Schwarzenegger to seek 90-day stays on foreclosures

SAN FRANCISCO (Reuters) - California Gov. Arnold Schwarzenegger will ask lawmakers to back legislation imposing 90-day stays on home foreclosures as part of an economic stimulus package, state officials said on Wednesday.

President-elect Barack Obama has also proposed a 90-day ban on foreclosures but Schwarzenegger's plan differs in that it offers a "safe harbor" to mortgage lenders, said David Crane, an adviser to the governor.

Crane said that to avoid having a stay put on individual foreclosures, lenders could prove they have a robust modification program for troubled mortgages, which have left many local housing markets in California with some of the highest foreclosure rates in the nation.

Both state and federally regulated lenders operating in California would be affected by Schwarzenegger's plan.

"We are keenly interested in just keeping people in their homes," Crane said on a telephone conference call with reporters.

The 90-day period should give lenders -- and borrowers who have defaulted on the mortgage on the home they live in -- enough time to work out modifications that lower mortgage costs for owners and save the loan for lenders, added California Department of Corporations Director Preston DuFauchard.

DuFauchard said the goal is for lenders to act aggressively so they exempt themselves from state orders enforcing stays on foreclosure activity.

A second part of Schwarzenegger's plan, to be unveiled to lawmakers on Thursday when he calls them into a special session, aims to prevent future housing bubbles. The special session will address his economic stimulus plans and the state's growing budget shortfall.

Schwarzenegger wants lawmakers to allow California's Department of Real Estate and Department of Corporations to enforce federal laws and regulations such as the Truth in Lending Act to discipline real estate licensees.

He also wants lending practices changed to protect borrowers by expanding fiduciary duties for mortgage brokers so a loan suits a borrower's circumstances and by penalizing lenders who make false or misleading statements.

Additionally, licensing requirements for loan originators would be increased and standardized, California would contribute to a national database for the public to check disciplinary records of loan originators, and borrowers entering into risky mortgages would be pressed to ensure they understand loan terms.

Schwarzenegger will also urge the U.S. government to use a portion of the $700 billion Troubled Assets Relief Program to buy and modify troubled home loans or to guarantee modified home loans, and call for requiring mortgage originators to retain more of their securitized loans on their books so they share risk from the products with investors.

(Reporting by Jim Christie, editing by Richard Chang)