Bill Making Mortgages More Expensive Stalls in Assembly (8/26)
Legislation currently pending in Sacramento may make it more expensive for you to get a mortgage on a new home or refinance the loan you currently have. Senate Bill 602 has the seemingly noble goal of encouraging homeowners to upgrade their properties for seismic safety. But, as they say, the devil is in the details.
Under existing law, local governments can authorize loan programs, often initially funded by local bonds, for homeowners to upgrade their homes for energy efficiency. The loans are collected in the property tax bill. This new bill allows the California Earthquake Authority to use a similar program statewide. These new “earthquake retrofit” loans have super priority over any other existing loan on the property, which means they must be paid off FIRST, before any other mortgage or obligation. In other words, a seller who still owes on that loan will be forced to pay it off before closing escrow on the sale of the home, even if it means writing a check for the balance. Or they can negotiate to pass along the obligation to the buyer. However, the Federal Housing Finance Agency (FHFA), which oversees Fannie Mae and Freddie Mac, has determined that any property with one of these super priority loans attached is not eligible to be financed, or refinanced, with a conforming loan. Conforming loans are the traditional, 30-year mortgage most used in home finance. Not being able to use a conforming loan will force borrowers to look to more expensive financing options.
Not only does this proposal jeopardize the availability of mortgages, but there is no guarantee that the improvements enhance the value or the property or save the owner any money. Unlike energy improvements, which might actually save the home owner money to be used to pay for the new debt, this proposal is for new debt for seismic strengthening of unknown value, and doesn’t save money for homeowners now.
The California Association of REALTORS® is opposing SB 602 unless it is amended so that these loans aren’t made “first priority” and to add consumer disclosures for added transparency. Due in large part to REALTOR® opposition, the bill has stalled for the year but may be reconsidered in early 2016.