A Breather in California

With the stroke of a pen, Governor Schwartzennegger yesterday signed into law a moratorium on all foreclosures on loans made to homeowners in a specific five year period. If the mortgage is a first mortgage made between January 1, 2003 and the same date in 2008, the new law requires a moratorium on any foreclosure action for 90 days. The law is subject to a few exemptions, most notably that a lender is exempt if it already has in place a loan modification program that includes principal deferral, interest rate reductions for at least five years or extended loan terms. Further, the revised loans cannot exceed 38% of the borrower's income, which is a bit looser than the recently enacted Federal limit of 31%. Needless to say, many banks oppose the new legislation.