California is imposing a 90-day moratorium on housing foreclosures under a new law that takes effect Monday, June 15, 2009.

The law is expected to make lenders try harder to keep borrowers in their homes. Loan companies must prove they tried to modify the delinquent loans before they can begin foreclosing.

But supporters acknowledge the California Foreclosure Prevention Act won’t stop thousands of foreclosures from eventually happening. There have been more than 365,000 foreclosures in California since early 2007, with many more already scheduled.

The law will largely press lenders to follow the Obama administration’s Making Home Affordable Program that began in March. That encourages lenders to cut interest rates or rewrite loans to 40-year terms to get payments below 38 percent of a borrower’s monthly income. Other options include reducing principal and tacking missed payments to the back of the loan. Under the law, California officials also can encourage short sales or deeds in lieu – options in which banks accept less than owed – for borrowers who want to leave or don’t qualify for modifications.

In summary, here’s what will happen starting Monday:

• Lenders will submit applications to the state outlining their loan modification programs. That gives them a 30-day exemption from a moratorium.

• If the state OKs a lender’s program, the firm is permanently exempt from the 90-day delay on foreclosures.

• If the state rejects the program as inadequate, a lender has 30 days to upgrade it and be reconsidered.

Leyes said consumers will be able to see a list of lenders that comply with the state’s requirements by mid-July.  

Source: The Sacramento Bee