Southern California Mortgage Crisis

California Governor

The California Foreclosure Prevention Act, was introduced by Sen. Ellen Corbett, D-San Leandro, and attached to the budget package in February. The 90 foreclosure moratorium took effect June 15th and covers owner-occupied homes where the first loan was recorded between Jan. 1, 2003, and Jan. 1, 2008.

California’s non-judicial foreclosure process requires a mortgage loan servicer to wait at least three months between filing a notice of default and issuing a notice of sale. As amended, this bill extends that time period by 90 days for owner-occupied homes where the first loan was recorded between January 1, 2003 and January 2, 1008.

The loan modification program is intended to keep borrowers whose principal residences are homes located in California in those homes when the anticipated recovery under the loan modification or workout plan exceeds the anticipated recovery through foreclosure on a net present value basis. The loan modification program targets a ratio of the borrower’s housing-related debt to the borrower’s gross income of 38 percent or less, on an aggregate basis in the program.

This relief is limited to loans that meet the following criteria:

• The Loan must be a first-priority mortgage or first deed-of-trust.
• The Loan must be secured by the borrower’s primary residence.
• The Loan must have been recorded between January 1, 2003 and January 1, 2008.
• The borrower must have occupied the property as their primary residence at the time they became delinquent on the loan.
• A Notice of Default has been recorded against the property.
• The Loan cannot be one made, held or serviced by a California State or local housing agency or authority or cannot be collateral for securities held by one of the foregoing agencies.
• An interest rate reduction, as needed, for a fixed term of at least five years.
• An extension of the amortization period for the loan term, to no more than 40 years from the original date of the loan.
• Deferral of some portion of the principal amount of the unpaid principal balance until maturity of the loan.
• Reduction of principal.
• Compliance with a federally mandated loan modification program.
• Other factors that the commissioner determines are appropriate.
• In determining those factors, the commissioner may consider efforts implemented in other jurisdictions that have resulted in a reduction in foreclosures.
• When determining a loan modification solution for a borrower under the loan modification program, the servicer seeks to achieve long-term sustainability for the borrower.

The requirement for an additional 90 days does not apply to a mortgage loan servicer who has applied for, and received an exemption from the provisions of this new law. Exemptions are granted to lenders who have existing loan modification programs in place.  It is likely many home loan servicer will  make an application for an exemption, whether their modification program is good or poor. The Secretary of Business, Transportation and Housing is required under the law to maintain a website that lists disclosure of what loan servicers have made application for an exemption, and what the disposition of that application was.

In addition to the exemption available to lenders who prove to the Commissioner that they have a legitimate program for loan modifications in place, the additional 90 days does not apply in the following situations:

• Where the borrower has surrendered the property to the lender or otherwise abandoned it.
• Where the borrower has contracted with a firm “whose primary business is advising people who have decided to leave their homes regarding how to extend the foreclosure process and avoid their contractual obligations to the mortgagee or beneficiaries.
• Where a proceeding has been filed in Bankruptcy Court, and either the proceeding is not dismissed, closed nor granted relief from stay for the foreclosing creditor.

The above information was obtained from:
http://loanworkout.org/2009/06/california-foreclosure-moratorium-2/