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18 Nov 08 California Foreclosure Moratorium

A proposed 4 month foreclosure moratorium that would intensify mortgage lenders to provide loan-work-outs and mortgage modifications for more of California’s troubled mortgage loans shifted its aggressive proposal slightly.  Assemblyman Ted Lieu, D-Torrance, agreed to delay a committee vote on his plan to accelerate home loan modifications. Last week, he said he expected the committee and full Assembly to vote on it this week. The bill calls for a longer timeout than Gov. Arnold Schwarzenegger’s Nov. 5 call for California lawmakers to enact a three-month foreclosure moratorium.  The governor’s plan has yet to be introduced as formal legislation with less than two weeks left in a special session he called to address the state’s budget and foreclosure crises. But Schwarzenegger’s office said legislation to expand California loan modifications remains a priority for the session.

California Leads the Nation in Home Foreclosures

California Senate Passed Landmark Foreclosure Relief Bill
Requiring Lenders Make Every Effort to Modify Loans for Distressed Homeowners.

On Monday, the Assembly Banking and Finance Committee turned Lieu’s first hearing into what Chairman Pedro Nava, D-Santa Barbara, called “a larger conversation” about the mortgage crisis.  At the three-hour informational hearing, Republicans, Democrats, bankers, consumer activists and state regulators sparred as they have for nearly two years over specifics of keeping more struggling California borrowers in their homes. But the debate played out this time as banks and the federal government plans to roll out a series FHA home loan programs to modify mortgage loans.

Late in the hearing, Nava referred to the debate as a stimulus for work “when we come back in January.” Lieu’s office said only that negotiations would continue.  Bankers warned that events might overtake California’s efforts to legislate a solution.  “Now might not be the best time to lock in a specific formula,” said Michael Gross, managing director for loan administration at Charlotte-based Bank of America.  Lieu’s bill, co-authored by Assembly Speaker Karen Bass of Los Angeles, aims to pressure lenders with poor loan workout histories to do better. To avoid moratoriums, lenders would have to adopt workout guidelines like those of the FDIC, which aim to bring monthly payments below 38% of a borrower’s income.  Lieu’s proposal applies only to subprime and non-traditional loans such as interest-only and pick-a-payment that feature a negative amortization. Schwarzenegger’s proposal covers all loans. The governor’s plan would also exempt lenders that have modification programs in place.

California Department of Corporations Commissioner Preston DuFauchard said the Schwarzenegger administration deliberately limited its moratorium proposal to 90 days.  “We felt that over 100 days you’re probably sending a message that it’s OK to stop paying your home loan and we want to discourage that,” he said.  Mike Belote, lobbyist for the California Mortgage Association, said that adding 120 days to the foreclosure process means some mortgage lenders may need 10 months to a year from the 1st missed payment to foreclose on a house.

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Reader's Comments

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