California Gov. Arnold Schwarzenegger is imposing 90-day stays on foreclosures and encouraging lenders to modify existing home loans as a way of keeping people out of foreclosure, state officials said on Wednesday. The Governor will ask lawmakers to back legislation on California home foreclosures as part of an economic stimulus package, state officials said on Wednesday.
The Republican administration on Wednesday announced a plan to encourage lenders to modify existing home loans as a way of keeping people out of foreclosure.
Both state and federally regulated lenders operating in California would be affected by Schwarzenegger’s plan.
Other provisions of his plan are more likely to produce good results – such as his proposals to expand fiduciary duties for brokers (so borrowers know they’re getting a loan that suits their circumstances) and penalize brokers who make false statements. The California Legislature should pass those proposals quickly, and address the rest of the package, before it gets lost in a bruising fight over the budget.
Several weeks ago, Schwarzenegger vetoed a Democratic bill to ban bad lending practices.
Schwarzenegger will also urge the U.S. government to use a portion of the $700 billion Troubled Assets Relief Program to buy and modify troubled home mortgages or to guarantee modified home loans, and call for requiring mortgage originators to retain more of their securitized loans on their books so they share risk from the products with investors.
The governor’s proposal comes in advance of his call for a special legislative session to address the budget gap and other issues. Democratic leaders say the current deficit has grown from $3 billion to $11.2 billion.
Schwarzenegger’s staffers says that they hope the measures will prod lenders to take “collective” action (the only kind which will work, they say, because one lender won’t modify loans unless everyone else is doing it too), but so far few measures at either the national or state level have managed to be encouraging enough. It’s entirely possible that Schwarzenegger will simply be giving people who can’t afford their homes an extra 90 days to get out of them.
