Enhanced Foreclosure Help Program Takes Effect in California

The latest legislative effort to provide foreclosure help in California takes effect today. The bill, California Foreclosure Prevention Act, approved in February by the state assembly and signed by Governor Arnold Schwarzenegger, enhances previously launched foreclosure help schemes to help more Californians keep their homes.

The major provision of the new law is the imposition of a three-month foreclosure moratorium starting today.

In the foreclosure data released by RealtyTrac for the month of May, California posted 92,249 filings, the highest number among all the states. California was also second highest in foreclosure rate, with one in every 144 houses in the state receiving foreclosure action.

The new law is the third statewide effort to provide foreclosure help to troubled Californian homeowners. In 2007, Governor Schwarzenegger formally asked mortgage lenders to modify subprime loans.

In 2008, the governor signed Bill 1137, which required mortgage lenders to contact homeowners first and work out options with them before filing foreclosure actions.

Mortgage lenders who plan to get exempted from the foreclosure moratorium are required to submit a description of their loan modification schemes. Compliance to this submission requirement will exempt them from imposing a 30-day foreclosure moratorium.

If a lender’s loan modification program is approved, the lender is permanently exempted from the three-month foreclosure moratorium.

On the other hand, if the lender’s loan modification program is rejected, the lender is given 30 days to improve its program and then file for reconsideration.

Assemblyman Ted Lieu explained that the three-month foreclosure moratorium will force mortgage lenders to work out loan modifications, which have been largely voluntary on the part of lenders.

Under President Obama’s Making Home Affordable program, lenders are given cash incentives to modify loans to make monthly payments affordable. Banks can reduce payments by extending loan terms, reducing the principal or deferring the payments of arrears.

Lieu admitted there are distressed homeowners who cannot save their homes despite efforts to provide foreclosure help, but he insisted there are many borrowers who can be helped with some assistance.

Mark Leyes, spokesperson for the California Department of Corporations, added that the state cannot force banks to modify loans, but it can use the moratorium law to compel them to provide foreclosure help in the form of reduced loan payments.

According to Leyes, homeowners who are looking for foreclosure help can see the list of mortgage lenders that have complied with the new law’s requirements by the middle of July.

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