State officials held a press conference three weeks ago to announce the start of a program to help struggling Hawaii homeowners resolve mortgage delinquencies amicably with lenders and ease the volume of foreclosures that some believe are restraining recovery of the local real estate market and economy.

But since the announcement, the foreclosure resolution program has yet to help a single person. And there is considerable doubt it ever will.

Critics of the program — which was crafted by legislators earlier this year, signed into law by Gov. Neil Abercrombie with urgency on May 5 and kick-started with $400,000 in state funds — say the law was a colossal failure that is hurting Hawaii’s real estate market and economic recovery.

"I haven’t heard a single person say this is a good idea," said local economist Paul Brewbaker.

Supporters of the law, Act 48, say it is preventing abuses that some financial institutions were committing against largely defenseless consumers, and that the law, while perhaps flawed and resisted, is indirectly working.

"I think the bottom line is: The law is working," said Rep. Bob Herkes, chairman of the House Consumer Protection Committee who, along with Sen. Rosalyn Baker, was a chief architect of the law that overhauled the way lenders may foreclose on homes without involving the courts.

The law’s aim was to force lenders to make better efforts at negotiating loan modifications with borrowers through a mediation program overseen by the state Department of Commerce and Consumer Affairs.

The mediation program applies only to nonjudicial, or out-of-court, foreclosures brought against owner-occupant homeowners. These homeowners would be given the option to participate in the mediation program before foreclosure could be completed.

Act 48 advocates say many Hawaii homeowners need help dealing with lenders.

Joey Toro of Maui is one of them. Toro, who is married and has a 2-year-old daughter, bought a roughly $675,000 home in Makawao with his wife in 2008 as the economy and housing market were on their decline.

In early 2010, reduced income from a rental unit at the home and furloughs affecting Toro’s wife, a public school counselor, were sapping their ability to make mortgage payments.

The Toros applied for a loan modification about 18 months ago, trying to avoid default. In May, lender Bank of America started a four-month trial that Toro said reduced the interest rate and lowered the monthly payment to about $3,000 from about $5,000. After the trial ended, Toro said he was told his modification would have to be reconsidered. That has been going on for two months while Toro continues making reduced payments.

"If I had the opportunity I would go through mediation," he said. "We want to keep our house. It’s our dream."

Before a borrower can enter the state’s mediation program, the lender must decide to pursue a nonjudicial foreclosure.

Lenders are reluctant to use nonjudicial foreclosures under Act 48 because they could get slapped with harsh penalties if they violate even the most minor or vague provisions of the law. The wrong font size on a foreclosure notice or a missed deadline could allow borrowers to try to nullify the mortgage because any violation of the law constitutes an unfair and deceptive trade practice.

"Nobody in their right mind is going to use Act 48," said local attorney Gary Okuda at a conference sponsored by the Hawaii Bar Association in July.

"The new law just doesn’t work," added David Rosen, another local foreclosure attorney. "(Lawmakers) rushed the legislation. They didn’t know what they were doing."

If lenders want to foreclose but don’t want to use Act 48, they must file their cases in court, where it could take up to two years to complete compared with several months out of court.

Between May 5, when the new law took effect, and Oct. 3, when the mediation program began, lenders were effectively barred from using nonjudicial foreclosures.

That led to a jump in judicial foreclosure cases, which were estimated to represent close to 10 percent of foreclosures, or about 100 a month before Act 48. The number roughly doubled in June and July, and then tripled in August and September.

If the volume continues to multiply, it could overwhelm the court system and bog down foreclosure cases even more.

For this reason, Act 48 supporters suspect lenders will eventually see the new law as preferable.

"I’m hopeful that they’ll take a look and say in the end (Act 48’s nonjudicial process) will be better for us than going judicial," Sen. Baker said.

Keali’i Lopez, DCCA director, said she’s also hopeful that lenders will try the program. "I think the program, once filings occur, will have the impact it was intended to have," she said.

Hawaii’s law was modeled on a mediation program in Nevada. In the first 12 months after Nevada’s program was launched in mid-2009, borrowers sought mediation in 11 percent of cases, representing 8,738 mediation efforts. In 46 percent of completed mediations, borrowers were able to stay in their home, according to Nevada judiciary officials.

Critics of Act 48 said it was ridiculous to believe that a program tailored to address a monumental crisis in Nevada, where the housing market crashed and foreclosures last year affected 1 out of every 11 households — the country’s highest rate — would benefit Hawaii, where the housing market didn’t crash and foreclosures are much lower.

"You don’t make policy in one of the best housing markets in the country based on conditions in one of the worst housing markets in the country," said Brewbaker, principal of TZ Economics. "That’s absurd."

While Hawaii is not Nevada, it does have a foreclosure problem that is weighing on the real estate market, said Brewbaker. The continued uncertainty on how the foreclosure backlog will be expelled is keeping many homebuyers on the sidelines and creating negative pressure on prices, he said.

"It’s continuing to obscure issues like how much of a problem is this, and how much of an overhang do we have," he said.

However, Scott Higashi, executive vice president of sales for residential real estate brokerage firm Prudential Locations, disagrees.

"I don’t think Act 48 has affected the pace or price in the market in any measurable way we can discern," he said.

Higashi said home prices have been pretty stable even with foreclosure rates growing tenfold since 2007.

There is also speculation that the improving economy has already led to fewer numbers of homeowners facing foreclosure, suggesting that foreclosure troubles are receding irrespective of Act 48.

A recent report from research firm CoreLogic said 4.2 percent of Oahu home mortgages were more than 90 days delinquent in July, the lowest rate for any month since August 2009. The report said the rate has declined monthly since February 2010 when the rate was 5.1 percent.

Another alternative that may already be playing out is lenders making greater efforts to avoid foreclosure through loan modifications, short sales and accepting deeds in lieu of foreclosure.

"That is part of what’s going on here," said Kim Harman, a policy director with consumer advocacy group Faith Action for Community Equity, or FACE.

The mediation program under the law is scheduled to expire Sept. 30, 2014. The Legislature may consider tweaking the law next year, though foreclosure attorneys are skeptical about whether changes will be made that get lenders to use the law.

A task force with members representing lenders and consumers is working on recommendations to modify the law. Its report is due by the end of the year.

Q&A: Hawaii mortgage foreclosure dispute resolution program

Question: What is the program’s goal?

Answer: The program provides an opportunity for owner-occupants of residential property in nonjudicial foreclosure to meet face-to-face with their lenders to modify home loans or to work out a payment plan within three months.

Q: Who is eligible?

A: Owner-occupants of residential property under nonjudicial foreclosure who have lived in their home for a minimum 200 days. Nonjudicial foreclosures, also known as power of sale foreclosures, are foreclosures conducted outside of court. Borrowers facing a judicial, or in-court, foreclosure are not eligible for the program.

Q: How was the program established?

A: The program was created by the Legislature, which passed Senate Bill 651. Gov. Neil Abercrombie signed the bill into law May 5.

Q: How long will the program run?

A: The program launched Oct. 3 and will end Sept. 30, 2014.

Q: Who administers the program?

A: The state Department of Commerce and Consumer Affairs.

Q: How does one participate?

A: The lender must decide first to pursue a nonjudicial foreclosure, then the owner-occupant will be invited to take part. The owner-occupant can decide to join the dispute resolution program or decline it. Owner-occupants also have an option to convert a nonjudicial foreclosure to a judicial foreclosure under the new law, but they relinquish this option if they participate in the dispute resolution program. An owner-occupant opting to participate has 30 days after being notified by DCCA of nonjudicial foreclosure to submit a participation form with a $300 nonrefundable program fee. Once a participation form is received by DCCA and the agency notifies parties, foreclosure is put on hold. If an owner-occupant doesn’t elect to participate, foreclosure proceeds.

Q: Are lenders charged a fee?

A: Lenders must pay a $250 filing fee for each nonjudicial foreclosure to help pay for the program. Lenders also are charged $300 if an owner-occupant chooses dispute resolution.

Q: How does the dispute resolution process work?

A: DCCA may take up to 20 days to set and notify participants of a date, time and location of the dispute resolution session with a neutral mediator contracted by DCCA. Rules and requirements are included in this notice. A session date will be 30 to 60 days after parties are notified, unless the parties and the mediator agree to a different date. The dispute resolution session is limited to three hours but may be extended by one additional three-hour session at the mediator’s discretion.

If the parties reach an agreement, foreclosure is terminated. If the parties can’t reach an agreement, foreclosure resumes.

Q: Are there penalties for not complying with program rules?

A: A lender who fails to comply may not move forward with nonjudicial foreclosure. Fines up to $1,500 also may be imposed.

Q: Where can more information be found?

A: mfdr.ehawaii.gov or 586-2886