HONOLULU (HawaiiNewsNow) - The Department of Hawaiian Homelands had $82 million in delinquent loans to native Hawaiians as of last summer, raising questions about the agency's future solvency, according to a draft of an audit being completed by the State Auditor.
The department issues loans to thousands of its native Hawaiian homesteaders across the state to build or add on to their homes.
Some of these loans are risky because DHHL lends to people who couldn't otherwise get a loan, since they may have bad credit and don't own their property since the state leases it to them for a dollar a year.
A draft audit reviewed by Hawaii News Now found as of June 2012, nearly 5,000 homesteaders were a month or more delinquent on $82 million, accounting for 14 percent of the agency's loans.
"When you see a delinquency rate which is increasing, it's never a good sign, even for me as a lessee with a mortgage," said Richard Soo, a retired Honolulu fire captain who's lived on a homestead lot in Papakolea for 12 years.
Soo said the department is not like a private bank that just repossesses your house if you fall behind on payments.
"There are families out there and DHHL has a trust obligation. They need to work with these families to make sure it doesn't get to that point," Soo said.
The draft audit found nearly 60 home land loan recipients were five to ten years behind on their payments and almost 60 more were delinquent ten or more years, with the longest delinquency at more than 22 years.
The state auditor's office said, "The department's delinquent loans are increasing in number and amount, posing a solvency risk for the department."
But lifetime Papakolea homestead resident Puni Kekauoha said DHHL loan delinquency rates increased in recent years because of the recession that caused foreclosures and bankruptcies across the country.
"A lot of our lessees who were financially able at the time that they acquired their lease faced being unemployed from very good jobs," Kekauoha said. "A lot of the increase in this delinquency has a lot to do with our economic climate and what has happened since 2006."
Kekauoha is the executive director of the Papakolea Community Development Corporation.
About 45 percent of the delinquent loans are from East Hawaii, the audit said, where one DHHL loan officer admitted her loans were "out of control."
A department spokesman said the DHHL just turned in its responses to the audit April 10 and it cannot comment on the audit until it's finalized and released.
The department receives income from leases of its available lands and from legislative appropriations. Since 1995, the DHHL has received annual payments of $30 million to compensate the department for lands improperly conveyed before statehood in 1959. Those annual payments continue for 20 years until 2015.
The department's revenues for fiscal year 2011 totaled $61.1 million and its expenditures totaled $70 million.
"Without these settlement moneys, the last installment of which will be paid during the fiscal year ended on June 30, 2015, the department's expenditures would have exceeded its revenues," the draft audit said.
As of June 2011, DHHL had about 9,200 beneficiary leases with a waiting list of nearly 26,000 applicants, the audit said.
"Accountability for homestead loans is lacking at the commission and department levels, resulting in loans being administered in an imprudent fashion that favors delinquent lessees," the audit draft found.
"We found that the commission, in an attempt to adhere to the Hawaiian Homes Commission Act goal of providing long-term tenancy, has thwarted collection or cancellation of chronically delinquent homestead leases, allowing delinquent lessees to accumulate debt runs counter to the act's goal of enhancing economic self-sufficiency for Hawaiians. It also ties up leases and staff resources to the detriment of beneficiaries who are still waiting for leases and undermines placing native Hawaiians on the land in a prompt and efficient manner, as envisioned by the act," the audit said.
The audit recommended that the DHHL should:
- Adopt and communicate a risk management plan.
- Adopt and implement reporting methods that bring loan delinquency issues to the attention of the Hawaiian Home Lands Commission.
- Start a system of internal controls, documenting standards and objectives with respect to delinquent loan collections.
- Address delinquent loans in a timely manner.
- Adopt strategies or plans to address chronically delinquent accounts.