Realtors to pursue vetoed mortgage bill
Original Post Date: October 15, 2010
By: Jeff Collins
The California Association of Realtors plans to renew its fight next year for a mortgage bill vetoed last week by the governor, association officials said.
Gov. Arnold Schwarzenegger killed SB 1178 last week, saying he believed the measure “would encourage borrowers to strategically default on loans they have the capacity to repay.”
The measure sought to protect homeowners from having to repay the full amount of their loan if the home is sold in a foreclosure sale for less than they owe.
Under current law, a borrower’s liability is limited to the sale amount in a foreclosure involving the loan used to buy the home. But borrowers lose that protection when they refinance into another loan, say, to take advantage of a lower interest rate and reduce their payments.
The state Realtors association sponsored the proposal, saying that people who refinance their loans should have the same protections they had under their purchase mortgages. The group maintains that the protections are needed even though lenders rarely exercise their right to sue for a loan “deficiency.”
But Schwarzenegger said in his veto message that changing the law now would revoke terms of already agreed-upon contracts.
“This bill fundamentally alters the nature and impairs the value of previously negotiated contracts, leading to negative consequences for the value of those loans held in a lender’s portfolio and a deleterious impact on the secondary market. Fundamentally altering the nature of a contract after its consummation is a bad precedent and will provide uncertainty for future lending transactions.”
Alex Creel, the Realtor association’s chief lobbyist, said the association likely will seek to have a similar measure reintroduced in the Legislature next January or February, when a new governor will be in office.
“With all due respect, we think the governor’s wrong,” Creel said. “He bought the line from the banks, which we feel is fallacious.”
Schwarzenegger did sign a competing proposal, SB 931, which extends “anti-deficiency” protections to a borrower’s first loan after a “short sale,” or a lender-approved sale for less than is owed on the home. But the protections don’t apply to second-mortgage or subsequent loans on the home, nor do they apply to loans after a foreclosure.
The Realtors association said that while it supported SB 931, “it does not go far enough.”