For the few Native Hawaiians who can secure a residential lot on Hawaiian Home Lands, the ground holds the potential to fulfill a century-old promise. 

The advantages of homeownership, a maintainable property to pass down to children, the restoration of economic self-sufficiency among Native Hawaiians — these were all commitments made by the Hawaiian Homes Commission Act, passed by Congress in 1920. 

But 100 years later, lending practices continue to restrict Native Hawaiians’ ability to maintain their homes and invest in their families’ futures. 

Some homesteads in Nanakuli are in need of repair, but accessing equity to do so is challenging. Cory Lum/Civil Beat

Native Hawaiians cannot take out second mortgages or home equity lines of credit on their homesteads — two primary ways other homeowners finance home improvements, college tuition and medical expenses. 

On top of this, Hawaiian homesteaders have access to a lower percentage of their home value when refinancing. Refinancing is a process that allows homeowners to take cash out by switching to a mortgage with different terms. Because homesteaders are relegated to appraisals that deflate their home values, as Civil Beat previously reported, the 75% cap on borrowing power means that homesteaders can pull less value out of already-depressed home equity.

When asked about the unavailability of second mortgages and the cap on borrowing power for homesteaders, officials from both the U.S. Department of Housing and Urban Development and the state Department of Hawaiian Home Lands, as well as bankers and others involved, pointed fingers as much as they provided answers to why this situation has persisted.

DHHL — the state agency charged with facilitating the return of trust lands to Hawaiians with at least 50% Indigenous ancestry — said no policy existed expressly banning second mortgages on homesteads. The agency placed the onus to develop a second mortgage loan product on lenders. Lenders, meanwhile, pointed to DHHL as the source of the practice. 

As for the borrowing cap, federal housing officials under the Trump administration were open to raising it. But Hawaii’s senior HUD official says DHHL abruptly ended negotiations four years ago. DHHL denies such negotiations ever occurred.

No matter the combination of federal and state decision-making, beneficiaries and housing experts say the practices hurt lessees financially.  

For KipuKai Kuali‘i, an Anahola homesteader, it comes down to the intent of the Hawaiian Homes Commission Act.

“If we’re sincere about following Prince Kuhio’s wish to rehabilitate and to help the Hawaiian people move forward, then we should be giving them access to all the resources and assets that they could potentially access,” he said. “And it starts with their homes, right?” 

Part Of The Deal

When Kuali‘i was a child, both his parents worked hard to make ends meet. Raised in Puhi, Kauai, Kuali‘i’s father departed each morning for his job at the nearby Grove Farm sugar plantation. Every time a major expense came up — when Kuali‘i’s sisters got married, or when he went off to college — the family took out a second mortgage on their fee simple home. 

“Our house was kind of like our security, and our place where there was money to take advantage of opportunities,” he recalled. 

Mano Avenue home nestled in Kiawe trees in Nanakuli, Waianae.
A home on Mano Avenue is nestled in kiawe trees on Oahu’s west side. Cory Lum/Civil Beat

Today, Kuali‘i lives on a homestead and is a Kauai County Council member. But he’s unable to take out a second mortgage, as his family did years ago.

Richard Soo, a retired firefighter who lives on the Kalawahine homestead on Oahu, has found himself in the same position as Kuali‘i. 

When Hawaiians like Soo and Kuali‘i signed a homestead lease, they agreed to accept the return of lands seized from their ancestors in 1893 by a U.S.-backed group of sugar and pineapple plantation owners. But some did not realize they were also signing away some of the advantages of owning a fee simple property.

Soo, who has resorted to refinancing given the absence of second mortgages, said he had no idea limitations on his access to equity were a part of the homelands deal. 

“I was not aware of the restrictions on lack of a second mortgage nor the loan to value ratio. I came from fee simple ownership so thought the same accommodations occurred in DHHL world,” he said. “I believe all the lessees in Kalawahine were not aware of the restrictions since most of us came from the fee simple environment.”

‘Barely Held Together’

While loan officers, government officials and beneficiaries all confirmed that lessees currently do not have access to second mortgages, DHHL has no written or formal policy stating this restriction. 

Neither does HUD, whose guidelines do not rule out the possibility of beneficiaries securing second mortgages on trust lands.

When asked where the practice comes from, Ryan Okahara, HUD’s Honolulu field office director, said he thought it was an internal DHHL practice. Michelle Kauhane, a former deputy director of DHHL, said she also thought “there are rules within the administration that don’t allow a second mortgage.” 

89-229 Lepeka Avenue in Nanakuli.
Rep. Stacelynn Eli said the effect of the denial of second mortgage loans to beneficiaries is visible on some streets in Nanakuli. Cory Lum/Civil Beat

Cedric Duarte, DHHL’s spokesperson, denied this, saying there exists no blanket prohibition on second mortgages within the department.

Instead, Duarte said the practice is perpetuated because there are no lenders who offer insured second mortgages or home equity lines of credit. The Hawaiian Homes Commission Act requires all loans consented to by the Hawaiian Homes Commission to be insured. 

Duarte said that a bank could give a second mortgage on Hawaiian Home Lands, but as long as a federal agency like the Federal Housing Administration or the Department of Veterans Affairs did not insure it, the Hawaiian Homes Commission would not guarantee it. If a lessee becomes delinquent on their second mortgage, Duarte explained, that lessee would have “no recourse through DHHL” to recover their loan.

“A mortgage on Hawaiian Home Lands must be guaranteed or insured by a federal agency,” Duarte wrote. “We have not had a lender step forward with a second mortgage product that meets this definition.” 

Winona Kauhane, a former lender for Bank of Hawaii who first learned about the prohibition on second mortgages 25 years ago when she began issuing loans to beneficiaries, said she operated under the assumption that second mortgages weren’t allowed because of DHHL guidelines.

‘Why Do They Only Value Us At 75%?’

Stacelynn Eli, a Hawaii state representative and fifth generation homesteader, grew up in Nanakuli on Oahu and has walked her district door to door. She said the effect of denying second mortgage loans to beneficiaries is visible on some streets in Nanakuli — some of the older homes she sees are in need of basic repair and renovation.

“Sometimes I cry because I see these kupuna out and about, dressed in their best, with nice muumuu, flowers in their hair,” she said. “And then you go to their homes and … some of them are barely held together. 

“How are they going to figure out how to get some type of loan to do the repair, let alone pay whatever mortgage they have?”

The family of Rep. Stacelynn Eli, third from left, is seen here at the homestead of her grandmother, Audrey Eli (red shirt), in Nanakuli, where they were making inamona, a traditional Hawaiian dish of kukui nuts roasted, ground into a paste and eaten with raw foods. Courtesy: Stacelynn Eli

A 2014 DHHL survey of lessees found that 46% reported the need for repairs to their homes, up from 27% in 2008. Over 75% of these lessees whose homes needed repairs could not afford to make those repairs. 

Of those who could afford the repairs, nearly 15% would have to take out a bank loan and only 2.3% had sufficient cash on hand to cover the fee. 

“For Lessee homeowners, needing to make repairs on their homes and being able to afford to pay for those repairs are two very different issues,” the survey said.

Stephanie Lauifi’s family has lived on the Kalamaula homestead on Molokai since 1923. Time wore on the property. When Lauifi was in her late 20s, her mother decided to refinance their home.

Soon, her mother realized her borrowing power was limited to 75% of the house’s appraised value — which, due to the replacement cost appraisal they were required to get, was already a deflated sum. Working together, value-deflating appraisals and limited borrowing power prevent Hawaiian homesteaders like Lauifi’s mother from realizing significant equity on their homes, which they could invest in education, repairs or unforeseen life expenses. 

The federal guidelines agreed upon between HUD and DHHL in a “Memorandum of Understanding” control what lessees can do with money they obtain through a cash-out refinance. For fee simple borrowers, that money would be theirs to spend exactly as they pleased. 

The MOU governing the FHA 247 loan program, last updated in 2006, states that beneficiaries can only borrow against 75% of what the bank has deemed their house is worth, unless they are using the money to pay off their mortgage and “for documented home improvements.” In that case, the lessee can access up to 85%.  

But other U.S. homeowners with FHA mortgages can pull 85% of their home equity in a cash-out refinance without that caveat, and some can take out 95%. For other forms of refinancing — rate-and-term and simple — FHA borrowers can access 97.75% of their home’s equity. 

Gonsalves explains how limits on borrowing ability compound with deflated appraised value. “We started with less and give them the ability to pull out less,” she said.

DHHL stood behind the refinance limit, and pointed to moves by HUD in recent years to manage risk on FHA loans in general, including a 2019 press release in which FHA announced it would lower cash-out loan to value for borrowers in general to 80%. The most current HUD rulebook, effective Oct. 15, 2019, sets that limit at 85%.   

“We’re treated like they know better for our lives.” — Richard Soo, Sovereign Council of Hawaiian Homestead Associations

For Soo, who is the Oahu representative to the Sovereign Council of Hawaiian Homestead Associations, the self-governing coalition of homestead associations, the limitations themselves are troubling. 

“Why do they only value us at 75%?” he asked. 

Jeff Gilbreath has spent more than a decade wondering the same thing. As the executive director of Hawaiian Community Assets, a HUD-approved counseling agency and community lending nonprofit that focuses on Native Hawaiians, he’s asked the government for the past 12 years where these rules come from and why they can’t be changed. 

“The responses that come from DHHL or HUD are responses that are very paternalistic,” Gilbreath said. “They completely look at it like … [beneficiaries] can’t manage their funds. But it is their funds, it’s their own home equity.”

Soo said he thinks these policies are rooted in an idea that Native Hawaiians can’t be trusted to handle money in the same way as everyone else. 

“They don’t treat us as equals,” Soo said. “We’re treated like they know better for our lives.” 

DHHL Denies Negotiating With HUD

DHHL has had opportunities to raise the 75% borrowing limitation dictated in the MOUs — and, in so doing, bring beneficiaries’ borrowing power up to par with other American homeowners. Okahara, the HUD official, said the department has been completely willing to negotiate with DHHL. But so far, DHHL has not followed through.

According to Okahara, DHHL initiated negotiations with HUD to raise the 75% ratio in late 2016 or early 2017. Before talks got far, however, DHHL retreated.

A HUD official said the agency remains willing to negotiate a higher borrowing cap with DHHL. Courtesy: DHHL

Okahara said he wasn’t sure why the conversation had stopped so suddenly. He reached out to his counterparts in Washington, D.C., then under the Trump administration, to ask if the resistance to renegotiation had come from their end. They told him they were game to change the ratio — they were just following DHHL’s lead. 

“We had some meetings, and our general counsel folks basically said, ‘We’re open to making modifications, making it fall more in line with our other programs. Tell us what you want,’” Okahara said. “And so the ball was kind of put in DHHL’s court. And then, in time, their leadership just decided that they didn’t want to pursue this.”

HUD remains willing to negotiate with DHHL to raise the ratio, Okahara said. All DHHL must do is step to the table.

When asked about these talks, DHHL denied that the department had ever been interested in raising the ratio. Duarte said that “in early 2017, DHHL had a conversation with HUD officials on the mainland” to discuss loan qualifications for successors and HUD’s changes in borrower qualifications for loan underwriting. “LTV was not discussed,” Duarte said.  

When presented with DHHL’s denial of the negotiations, Okahara did not respond to a request for comment. 

‘Our Home Is Like A Car’

For Patrick Kahawaiolaa, president of the Big Island’s Keaukaha Community Association, building home equity on Hawaiian Home Lands is a fool’s errand. 

“That’s just not a place to get equity,” he said. “You’re never going to own the land, so what equity are you going to get?

“Our home is like a car. You buy a car, drive off the lot, it depreciates the very hour you drive off.” — Patrick Kahawaiolaa, Keaukaha Community Association

“Our home is like a car,” Kahawaiolaa said. “You buy a car, drive off the lot, it depreciates the very hour you drive off.”

Stakeholders explained that policies restricting access to equity are premised on the idea that beneficiaries don’t “own the land” and that the market is closed to non-Hawaiians. 

But when pressed, that logic begins to fray. 

To Kauhane, the former Bank of Hawaii lender, the fact that homelands are leasehold property shouldn’t mean the land below beneficiaries’ homes holds no value for them. To her, it doesn’t have to be this way — and on other leasehold properties in Hawaii, it’s not. 

“In Hawaii, we’ve always dealt with leasehold properties. For years and years, we did loans on Bishop Estate property, and the Bishop Estate lease was always given a value,” she said. “I could never understand why a 99-year [homelands] lease didn’t have value.” 

A buyer could expect more than a lifetime on the property. The leasehold term — which can be extended to a total of 199 years — has not prevented beneficiaries from putting down roots on the soil, fostering generations on a single plot. 

But as long as federal and state policies continue to give no value to the leased land and to disregard market sales of homesteads, Kahawaiolaa says his Indigenous entitlements will only go so far.

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