A plan to slow home losses
SACRAMENTO — Gov. Arnold Schwarzenegger on Wednesday proposed a 90-day freeze in pending home foreclosures to give California’s financially pinched homeowners more time to get new or more affordable loans.
The governor unveiled a foreclosure relief and long-term mortgage reform initiative as part of an economic stimulus package that he plans to put before lawmakers in a special session of the Legislature scheduled to begin today.
“The single most powerful action our state can take to shore up its economy is to help Californians stay in their homes,†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.â€
The governor’s effort is meant to slow the pace of foreclosures that hit a record high of nearly 80,000 during the third quarter, according to research firm MDA DataQuick.
The plan for “loan modifications†would be based on a formula proposed recently by Sheila Bair, chairwoman of the Federal Deposit Insurance Corp., for rewriting tens of thousands of mortgages across the nation. Her plan emerged after the government’s seizure of Pasadena-based IndyMac Bank.
Key to the governor’s plan is a 90-day delay in the legal process of foreclosing on a home after an owner-occupier has received a notice of default. Lenders could avoid the 90-day freeze under the plan if they proved they were aggressively rewriting loans so that homeowners could afford to make lower payments and avoid foreclosures.
State officials say they expect a big demand for the loan modifications. But some financial institutions report that their early efforts have had limited success.
IndyMac recently sent out 35,000 letters to homeowners offering new loan terms, but more than half the recipients did not respond.
Consumer advocates, lobbyists for the mortgage industry and some legislators showed interest in the governor’s ideas but said they wanted to fully review the legislation.
“What the governor has proposed is a good first step,†said Assemblyman Ted Lieu (D-Torrance), author of an anti-predatory lending bill that Schwarzenegger vetoed in September.
Lieu said he was heartened that the governor had dusted off portions of his bill that would prevent some future foreclosures by cracking down on state-licensed brokers who put borrowers into loans that they cannot afford.
“I’m pleased that the governor recognizes that banks and mortgage brokers are not capable of regulating themselves,†he said. “California has the responsibility and the obligation of raising the standards.â€
Making the governor’s plan work will depend on the administration giving regulators the tools needed to ensure that brokers don’t take advantage of borrowers, said Kevin Stein, associate director of the California Reinvestment Coalition, a San Francisco-based group that advocates for consumers and low-income communities.
“There has to be real monitoring and enforcement,†he said.
Leaders of the state Senate agreed that Sacramento needed to do more to help strapped homeowners. But they questioned whether the upcoming special session was the right time for action.
The Legislature’s immediate focus needs to be on the quest to find new revenues and ways to cut spending to fill an estimated $11.2-billion hole in the current state budget. Schwarzenegger “may have cast this too broadly,†Senate President Pro Tem Don Perata (D-Oakland) said.
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