Mortgages on Leased Land Not Unusual in Hawaii
HONOLULU - At least 30% of homeowners on the island of Oahu lease their land, estimates Karen Kaoihana, Vice President of Lending at Honolulu Federal Credit Union. That number has fallen, the lending VP said, from figures of nearly 50% as recently as 10 years ago. "A lot of land here in Hawaii is owned by corporations or foundations like the Bishop Estate, the Campbell Estate and individual families," Kaoihana said. "They lease it out to homeowners for a certain amount of years, ranging from 50 to 100 years," she said. Kaoihana said that the Bishop Estate has been selling land to homeowners in some areas during the past decade, decreasing the number of leased land mortgages. The recent sales come nearly 40 years after the Land Reform Act of 1967, which intended to break up the holdings of large landowners and transfer properties to homeowners. For the most part, the sales didn't happen. The decades-long leases created extremely affordable payments that didn't increase with inflation, resulting in some homeowners paying as little as $20 a month for the land. Additionally, closing costs are lower on leased land mortgages, making housing more affordable and attainable for low-income buyers. And in most areas, landowners preferred to retain their properties. The $240-million Honolulu FCU used to fund mortgages on leased land, but stopped offering the program in the late 1990s. "We had some losses where members would just walk away from the mortgages," she said. "We're considered a large credit union here in Hawaii, but compared to the big banks, a loss of a couple hundred thousand dollars was too significant for us to continue assuming the risk." Kaoihana wasn't sure if leased land mortgages could be sold on the wholesale market, because Honolulu FCU has always kept mortgages within their portfolio. However, she said she thinks they could be sold, considering how common leased land is in the 50th state.