11/05/2008 GAAS:763:08 FOR IMMEDIATE RELEASE Print Version |
Governor Schwarzenegger Prescribes Solutions to Keep Californians in their Homes
Offers Special Session Plan for Immediate Foreclosure Relief, Long-Term Mortgage Reform to Help Stabilize California's Economy
Committed
to keeping Californians in their homes and stabilizing the state's economy,
Governor Arnold Schwarzenegger today announced an aggressive plan to bring down
foreclosure rates by helping both borrowers and lenders modify existing home
loans in ways that benefit both parties. Also, to prevent another mortgage
crisis in the future, the Governor is prescribing changes to the way mortgages
are brokered and originated to make lenders more accountable, guard against
risky mortgages and prevent unsustainable bubbles from ever arising again.
The
plan is among the items the Governor will prescribe for immediate action during
the special session of the legislature he plans to call. That session is needed
to address both a state budget revenue shortfall and a package of legislation
to stimulate California's economy.
"The single most powerful action our state can take to shore
up its economy is to help Californians stay in their homes - and I am
presenting a plan to do just that," said Governor Schwarzenegger. "Curtailing
foreclosures will stop the downward spiral of home prices, free up needed cash
for homeowners, help save jobs and make an immediate positive impact on our economy."
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.
- These actions will reduce monthly payments by 25-30%
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.
The Governor's
mortgage plan also includes urging the federal government to require loan
originators to retain a portion of the loan risk to encourage sound
underwriting of loans and encouraging the federal government to promote the use
of "covered bonds" which allows lenders to securitize loans but requires them
to retain those assets on their balance sheets.
Additionally,
Governor Schwarzenegger will continue to advocate that the federal government
use a portion of the $700 billion Troubled Assets Relief Program to buy up and
modify troubled home loans or to guarantee modified home loans. The Governor will
also convene a housing summit in the beginning of 2009 to further craft
modification and foreclosure abatement solutions.
To address
California's budget deficit and look at more ways to stimulate our state's
economy, Governor Schwarzenegger announced he will call the legislature into
special session.
These
solutions build upon the Governor's previous actions to help stabilize
California's housing market, including:
- Signing legislation to help protect homeowners by requiring a mortgage holder to provide a 30-day notice to a borrower prior to filing any default notice leading to the foreclosure. The new law also provides tenants of foreclosed properties a minimum of 60 days notice to move and requires holders of foreclosed properties to maintain the property.
- Announcing an agreement with major loan servicers to streamline the loan modification process for subprime borrowers living in their homes.
- Launching a $1.2 million public awareness campaign to help educate homeowners about options that can help them avoid losing their homes to foreclosures.
- Established the Interdepartmental Task Force on Non-traditional Mortgages to ensure a comprehensive and coordinated approach to the issues raised by subprime loans.
- Announcing $5.6 million to help mortgage and banking industry workers laid off as a result of the subprime crisis make career transitions to high-demand jobs in other industries.
- Joining the OneCalifornia Foundation to announce a bridge loan fund for homeowners facing foreclosure in Oakland.
- Awarding $8 million to community based mortgage counseling providers around the state to help avoid foreclosures.
