Amid mounting political pressure to force Bank of America to make good on a 2-decade-old commitment to provide $150 million in home mortgage loans to beneficiaries of the Department of Hawaiian Home Lands, Hawaii’s Office of the Attorney General says there appears to be no legal basis for the state to actually pursue the matter.

Meanwhile, Bank of America officials, while conceding that they only made a fraction of the loans, say they did fulfill their commitment, just not as originally conceived.

Bank of America had committed to providing the loans as a condition of its acquisition of Liberty Bank in Hawaii in 1994, which required approval by the Federal Reserve.

Representatives of Na Po‘e Kokua, a Hawaii nonprofit, say it was their group’s actions in the early 1990s that forced Bank of America to make the commitment after they uncovered discriminatory loan practices on Hawaiian home lands.

They now want the bank to pay a penalty of upward of $400 million to Na Po‘e Kokua, which they’ve quantified as the lost opportunity’s cost. That money, says Ian Chan Hodges, who is assisting the nonprofit, would then be used to build homes on Hawaiian home lands. They also want the bank to fulfill its $150 million lending commitment.

However, an Aug. 5 internal memo from state Deputy Attorney General Ryan Kanaka‘ole to Maui County Deputy Prosecutor Peter Hanano indicates that the state isn’t in a position to pursue the bank.

“As far as any changes on the issue re: BoA’s $150M Commitment. There have been no changes in our position — that there are no legal bases for the state to pursue BoA on its past pronouncements regarding loans to native Hawaiians,” wrote Kanaka‘ole.

While the memo was not intended to be made public, the Attorney General’s Office confirmed that it generally reflected the department’s position. The office didn’t respond to a question asking for elaboration on the legal rationale.

Political pressure

The issue of Bank of America’s $150 million loan commitment came to the fore last year when Gov. David Ige wrote a letter to Bank of America’s chief operations and technology officer inviting her to come to Hawaii to meet with Kehau Filimoe’atu of Na Po‘e Kokua “in order to reach a fair and final settlement” of the bank’s commitment.

“Unfortunately, June 2018 marks the 20th year that Bank of America continues to be delinquent on its ‘four-year commitment to provide $150 million in residential mortgage loans for native Hawaiians seeking housing on Department of Hawaiian Home Lands,’” wrote Ige.

Since then the County Councils on Maui, Kauai and Hawaii island have passed resolutions in support of the governor’s efforts. A similar resolution passed the Honolulu City Council’s Executive Matters and Legal Affairs Committee and is pending approval by the full Council. The resolution says Bank of America needs to fulfill its $150 million lending commitment and address $360 million in lost-opportunity costs.

U.S. Sen. Brian Schatz has weighed in on the issue, saying at a Maui town hall in July that there appeared to be grounds to pursue Bank of America.

“They lied. They never did it. … There have been attempts at litigation. There have been attempts to recoup these dollars. The fed has been, I think, a little squishy on enforcement. We think we are on firm territory coming after Bank of America,” Schatz told attendees. “But before I get any further, I am puzzling through how I can be most useful on this. So I don’t know exactly what we are going to do to be useful, but as a member of the Banking Committee, I’m in a position to influence how this goes down.”

Bank cites hurdles

Bank of America officials estimated in 1994 that it would be able to make 400 loans annually averaging $125,000 over the course of three to four years, according to a Honolulu Advertiser story from the time.

But bank officials told the Honolulu Star-Advertiser last month that they encountered challenges: DHHL lacked the volume of available lots and homes to make the loans in sufficient quantities; beneficiaries sought out loans from different banks; and sometimes beneficiaries couldn’t meet the qualifications set by the federal government for specialized loans on DHHL lands.

Federal Housing Administration 247 loans were set up specifically for Hawaiian home lands, where beneficiaries acquire 99-year leases rather than fee-simple properties. The loans are easier to qualify for than in the general market, and there is little risk for the institution making the loan because it’s backed by the federal government.

“Years into the process, we looked and said we are not getting the volume that we hoped for and we wanted to achieve,” said Dan Letendre, a lending and investing executive with Bank of America.

Letendre said bank officials worked with DHHL to find other ways to satisfy the commitment, which included providing millions in construction financing to build new homes. They provided startup funding and financing to a Native Hawaiian-led nonprofit called Hawaiian Community Assets which worked with beneficiaries to help them qualify for FHA-247 loans, including improving their credit scores and saving money for a down payment. The bank also continued to make its own FHA-247 loans.

In total, Bank of America made about $13 million in FHA-247 loans.

HCA officials have confirmed that Bank of America provided startup funding and helped originate another $45 million in FHA-247 loans.

In a 2007 letter to Bank of America, former DHHL Deputy Director Ben Henderson formally acknowledged that the bank had satisfied the $150 million commitment.

“We were not just committed to making mortgages to Native Hawaiians; we were committed to working with DHHL to further homeownership in general. Making mortgages is a tactic versus a strategy of increasing homeownership. So we worked with DHHL to achieve that strategy or to achieve that goal,” Bank of America spokesman Andy Aldridge told the Star-Advertiser. “And once we realized that these FHA mortgages weren’t going to achieve that goal, we worked with DHHL to find a way to further homeownership with Native Hawaiians.”

In 2012 the Hawaiian Homes Commission took the position that its members should have signed off on any changes to the agreement and that the $150 million commitment remained unfulfilled. However, a 2018 legal decision in a case called Burmeister v. County of Kauai suggests that Henderson’s letter was sufficient.

Dissatisfaction goes on

Brandon Maka‘awa‘awa, vice president of Na Po‘e Kokua, said he wasn’t satisfied by Bank of America’s explanation.

“The original commitment was for $150 million in FHA-247 loans. That wasn’t us mandating that to Bank of America; that was the Federal Reserve telling Bank of America what their commitment was,” he said. “So DHHL and anybody else other than the Federal Reserve has no right to change the commitment regardless if it was difficult for Bank of America. … That’s what they committed to.”

Ige, who has met with Bank of America officials in recent months, didn’t respond to questions about whether he still has concerns about the matter.

Ige said through a spokeswoman that he “continues to explore the background and history associated with Bank of America’s commitment to funding for housing on Hawaiian home lands.”

Schatz said he’s still looking into the matter.

“Their explanation of what happened is really just a series of justifications for noncompliance, and the order that approved the acquisition of Liberty Bank specifies that they made a commitment to do $150 million in loans,” said Schatz. “It didn’t say ‘unless it is hard.’ It didn’t say ‘unless you decide to cut a deal with a nonprofit.’ It said, ‘You have to do $150 million of loans.’”

“They are the kind of company that does due diligence and does robust analysis. And so I find it difficult to understand how they could make this commitment and then suddenly find themselves flummoxed at their inability to follow through.”