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A law granting a 90-day foreclosure moratorium has been signed by California Governor Arnold Schwarzenegger.

The law covers distressed foreclosure properties still occupied by their owners who have taken out the original loans between the start of 2003 until January 1, 2008.

Senator Ellen Corbett explained that the law, whom she introduced as part of California?s budget package, is intended to help homeowners who are on the brink of losing their properties to foreclosure.

However, consumer advocates have criticized the law saying that there are unclear provisions that may drag the process of reducing the number of repossessed homes in California.

Under the California foreclosure moratorium law, regulators are given the authority to grant exemptions to loan servicers if they have existing mortgage modification programs that meet some criteria combinations, such as low interest rates for not less than five years, expansion of loan terms and deferment of a part of the loan principal.

Joe Ridout of the Consumer Action argued that it is impossible to defer $1,000 from the principal loan for 30 years.

To be eligible for exemption under the foreclosure moratorium law, a lender?s loan modification program should include a monthly mortgage payment adjustment of not less than 38 percent of distressed homeowners? income.

Consumer advocates argued that the exemption rule is inferior compared to other federal programs, including President Barack Obama?s Homeowner Affordability and Stability Plan which seeks to reduce payments to about 31 percent of the homeowner?s income.

Meanwhile, California Reinvestment Coalition associate director Kevin Stein said that the law is a regression from the progress that has been made by foreclosure prevention efforts.

He pointed that there is a significant difference between granting loan workouts and having a loan modification program, adding that the law does not seem to cater to the former and will not help reduce the number of repossessed homes in the state.

On the other hand, the California Mortgage Bankers Association, the California Bankers Association and other financial services organizations have written a letter opposing the foreclosure moratorium law.

According to the bankers, the foreclosure moratorium law will only cause uncertainty, restrict home sales and delay economic recovery.
On her part, Corbett defended her law by saying that she was restricted from introducing a more aggressive law by federal banking rules.

Just like many others across the country, people in Arizona are hoping that President Barack Obama succeeds in his efforts to avert further foreclosures across the country. The president is set to travel to Arizona to launch his $50 to $100-billion program to address the foreclosure crisis.

Arizona is one of the top three states hardest hit by foreclosures in the past months, with almost 117,000 residential properties given foreclosure notices in 2008. According to foreclosure tracking firm RealtyTrac, Arizona foreclosures make the state’s housing market the third hardest hit by the economic crisis.

Across the nation, over 2.3 million homeowners received foreclosure notices in 2008. This figure is expected to increase further in 2009, according to RealtyTrac. Credit Suisse also estimated that about 10 million residential properties will be foreclosed from 2009 to 2012.

The case of construction worker Tim Iverson illustrates the difficult situation of laid-off workers across the country. Iverson, who lost his job in November 2008, worries about his mother and their situation as they are at risk of losing their home to foreclosure. They refinanced their house in 2005 for $212,000. Now, they can not sell it for more than $160,000 and can not pay fully the monthly payments with just his unemployment money and his mother’s social security benefit. Understandably, Iverson is one of many in Arizona hoping that their president will come and bring some relief.

President Obama’s plan is expected to make significant reductions in borrowers’ monthly payments so that more homeowners can save their homes from foreclosure. Analysts say that the plan could offer both incentives and pressures to mortgage lenders to work out loan modifications with troubled borrowers.

The goal for modifications would be the reduction of monthly payments to about 30 percent of borrowers’ gross income. The payment reductions could be achieved by reduction of interest rates, reduction of the remaining principal balance, extension of the payment period and other flexible payment plans.

Several are also expecting that the president would endorse a proposal empowering bankruptcy judges to modify the provisions of a loan. Despite the opposition of mortgage lenders to this proposal, consumer advocates say that the mortgage industry need to bear some of the burden for everyone’s good.

There are also those who are concerned about the repercussions of using the taxes of responsible Americans to help pay off the loans of others who did not behave responsibly and who brought themselves to foreclosures. Mark Goldman, a real estate broker and mortgage lecturer at San Diego State University, has an answer to this concern. Goldman says that the taxpayer should not focus on what is fair, but on what will protect the value of his property.

Foreclosures in the nation are centered on 4 states. Even if it is just a few, the whole country would still experience the burden of releasing them from the problem.

RealtyTrac reported that Arizona, Florida, California and Nevada are the top 4 states that generated half the total number of foreclosures a year ago.

People living in those states are only holding a quarter of the country’s mortgages, but their foreclosures continue to rise since the middle of 2007.

Legislators are planning to use $100 billion from the bailout funds to possibly stop foreclosures. The plan was pressed by President Barack Obama a few weeks ago, and the disagreement will be an additional problem for the already puzzled homeowners, economists and politicians.

Jan Hatzius, Chief Economist of Goldman Sachs, said that there are plenty of unsold properties in the market, thus making the prices fall by 20-25 percent by 2010.

Louisiana Republican Sen. David Vitter said that using billions of dollars to assist homeowners may not be the solution to the rising problem.

Some say that the 4 states should not be blamed in terms of foreclosures. Washington D.C., Cleveland, Detroit and Minneapolis are also some of the cities that have high foreclosure rates but are not located in any of the said states.

Lawmakers and economists think that the housing crisis is getting worse, since a lot more people are losing work and cannot pay mortgages.

Meanwhile, University of North Dakota Economics Professor David Flynn questions why people who make the wrong decisions in the financial aspect are always supported. There are some people out there who make the right decisions, but were left ignored.

In all fairness, not all delinquent borrowers were irresponsible. In some cases, loan terms were not fully explained and further assistance were not given.

There is a big possibility that the price of bailout for banks will be greater compared to the allotted $700 billion because banks do not have enough resources to mend their problems. Therefore support for companies in financial services spent by the government can eventually go up to the trillions. This is bad news also for those experiencing the foreclosure crisis.