Schwarzenegger's Housing Proposal for Special Legislative Session: 90 Day Foreclosure Freeze/Mandatory Counseling for Non Traditional Loans.

As part of a special session called to deal with budget issue, California's Governor has included a number of housing related proposals. From press release from Governor's Office HERE:

"The Governor's plan improves upon other foreclosure-relief programs by incentivizing loan modifications. To reduce foreclosures and encourage loan modifications, the Governor proposes:

* A 90-day stay of the foreclosure processes for each owner-occupied home subject to a first mortgage on which a Notice of Default has been filed.
* A "Safe Harbor" under which lenders will be able to exempt themselves from the 90-day stay procedure altogether if they provide evidence to the state official that the lenders have an aggressive modification program in place. An "aggressive modification program" is one designed to keep borrowers in their homes where doing so will ultimately bring investors a better return than simply foreclosing and selling at a loss.
* Loan modification Model: modifications will be based on a 38% housing debt-to-income ratio so that the modified loan is sustainable for the homeowner. The lenders can achieve that 38% level by invoking some or all of the following modification plans:

1. reducing the interest rate to a lower rate for five years or more; e.g., to a rate as low as 3%;
2. increasing the amortization of the loan to 40 years from the start of the amortization period; and
3. deferring some amount of the unpaid principal balance to the end of the loan term, so that the borrower will repay that amount upon refinancing or sale of the property."

"...Governor Schwarzenegger's plan ensures more responsible lending so that Californians will never again be victimized by unsustainable loans. In order to prevent another mortgage crisis in the future, the Governor prescribes a set of proposals, including:

* The Department of Real Estate and Department of Corporations will now be able to enforce federal laws and regulations such as the Truth in Lending Act and others, and to discipline real estate licensees who violate those laws and regulations.
* Lending practices will be reformed to protect borrowers by expanding fiduciary duties for mortgage brokers so that borrowers can be assured they are getting a loan that suits their circumstances and penalizing lenders who make false or misleading statements.
* Licensing requirements for loan originators will be increased and standardized.
* California will contribute to a national database for the public to access license status and disciplinary records of all loan originators to prevent dishonest originators from victimizing consumers.
* Pre-counseling interviews will be required for borrowers entering into risky "non-traditional" mortgages, as defined by the federal government, to ensure they understand and accept the terms to which they are agreeing."

Note: A good summary of prior California related housing bills signed into law earlier this year can be found in this press release on the Governor's web site HERE.