Possible Relief in California

In information released to the media yesterday, Gov. Schwartzenegger proposed a new plan to help people facing foreclosure. His plan is directed at homeowners who have already received Notices of Default (NOD), but not yet been foreclosed upon.

The specifics, as outlined yesterday, include a 90 day stay on the foreclosure process for anyone owning a home who has already received the NOD. A lender could get an exemption from this stay if it has in place what was referred to as an "aggressive modification program", according to the account in today's SF Chronicle.

The Chron reports that the modifications would be modeled on the format that was used by the FDIC in the recent IndyMac bank failure and the foreclosing loans held by that institution. Under that plan, borrowers' monthly payments would have to be limited to no more than 38% of their incomes. The lenders involved would be allowed to achieve that level from any of the following methods: lowering the interest rate on the loan; extending the maturity of the loan up to a maximum length of 40 years; or deferring a portion of the principal from repayment until such future date as the home is either sold or refinanced by the borrower. The Chronicle estimates that such actions could reduce payments by as much as 25 to 30%, which is a sizable amount.

For example, a 25% cut on a monthly payment of $500 would leave a new payment amount of $375. In the case of a current mortgage payment of $2,000 a month, a 30% reduction would leave the borrower paying only $1400, not cheap, but far better than his/her current payment amount.

As for when this or any other plan may be available, that remains to be seen, but the Governor is said to be pushing hard to get the legislature to do something about it soon after it reconvenes in January.