The following was reported by Jeff Collins of the Mortgage Insider blog for the Orange County Register today:
The California Senate reversed itself today and overwhelmingly passed a measure expanding mortgage protections to homeowners who have refinanced their original home loans.
"By a 30-4 vote, the Senate adopted SB 1178, which would prohibit lenders from seeking repayment from homeowners when a foreclosed home is worth less than its mortgage balance. The body voted 19-5 last week against the measure, which the lending industry opposes.
Supporters won more support for the measure after a compromise that limited benefits for homeowners who got cash back with their refinance.
Steve Goddard, president of the California Association of Realtors, which supported the measure, issued a statement shortly after today's vote:
"Currently, if a homeowner defaults on a mortgage used to purchase his or her home - known as a ‘purchase money mortgage' - the homeowner's liability on the mortgage is limited to the property itself. Unfortunately, the original law did not extend the purchase money protection to loans that refinance the original purchase debt, even if the refinance only was to obtain a lower interest rate. SB 1178 corrects this inequity and extends the same protections to consumers who refinance their home loans."
CAR chief lobbyist Alex Creel said that support for the bill grew after a revision that took out some protection for homeowners who got a "cash-back" refinance. They still will be protected from having to repay the original amount of the loan, but not for the cash portion of the loan.
Cash-back refi's are controversial because some argue that homeowners used their homes as piggy banks, taking out cash to pay for vacations or to buy boats or luxury cars.
"Now (the bill) doesn't apply to any cash out," Creel said. "You have (the protection) for the (home's) original purchase price, but not for the cash-out portion."
SB 1178 now moves to the Assembly for approval."
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