The California Foreclosure Prevention Act officially went into effect on Monday. The measure was signed into law by Gov. Arnold Schwarzenegger last February, and institutes a statewide 90-day foreclosure moratorium.
The moratorium applies to first mortgages recorded between January 1, 2003 and January 1, 2008. However, loan servicers and lenders are exempt from the law if they have a mortgage modification program already in place that includes principal deferral, interest rate reductions for five years or more, or extended loan terms. The lender’s loan restructuring program also has to ensure new monthly payments are no more than 38 percent of the borrower’s income.

According to Assemblymember Ted Lieu (D-Torrance), the new law gives lenders a choice: either enact a systematic and comprehensive loan modification program or face an additional 90 day foreclosure delay on all of your loans. The legislation is intended to provide citizens of the Golden State with quality loan modifications and give struggling homeowners additional time to come to a resolution with their lenders.
Some critics of the moratorium point out, though, that the majority of the larger institutions will be exempt from the new law, since they are already following similar requirements for the federal government’s Making Home Affordable program. In addition, a host of foreclosure tracking companies have found that foreclosure freezes imposed by various organizations late last year only delayed the inevitable, with foreclosure activity skyrocketing to record highs once the moratoriums came to an end.