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California Gov. Arnold Schwarzenegger outlines his economic proposals Thursday in Sacramento.
California Gov. Arnold Schwarzenegger outlines his economic proposals Thursday in Sacramento. Max Whittaker/Getty Images
As California continues to struggle with big economic problems, Gov. Arnold Schwarzenegger has proposed a list of measures intended to help — including a 90-day freeze on pending home foreclosures.
"Nothing will stimulate our economy and bring it back quicker than creating a stable housing market and keeping people in their homes," he said this week.
Schwarzenegger has called legislators back to Sacramento to consider his plan, as well as the steep tax hikes and spending cuts he has proposed in hopes of closing an $11 billion budget deficit.
The foreclosure-freeze proposal — which some economists have called a bad idea — is aimed at helping thousands of distressed homeowners, like Sammy Montiel.
'Nothing But Struggling'
Montiel lives in a two-story home in Beaumont, Calif., about 80 miles east of downtown Los Angeles. He bought the house just before he was deployed to Iraq last March with his National Guard unit. He came back in June, so he has lived in the house for only six months — and now he can no longer afford to make the monthly mortgage payments.
"Since I've been out — nothing but struggling since then," Montiel says. "I didn't imagine I'd face this when I came back home. I didn't want to face this."
Montiel has stopped receiving his active-duty pay, and his wife Edith's salary has all but dried up. On top of that, home prices have dropped nearly 30 percent in this part of Southern California. The Montiels now owe more than their house is worth.
"The economy is really, really bad, and a lot of people just left like my neighbors — they just left and the other people across the street are, you know, going into foreclosures and short sales," Edith Montiel says.
The Montiels clearly aren't alone. Californians are losing their homes at record rates. According to the research firm MDA DataQuick, nearly 80,000 homes were foreclosed on in the third quarter of this year.
The Implications Of A Freeze
Norm Miller, a real estate economist at the University of San Diego, says the governor's proposed foreclosure freeze isn't a good solution. He says it would just delay the inevitable correction the market needs to make if it is to recover. And, he says, if the government steps in and unilaterally lowers interest rates on existing contracts, it's going to be hard to find buyers for California mortgages.
"If there's the risk that California does things independently of the rest of the country, then we eliminate the demand for buying mortgages from California, and that means our interest rates for mortgages would climb dramatically," Miller says.
Schwarzenegger insists his plan will help families keep their homes and help the state's economy. He says lenders will be rewarded for working with distressed buyers and be exempt from the 90-day waiting period.
Sammy Montiel says trying to get his lender to modify his loan on his own was useless. He says he made several efforts, but in the end, he couldn't even get his calls returned. Montiel says that was a big switch from the way the lender acted when it was trying to sell him a mortgage.
"I was honest with them: This is what I'm going to get paid; this is what my wife is getting paid," he said, adding that he was told, "'Oh, yeah, you guys will do fine. You know, you guys want a home ... before you leave and you'll want a home when you come back.' Hopefully, I get to keep it."
Montiel says he hopes some sort of bailout program gets up and running soon. If not, he sees no other option than re-enlisting, so his family can stay in their home.