Schwarzenegger has presented his foreclosure moratorium proposal to legislators in the first week of November, including his proposals to increase taxes and reduce expenditures in order to reduce the state’s budget deficit of $11 billion.
The governor explained that two of the more effective ways to stimulate California’s economy are to make the housing market stable and attractive to investors and to arrest the rapidly soaring number of foreclosed homes. According to research company MDA DataQuick, almost 80,000 houses were foreclosed within the period from July to September in California.
Schwarzenegger’s foreclosure suspension proposal has been criticized by some economists due to possible adverse economic consequences, but Schwarzenegger argued that the state needs to rescue its troubled homeowners.
The case of National Guard serviceman Sammy Montiel illustrates what many Californians have been going through since the mortgage crisis began. Montiel purchased his Southern California home before he flew to Iraq in March this year. He said that he had been honest with the lender about his financial situation, but the lender still encouraged him to take the home loan.
When he came back after six months, his active-duty salary was discontinued, making him unable to pay his monthly amortizations. His wife’s savings have also been wiped out. Making the situation worse is the sharp decline in home prices, eliminating the option of selling the house to save the mortgage.
The Montiels say that all around them are neighbors who have left their foreclosed houses and people conducting foreclosure procedures and short sales.
One of the economists opposing Schwarzenegger’s moratorium proposal is University of San Diego professor Norm Miller. Miller says that the governor’s plan will only delay the needed correction that allows the housing market to recover. He also says that the planned reduction of interest rates on current mortgage contracts will make California mortgages unattractive to buyers and investors.
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