. No. 3026, as amended herein, and recommends that it pass Second Reading in the form attached hereto as S.B. No. 3026, S.D. 1, and be referred to the Committee on Judiciary and Labor.

Respectfully submitted on behalf of the members of the Committee on Commerce, Consumer Protection, and Affordable Housing,

____________________________

RUSSELL S. KOKUBUN, Chair