Several clients have called this week to ask about the California foreclosure moratorium that went into effect June 15, 2009, and how it will 
affect them.
The bill is similar to legislation passed by the federal government in March.
Some of the highlights:
- Banks can get an exemption from the moratorium by showing that they have a loan modification plan in place. Several companies have already applied for the exemption; California Department of Corporations has 30 days to grant or refuse the request.
- Loan modification programs in place must have some combination of the following features:
- Interest rate reduction for at least 5 years.
- Extension of the amortization period for up to 40 years from the date the loan was issued.
- Deferral of some portion of the principal amount.
- Reduction of principal.
- Compliance with a federally mandated loan modification program.
- Other factors that the commissioner feels appropriate.
- The law affects owner-occupied homes where the first mortgage was recorded between January 1, 2003 and January 1, 2008
- The target rate set by the bill is for the borrower to have their mortgage payment be 38% of income.
- Lenders methods of choice for lowering the payments are lowering interest rate and/or extending the loan to a 40 year term.
- This bill has no effect on second (or higher) mortgages or on non owner-occupied homes, and is in effect through January 1, 2011.
- Loan modifications require that the homeowner can pay the modified mortgage, so not all homeowners will qualify for a loan modification. Some homeowners would be better off pursuing a short sale.
Now for the Loophole - banks only need to have a loan modification program in place - there is no requirement for them to actually be issuing loan modifications. Some critics of the bill say if banks are able to get exemptions, the "teeth" are taken out of the bill, however, many banks seem to be realizing it is to their advantage to grant a loan modification or short sale rather than take the home through the expensive foreclosure process. Hopefully, as more and more homeowner's stay in their homes with loan modifications in place, the process will gain in momentum and popularity with lending institutions.
I talked with a client today who says her lender, Citi Mortgage, granted her a loan modification, lowering her interest rate to 3.5% for five years and graduating it back up to the original 6.5% in 7-8 years. My client said this lowered her payment by $400 a month giving her a little bit of breathing room and the ability to keep her home.
- Read the full text of the bill, sponsored by Assemblyman Ted Lieu (D-Torrance), HERE.
Thank you for stopping by. Your comments on this post are welcomed and appreciated.
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