Schwarzenegger Sides With Homeowners Facing Foreclosure

Posted on November 24th, 2008 by saman

California Governor Arnold Schwarzenegger is putting the pressure on local banks and lenders to modify the loans of homeowners facing foreclosure, siding with the homeowners who are in jeopardy of losing their homes in the near future. In order to force more lenders to modify loans rather than hurrying into the foreclosure process, the Governor has issued a proposal that if passed will require lenders to wait ninety days before starting foreclosure proceedings, unless they can prove to the state of California that they have established vigorous modifications efforts to work with homeowners.

Lenders who do not take a vigorous approach to reworking more loans will be delayed in getting their money back through foreclosure, by waiting three months before the procedure can legally begin. Since lenders are hurt financially just by having foreclosures sitting on the books, this pressure should be adequate to encourage them to rework as many loans as possible to avoid having foreclosures for sale on the books for three months or more.

Many homeowners who may not be too far behind on their loans can be greatly benefited if this proposal passes and becomes law, since they will be granted three months to get their loans caught back up to date. That may be enough time for some people to save their homes from the threat of foreclosure, thus reducing the number of empty homes sitting around California communities and lowering the property value for every surrounding home.

While this proposal is seen more as a stick for the lenders than a tempting carrot, it holds true that modifying a loan so that a homeowner can continue to make payments is better for the financial future of the lender than a foreclosure would be. Yes, the modified mortgages slow down the rate of pay going into the lender’s accounts, but in the long run it will equal better business as people get back on their feet and are able to continue paying.

Often, lenders do not get all of their money back in a foreclosure sale anyway, and that leaves them to chase after the original homeowner’s for the remaining balance, which is often never recovered. By the nature of foreclosure, these people just don’t have the money to give them. Therefore, in the long run the bank can get more of their money back from the deal than if they foreclosure and take a loss.

The ninety day “stay” required on future foreclosures will force lenders to really do all they can to work with homeowners to avoid the foreclosure process in as many cases as possible, even if they have to modify loans to terms they usually would not accept. The long run benefits to both the homeowners and the lenders should make it more than worth the effort to set new terms that the owners can actually honor as the economy continues to spiral downward.

Of course, even a few extra months is not going to be enough time for some struggling owners to get their loans up to date, and for them the stay will just give extra time to find a new place to live.