California’s law to suspend foreclosures for 90 days took effect yesterday. The law applies to homes used as a primary residence where the home was purchased between January 1, 2003 and January 1, 2008. The bill, introduced by state senator Ellen Corbett, D-San Leandro, was signed into law by Governor Schwarzenegger in February.

The intent of the bill was to encourage lenders to grant more mortgage modifications to distressed homeowners.

Unfortunately, the law has little teeth. A lender can apply for an exemption from the law if it has a loan modification program in place that meets fairly soft criteria – lowering interest rates for 5 years, extending the term of the home loan, or deferring some of the principal. The programs must target the homeowner’s monthly mortgage payment at 38% of the borrower’s gross income.

What This Means to You, Dear Homeowner

Despite all the fanfare from politicians — not much since virtually all lenders will qualify for an exemption from the law.

All a lender has to do is file paperwork with state regulators saying it has a loan modification program. This doesn’t mean that the lender actually has to modify home loans. It just has to have a “plan,” which is kind of like when my kids say they plan to clean up their rooms. With kids, you can at least give them a time out if they don’t follow through. With lenders, the state government has no oversight or enforcement.

Moreover, the target of 38% is a big step in the wrong direction given that the Federal Homeowner Affordability Plan targets 31%.

Nice try, California Legislature and Governor Schwarzenegger. I guess you’ll be too busy raising taxes and cutting services to fill the massive $23 billion hole in your own budget “plan” to worry about whether or not lenders follow their loan modification plans.

* Loan fees are referred to as points. This chart represents the average national points charged according to Freddie Mac. For example, if you are paying .7 points on a $100,000 loan your fees will be $700.

The housing market and job market sent strong mixed messages in April and May, showing how tough it is to predict home prices and sales for the foreseeable future.

In April, the number of previously occupied homes (i.e. not new construction) that were put under contract to be sold experienced the highest increase in 8 years. The report was produced the National Association of Realtors.

The increase exceeded Wall Street analysts’ expectations, not that we should put much stock in what Wall Street analysts forecast in the first place. After all, these are the same overeducated eggheads that failed to forecast the deepest recession since the Great Depression.

Economists speculate that one reason home sales have increased is due to the $8,000 tax credit for first time home buyers that Obama implemented as part of his stimulus package.

Now here’s the bad news. While the report shows sales activity is picking up, housing prices are a long way from being healthy for a number of reasons:

1. Interest rates are creeping up, making homes less affordable, putting downward pressure on home prices.

2. Foreclosures continue to pile up in record numbers, creating a glut of homes on the market.

3. The job market continues to plummet. As more people lose their jobs, they will eventually lose their homes. In April, the private sector lost 545,000 jobs, and in May 532,000 jobs were eliminated. The housing market will not stabilize until the job market stabilizes.

The Mortgage Bankers Association released a survey this week announcing that applications for home loans decreased 16% last week. The primary cause was the increase in interest rates. Rates for 30 & 15 year fixed and 5 & 1 year ARM loans all increased. Rates for 30 year fixed loans rose above 5%.

What This Means to You, Dear Homeowner

Not a lot, unless you are looking to refinance. The drop in home loan applications was primarily due to a decrease in refinancing activity. In fact, as reported earlier this week, home loan applications for home purchases actually increased in May.

From a historical point-of-view, rates are incredibly cheap. So, if you are a distressed homeowner looking to sell, don’t worry about this statistic. If you are looking to buy, rates are still low but inching up. So, if all other factors are equal, you may want to buy sooner than later.

California Attorney General Jerry Brown announced a sweeping crackdown on loan modification consultants who perpetrate foreclosure scams against homeowners who are behind on their mortgage payments.

Starting July 1, 2009, any foreclosure consultants operating in California must register with the state and post a $100,000 bond. The new regulations are designed to stop scams that have cost homeowners millions of dollars. Typically, the scam artists promise to stop foreclosure, charge significant upfront fees and then provide little, if any, service. Not only do homeowners lose their money, they end up losing their homes as well.

How This Affects You

Foreclosure scams are pervasive, and con artists have unfortunately been running ahead of the regulators. Currently, California and Illinois seem to be the two states that are most aggressively pursuing foreclosure scams. Hopefully, other states will take similar actions to protect homeowners who are behind on their home loans.

MoneyHugger gives kudos to Jerry Brown and the rest of the California Attorney General’s office.

* Loan fees are referred to as points. This chart represents the average national points charged according to Freddie Mac. For example, if you are paying .7 points on a $100,000 loan your fees will be $700.