Nov. 5 (Bloomberg) -- California Governor Arnold Schwarzenegger proposed a 90-day stay on home foreclosures in California, one of the hardest hit U.S. states by the national housing-market collapse.

Schwarzenegger said he will ask lawmakers to consider delaying foreclosures when he orders them into a special session tomorrow to deal with the state's ballooning budget deficit. The measure would exempt lenders if they can prove they have set up a program to help troubled homeowners modify their loans.

California, which leads the nation in foreclosures, is one of more than two dozen states that that have taken steps to help distressed homeowners and to stem escalating defaults. Congress has been urging financial-services companies to work with borrowers and avoid foreclosures, which rose to the highest on record in the third quarter.

``The single most powerful action our state can take to shore up its economy is to help Californians stay in their homes - and I am presenting a plan to do just that,'' Schwarzenegger, a 61-year- old Republican, said in a statement. ``Curtailing foreclosures will stop the downward spiral of home prices, free up needed cash for homeowners, help save jobs and make an immediate positive impact on our economy.''

U.S. foreclosure filings increased 71 percent in the third quarter from a year earlier to the highest on record as home prices fell and stricter mortgage standards made it harder for homeowners to sell or refinance, RealtyTrac, a provider of real estate data based in Irvine, California, said on Oct. 23.

California Foreclosures

The number of California homes in foreclosure totaled 79,511 in the third quarter, said San Diego-based real estate research firm MDA DataQuick. That was more than triple the year-earlier number, and the highest since MDA DataQuick began tracking the data in 1988.

Schwarzenegger said he wants lenders to adopt a loan modification plan based on a 38 percent housing debt-to-income ratio so that the modified loan is sustainable for the homeowner.

He said lenders could achieve that 38 percent by reducing the loan's interest rate to as low as 3 percent for five years, increasing the mortgage's term to 40 years and deferring the payment of some principle to the end of the loan term, when it could be paid by refinancing or selling the home.

Schwarzenegger tomorrow is scheduled announce that the state's six-week-old budget already has sunk as much as $10 billion into the red and that he'll need to seek tax increases to fix the deficit. The ballooning deficit comes as the state's already ailing economy has been hit hard by declines in the stock market that have cut into income and capital gains tax revenue.

Both JPMorgan Chase & Co., the largest U.S. bank by market value, and Bank of America Corp. have said they will take steps to help at-risk borrowers stay in their homes.

To contact the reporter on this story: Michael B. Marois in Sacramento at mmarois@bloomberg.net

Last Updated: November 5, 2008 17:43 EST