Governor Schwarzenegger proposed yesterday a 90 day freeze for homeowners who have had a Notice of Default filed on their mortgage.

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%

The above link to Schwarzenegger’s proposal also includes other actions Schwarzenegger has taken or proposed to stem the rate of foreclosures in California.