California’s 90-day foreclosure moratorium starts, sort of

This is a great post from Mathew Padilla of OCRegister.com discussing the new foreclosure moratorium in California.

A state law halting home foreclosures for 90 days begins today, but companies can earn an exemption by showing they are already busy modifying loans.

The California Foreclosure Prevention Act, or Assembly Bill X2 7, which Governor Arnold Schwarzenegger signed in February, is meant to push banks and loan servicers into lowering mortgage payments of homeowners in financial trouble. It reflects a similar federal plan.

Several companies have already applied for exemptions, said Mark Leyes, a spokesman for the state’s Department of Corporations. The department must grant or refuse an exemption within 30 days, during which companies need not comply with the moratorium. The law impacts loans made from 2003 to 2007.

A lender or servicer gets an exemption by demonstrating it already has a loan modification program in place, including lowering owner payments to a target of 38 percent of their income going to housing. Methods of choice are lowering the loan’s interest rate or extending its term to 40 years.

The bill, however, seems to lack teeth. The 38 percent debt-to-income ratio is merely a target.

And the bill says it does not require a servicer to violate contracts for “investor-owned loans.” The most troubled loans are generally those investment banks packaged and sold, and if the servicing contract says foreclosure is preferable to a loan modification, nothing in the law stops foreclosure.

The law also says it does not require a bank to “provide a modification to a borrower who is not willing or able to pay under the modification.” I am not sure what “able to pay” means if the target debt-to-income ratio is 38 percent? Maybe if borrowers have to make other hefty payments — on cars, credit cards etc. — then they are out of luck.

Read the full text of the bill, sponsored by Assemblyman Ted Lieu (D-Torrance), HERE

Best,

Mark Shandrow
Real Estate Broker
Shandrow Group
mark@shandrowgroup.com