Schwarzenegger Proposes 90-Day Foreclosure Moratorium

California governor Arnold Schwarzenegger announced on Wednesday that he will look to implement a 90-day moratorium on foreclosures, the latest move by state and local legislators to slow the number of foreclosures. The forced stay on foreclosure proceedings, if enacted, will target properties backed by a first mortgage on which a notice of default has been filed, according to a press statement from the governor’s office. The proposed moratorium — along with several other proposals made Wednesday by the governor’s office — is designed to promote more responsible lending practices and protect Californians from being “victimized” by loans they can’t afford, Schwarzenegger contends. Under his proposal, a “safe harbor” exemption from the moratorium will exist for lenders that provide evidence that they have an aggressive modification program in place to keep borrowers in their homes. This exemption, according to the press statement, is in theory designed to encourage responsible lending practices and ultimately bring investors a better return than foreclosing and selling the property at a loss. “The single most powerful action our state can take to shore up its economy is to help Californians stay in their homes — and I am presenting a plan to do just that,” Schwarzenegger said. “Curtailing foreclosures will stop the downward spiral of home prices, free up needed cash for homeowners, help save jobs and make an immediate positive impact on our economy.” Schwarzenegger has also prescribed that the Department of Real Estate and the Department of Corporations will have the power to enforce federal laws and regulations and to discipline real estate licensees found in violation of those laws. He called for increased and standardized licensing requirements for loan originators, as well as pre-counseling interviews to ensure borrowers who opt for risky and nontraditional mortgages understand and accept the terms of the loans. A history of effort In July, Schwarzenegger signed legislation requiring lenders to explore restructuring options before initiating foreclosure proceedings, adding roughly 45 days to the state’s foreclosure process in so doing; foreclosure filings have tanked temporarily in the state, as a result. Previously, in February, he issued an $8 million grant for homeowner counseling, put more than $73 million into new government-funded housing projects and gave $5.6 million in relief to laid-off mortgage and banking industry workers in an attempt to create jobs and shore up California’s failing housing industry. In Nov. 2007, the “governator” put $1.2 million into a public awareness campaign to educate homeowners and entered an agreement with lenders to help borrowers at risk for foreclosure find modifications and alternative loans to the subprime variety. That agreement prompted California Department of Corporations commissioner Preston DuFauchard to begin monitoring the lenders’ actions and reporting on the volume of loss mitigation efforts throughout the state, from foreclosures to loan modifications. The latest quarterly survey was issued in late October. HW sources say pressure to put moratoriums in place is growing, although evidence exists to suggest that doing so solves little and may exacerbate an already raging credit crisis. See earlier HW story. Massachusetts provides a good case study, after a new law took effect in May requiring lenders to give homeowners a 90-day right to cure notice before initiating foreclosure. After being much lower than normal in June, July and August, initial foreclosure filings in Massachusetts soared 465 percent between August to September, according to data provided by RealtyTrac. Write to Diana Golobay at [email protected].