A nonprofit Native Hawaiian housing advocacy group is suing the nation’s second-­largest bank over a 28-year-old mortgage lending goal or commitment that previously led the state and Maui County to consider, but not initiate, litigation.

Na Po‘e Kokua filed a complaint May 31 in federal court in Honolulu alleging that Bank of America should pay the nonprofit $848.5 million in damages for the bank largely failing to make $150 million in mortgage loans to state Department of Hawaiian Home Lands homesteaders in the 1990s.

BofA has long claimed that the lending program, announced in 1994 as it sought federal approval to buy Honolulu-based Liberty Bank, was a voluntary nonbinding goal that it could not fulfill by 1998 as pledged because of market conditions beyond its control.

Instead, BofA made other financial investments benefiting home ownership on DHHL land over the next decade, including funding DHHL construction loans, and the agency considered the bank’s $150 million deal as being done.

Na Po‘e contends the bank’s failure to deliver $150 million in mortgage lending to DHHL beneficiaries violated a binding condition of federal approvals to buy Liberty Bank.

The nonprofit also alleges in its lawsuit that BofA conspired and formed an illegal “Loan Commitment Cleanup Enterprise” with DHHL and Federal Reserve officials, in violation of federal racketeering law, to excuse BofA from having to make what the bank envisioned would be around 1,200 loans to Hawaiian homesteaders averaging $125,000.

“We don’t have the mechanisms in the government to hold these banks accountable,” Brandon Maka‘awa­‘awa, the nonprofit’s board president, said in a statement. “The regulators need to police the banks and treat them like criminal organizations because they act like they’re above the law. Until the people whose job it is to hold them accountable actually do their job, the federal courts are our best recourse.”

Bill Halldin, a BofA spokesperson, said in a written statement, “While we respect the issues faced by the native Hawaiian community, the bank fulfilled its pledge made in 1994 and this was confirmed by the state in 2007.”

The legal challenge by the nonprofit follows efforts in recent years by Gov. David Ige and the Maui County Council to get involved in what they considered an unmet obligation by the North Carolina-based bank that had a short-lived physical presence in Hawaii.

Here then gone

BofA’s entry into Hawaii was initially through a predecessor that purchased HonFed Bank in 1992. A year later, BofA sought federal approval to take over Liberty Bank.

Na Po‘e, a Maui-based fiscal sponsor of the Hawai‘i Fair Lending Coalition, challenged the Liberty acquisition on grounds that BofA had a record of discriminatory loan practices in DHHL communities.

During the regulatory review period, BofA announced its plan to make $150 million in Federal Housing Administration 247 mortgage loans designated for homebuying on DHHL land leased to beneficiaries for $1 a year.

The bank characterized the measure as a “goal” in its announcement, but also told a Federal Reserve analyst in writing on the same day that it had made a $150 million “commitment” to the loan program that would go hand-in-hand with DHHL lot development.

“This is the largest commitment ever made to the program in Hawaii,” the May 16, 1994, bank letter said.

Not long after its Hawaii expansion, BofA struggled to make the FHA 247 loans. The bank said DHHL lot development was limited, some beneficiaries couldn’t qualify, and other bigger banks in Hawaii offered the same FHA 247 loan terms.

BofA also struggled with its overall business in Hawaii, and in 1997 sought to sell its 39 branches statewide to American Savings Bank.

Federal regulators approved the sale, though DHHL urged the Treasury Department’s Office of Thrift Supervision, a now-defunct agency that regulated savings banks and savings and loans associations, to require BofA to fulfill its lending plan first.

“My position is that if you are going to make a commitment you need to follow through on it, or not make those commitments,” then-DHHL Director Kali Watson said prior to the agency’s approval in 1997.

At that time, BofA had made only $2 million in FHA 274 loans.

Modified plan

After the bank withdrew from the Hawaii market, it worked with DHHL to deliver a $150 million benefit for homesteaders more broadly. In addition to the construction loans, the bank delivered grants to community organizations and revolving lines of credit to support home ownership on DHHL land.

In 2007, after some disagreements between DHHL and the bank, the agency’s deputy director at the time, Ben Henderson, informed BofA that it had fulfilled an acceptable modified plan at a $150 million level.

“The statement of BofA contributions toward fulfillment of its commitment appear to be in order,” Henderson wrote. “The Department of Home Lands (DHHL) is therefore pleased to formally acknowledge that the $150,000,000 commitment has been met by Bank of America.”

This acknowledgement, however, wasn’t the end of the matter.

In 2012, the Hawaiian Homes Commission took a position that Henderson’s action wasn’t valid. A federal court took an opposite view in 2018 in a case called Burmeister v. County of Kauai.

Yet disagreements still persist.

Ige in 2018 requested all documents from the Federal Reserve Board related to BofA’s FHA 247 loan plan, and also wrote to the bank to urge the company to discuss “a fair and final settlement” with Na Po‘e.

The governor said in his letter to the bank that the Federal Reserve Board’s 1994 order approving the Liberty acquisition required $150 million in FHA 274 loans.

The order states in part that it is “specifically conditioned upon compliance with all of the commitments made by BankAmerica in connection with this application and with the conditions referred to in this order.”

Wording clarification

The Federal Reserve Board has previously stated the FHA 247 loan commitment from the bank and its then-parent corporation, BankAmerica, was not a condition of the board’s 1994 approval despite wording in the order seemingly saying so.

“Although Bank of America styled these initiatives as ‘commitments’ in its public statements, it did not make them as commitments to the board, and these plans were not conditions to the board’s approvals” of its Liberty Bank acquisition or its merger with NationsBank, the board stated in a 2004 case considering a BofA acquisition of FleetBoston Financial Corp.

“Some commenters misconstrued the board’s statements that the Liberty Bank and NationsBank orders were ‘specifically conditioned upon compliance with all of the commitments made by BankAmerica [or NationsBank] in connection with this application’ as referencing commitments other than those that the applicants expressly made directly to the board.”

The Office of Thrift Supervision, which approved the Liberty Bank acquisition, required BofA to “use its best efforts” to deliver $150 million in FHA 247 lending.

In 2019, state Deputy Attorney General Ryan Kanaka‘ole informed a Maui County deputy prosecutor that “there are no legal bases for the state to pursue BofA on its past pronouncements regarding loans to native Hawaiians.”

Legal posturing

The Maui County Council adopted a resolution in 2019 referencing the BofA 1994 loan commitment and authorizing employment of special counsel to investigate actionable claims against mortgage lenders for wrongful foreclosures and unfulfilled commitments.

In 2020, the council authorized spending up to $200,000 for local law firm Bronster Fujichaku Robbins to initiate legal claims specifically against BofA and other mortgage lenders, which prompted BofA to file a lawsuit against Maui County on the same day the council acted.

BofA’s lawsuit filed in federal court in Honolulu sought a ruling that the county had no claim with regard to the 1994 loan commitment. The lawsuit laid out much of the bank’s defense, but the case was dismissed because the county had not made any claim.

In August, the council passed another resolution urging county lawyers to work with the law firm led by former Hawaii Attorney General Margery Bronster and Florida-based Jacobs Legal PLLC to file legal claims on the county’s behalf, and to support Na Po‘e efforts seeking to hold BofA accountable for its unfulfilled $150 million loan commitment and alleged fraudulent foreclosures.

To date, the county has not filed such a lawsuit.

Jacobs Legal, led by foreclosure defense attorney Bruce Jacobs, filed the case against the bank for Na Po‘e along with Honolulu foreclosure defense attorney Frederick Arensmeyer.

If the nonprofit prevails, it intends to use any financial award to support housing and investments for Hawaiians including a possible bank to be owned by all Hawaiians.

Na Po‘e’s $848.5 million claim is based on a contention that homesteaders receiving mortgage loans from BofA totalling $150 million by 1998 would have accrued $489.8 million in home equity since then along with $96.2 million in other socioeconomic benefits as homeowners and saving $263.5 million in rent.

“Na Po‘e Kokua alleges that (BofA’s) refusal to fund the commitment with $150 million FHA-247 originated mortgage loans to fulfill its commitment has created a financial windfall for (BofA), to the financial detriment of native Hawaiians, the true parties of interest to defendant’s 1994 commitment, and that (BofA) has been and continues to be unjustly enriched as a result thereof,” the complaint said.