The Democrats’ proposal is longer than the 90-day moratorium that California Governor Arnold Schwarzenegger is proposing. Both proposals will be tackled during a special session called by Schwarzenegger to discuss California’s budget shortfall which increased to $11 billion due to declining revenues amid the housing and financial crisis.
California is one of the states hardest hit by foreclosures resulting from risky mortgages, including subprime loans availed during the peak of the housing market.
The state legislature has approved a bill that requires lenders to start initiating foreclosure proceedings 30 days after they have informed a borrower.
Karen Bass, California Assembly Speaker, explained that during the 120-day moratorium period, affected borrowers would be compelled to pay affordable loans. She believes that tougher times call for 120-day foreclosure moratorium instead of the 90-day proposed by Schwarzenegger in order to rework loans and address foreclosure problems.
Meanwhile, lenders can avoid imposing Schwarzenegger’s 90-day foreclosure moratorium proposal if they can show that they have a loan modification program in place.
Schwarzenegger wants California lawmakers to allow the state to implement federal laws and policies to regulate real estate licensees. He also wants to change lending practices to protect borrowers, including expansion of fiduciary duties covering mortgage brokers to allow them to modify a loan to suit a borrower’s conditions.
Furthermore, he wants to penalize lenders who issue false and misleading statements and to increase and standardize loan originators’ licensing requirements.
The plan by state Democrats coincides with mortgage finance companies, Freddie Mac and Fannie Mae’s launching of a program to reduce monthly mortgage payments for homeowners having difficulty meeting their financial obligations.
Borrowers who are eligible for the program are those who are facing the threat of foreclosure. A borrower who spends over 38 percent of his income on paying his mortgage is also eligible for reduced monthly payments.
Leticia Carvalho has been educated in the finer points of the foreclosure market over 5 years.