California´s Proposed Mortgage Modification Program - Updated

This article updates our recent article regarding California Governor Arnold Schwarzenegger's legislative proposal to stem foreclosures in the state by incentivizing lenders to offer "comprehensive" loan modification programs. The Governor's bill, ABX 4, was introduced in the State Assembly on November 13, 2008. Although the proposal is limited to California, it could serve as a model for similar legislation by other states and the U.S. Congress.

As introduced, the California bill continues to use a "carrot and stick" approach. The "stick" is a mandatory 120-day moratorium on foreclosures (up from 90 days in the Governor's original proposal), applicable to certain first lien mortgages on owner-occupied primary residences as to which a notice of default has been filed. The specific types of first lien mortgages to which the moratorium applies are "higher cost loans," as defined in Federal Reserve Regulation Z, and "nontraditional loans," as defined in the Guidance