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California Calls for 90 Day Moratorium on Pending Foreclosures - Will it Work?

By
Real Estate Agent with Re/Max

As part of a proposed economic stimulus package, Gov. Schwarzenegger proposed a 90-day freeze on pending foreclosures in California. According to MDA DataQuick, California had 80,000 foreclosures in Q3 2008, so the proposal by Gov. Schwarzenegger is meant to slow down the pace and provide homeowners with more time to find and re-finance with other, more affordable loans. However, as an incentive to provide more affordable loans, lenders can avoid the 90-day freeze under the plan if they proved they were actively rewriting loans so that homeowners could afford to make lower payments and avoid foreclosure.

From a Bay Area perspective, while I applaud the government’s effort to call for a “cooling off” period from the time a homeowner receives a default notice from a bank, in terms of actually staving off foreclosure, the key will be a recovery in bank lending. Lets not forget that a lot of homeowners facing foreclosure in the Bay Area signed up for interest-only loans, which generally carry about a ½ point premium vs. a fully amortized loan these days. So, it all comes down to what type of risk the banks are able / willing to take – if they are willing to creatively work with homeowners to refinance during the 90 day period, great. If not, the 90 day period could simply be delaying the inevitable foreclosure for the homeowner.

Veena Grover | RE/Max Accord, Fremont CA | http://www.FremontHomesTeam.com

Anonymous
Chuck

I am a private money lender and service a very sizable portfolio. I have been actively rewritting or modifying some of our current loans. I look at two things: 1. The property value and 2. Our lien position. In many cases, a modification is needed to secure future payments from the borrower and to protect my investors interest in the property. However, in a case where we are the secondary lien holder, it is imperative that a default process is handled quickly to protect the invested funds of the note holder. With a 90 day moratorium, you are looking at  3 more months of no payments to the first lien holder. This just eats up the available equity for the second lien holder to recoup any of their invested funds. These are private individuals and many of them are retired living off interest payments. This MORATORIUM forces lenders to hold while the borrowers live in the property payment free, while investors watch their retirement go down the tubes. This is hard earned, life savings for many of these peoples. I don't see how a politician, with the swipe of a pen, can take this away from them.

Another note, this crisis is an embarassment for our leadership in this Country and while, hard to bear, serves as a much needed slap in the face to Californians and Americans in whole. We had a free ride for many years and lots of people cashed in on easy equity and used their homes as personal ATM's to buy boats, cars, and other crap they did not need. The ride is over and we, as Americans, need to get back to the economic fundamentals that we used to have. Work hard, live with in your means and buy a home you can afford (With an actual down payment that you saved) The dust will settle and we will find California, once again, an affordable place to live. It is just going to be a really bumping ride getting there.

Feb 24, 2009 12:11 PM
#2