A restrictive vetting process for prospective buyers of affordable homes at A&B Properties’ 600-home Kamalani subdivision in north Kihei has led to early disqualifications for most of them, according to Maui County Council Member Elle Cochran.

A&B has maintained that mortgage lenders operate under strict post-recession federal rules and that many prospective buyers don’t have enough savings for down payments or have other financial impediments, such as bad credit.

On Wednesday, Cochran questioned A&B’s buyer-vetting process during a Land Use Committee meeting convened to take up A&B’s 950-home Waiale South subdivision, which also includes workforce housing.

In its Waiale project, A&B is seeking a change of zoning, a community plan amendment and establishment of a project district on nearly 123 acres of fallow sugar cane land south of Waiko Road and abutting Kuihelani Highway.

Land Use Committee members heard testimony in favor of the subdivision generating much-needed housing and construction jobs for residents.

Cochran drew attention to A&B’s implementation of a county workforce housing pre-qualification process for prospective affordable homebuyers.

The county ordinance spells out that homebuyers can prequalify for a loan with their “choice of lender,” but in marketing materials, A&B changed the wording of the requirement to “developer-approved” lenders.

“My bottom-line question is if this is legal?” Cochran asked Corporation Counsel Patrick Wong. “Is this in direct conflict with our law that is stated in Maui County Code?”

Wong paused and said: “Wow, that’s a complex question that, honestly, I’m not comfortable giving you an on-the-fly response to that.”

Cochran pressed Wong, saying, “So, the word ‘applicant’ (for homebuyer) is taken out and ‘developer’ is put in. That’s as simple as it gets. Is that legal?”

After more questioning Wong was asked if the developer could change the Maui County Code, and he said: “Well, the answer to that is no. The developer cannot change our code. You are the body that deals with the change or amendment to any of the codes.”

Wong pledged to answer Cochran’s written request for a legal opinion before the Waiale project comes before the full council for initial approval.

The committee recessed its meeting until 1:30 p.m. Monday in the Council Chambers.

In an interview Thursday with The Maui News, Cochran said that, by requiring homebuyers to get prequalified from a list of approved lenders, A&B was setting them up as gatekeepers to decide whether home applicants made it onto a waiting list for affordable homes.

Cochran said she’s received complaints from nearly a half-dozen “frustrated constituents” who tried and failed to prequalify for homes and wondered “what the hell is going on?”

A&B has chosen lenders who’ve been “very, very restrictive” and “very conservative” about qualifying prospective homebuyers, she said, whereas the buyers’ own lenders are “a lot more open” and more “willing to take on a first-time homebuyer.”

Later Thursday, A&B Properties Vice President Grant Chun said there was a “misunderstanding” about the wording of the development’s marketing materials for Kamalani, and that home applicants can choose their own lenders for loan pre-qualification.

The project’s marketing material would be revised to clear up the problem, he said.

“We’ve had purchasers come to us with pre-qualification (from lenders) other than those on the list,” he said, referring to the the Kamalani project list of lenders.

According to online Kamalani materials for prospective homebuyers, they are required to submit a completed housing application package, including a homebuyer education certificate of completion and a pre-qualification letter from “one of the following lenders,” including Central Pacific Bank, American Savings Bank, Bank of Hawaii and Creative Financial.

By providing the list of lenders who are trained in implementing the workforce housing ordinance, A&B was trying to make the process “simpler and more seamless” for prospective homebuyers, Chun said.

Chun said that the homebuying process is open for people who don’t get pre-approved from lenders on A&B’s list.

“Our sales people are more than happy to work with them,” he said. “They haven’t turned anyone away. They’ve worked with whoever comes through the door.”

Kamalani will have 170 affordable homes overall, with 49 now on the market in the project’s first phase, Chun said. Of those, 25 are under contract, he said.

Site work at the Kamalani project was nearly complete earlier this month, and the construction of homes is “imminent,” according to Chun.

Wednesday was not the first time Cochran has questioned A&B’s buyer pre-qualification process for its Kamalani project. She also raised the issue during a Nov. 3 Housing, Human Services and Transportation Committee meeting.

“What I see is a lot of people getting disqualified at the pre-qualification point,” she said Nov. 3.

She asked Deputy Corporation Counsel Jeffrey Ueoka if the A&B affordable project needed to comply with the ordinance.

After he agreed it did, Cochran said: “And, they’re supposed to follow (the ordinance) to the ‘T’ and not change anything in it? Is that fair to say?”

“We would hope so,” Ueoka said.

Then, Cochran asked whether there’s a conflict between the ordinance allowing pre-qualification using a “loan applicant’s lender of choice” versus A&B’s requirement for prospective buyers to get approval from the developer’s list of lead lenders.

“I think there’s a slight misconception,” Ueoka said, but he then went on to verify that the ordinance does provide for pre-qualification of a loan from the “applicant’s choice of lender.”

“You need to prequalify with the (developer’s) lender, but after that you can use whatever lender you want,” Ueoka said during the Nov. 3 meeting. “So, as far as we know, they are complying with (the ordinance).”

Then Cochran said: “So they’re able to change the words around? I don’t understand how that’s OK. . . . If we put something in law, isn’t it the law? The developer can just reword it?”

In offering a “clarification,” Chun told council members that A&B is the first builder to enter into a workforce housing agreement with the county under the ordinance.

“And, in so doing, we had to negotiate and work out an agreement with the Department of Housing and Human Concerns that honored the intent and spirit of the policy,” he said.

The negotiations led to an implementing policy “against the backdrop of the fact that a project needs a lead lender to vet prospective buyers and prequalify them,” Chun said. “As long as the purchasers were at liberty to use any lender that they wanted for their ultimate mortgage, you know, that we were being true to the spirit of the ordinance.”

It’s not unusual, with a “brand new ordinance,” that “wrinkles need to be worked out, and that’s what we arrived at,” he said.

Cochran expressed frustration with residents being unable to qualify for affordable housing “throughout the ages.”

“It’s not about where they get the money in the end,” she said. “It’s getting through that pre-qualification part. . . . All the lenders they have slated have been very, very, very restrictive and disqualifying a lot of people out there. . . . This has been twisted and manipulated for I don’t know what, but it sure didn’t result in getting our people affordable housing.”

* Brian Perry can be reached at bperry@mauinews.com.