Opinion ID: 581528
Heading Depth: 2
Heading Rank: 2

Heading: Was the Transaction a Partially Exempt Refinancing?

Text: 59 The right to rescind does not apply to a refinancing or consolidation by the same creditor of an extension of credit already secured by the consumer's principal dwelling. 12 C.F.R. § 226.23(f)(2). Consumer contends, as the bankruptcy court concluded, that refinancings only include transactions that are already secured by a prior mortgage, as opposed to transactions secured by new mortgages. According to Consumer, where, as here, the lender satisfies the old mortgage and takes a brand new mortgage, the transaction is essentially a brand new loan and not a refinancing. Consumer points to the H-9 for support, noting that the H-9 covers refinancings and by its terms assumes the retention of an existing security interest. 60 We agree with the district court, however, that under a far more grammatical reading of the statute and regulation, already secured modifies the immediately preceding phrase, extension of credit, and thus the extent of rescission rights turns on whether the earlier loan was already secured by an interest in a principal dwelling, rather than on whether the current transaction is already secured. The district court's interpretation better comports with the ordinary usage of the term refinancing as meaning the restructuring of terms of an existing loan; we do not in ordinary conversation define refinancing by whether a new security interest is taken. On that view, the regulation does not even define refinancing, but merely takes the ordinary meaning as a given and defines which refinancings are exempt, namely those where the earlier loan was secured by a security interest in a principal dwelling. 16 61 Consumer's interpretation is also flawed because it would have the exemption from rescission turn on a technicality, rather than on the purpose of the exemption. As we noted, the exemption serves to protect a refinancing lender from rescission of the whole loan. In a refinancing, the borrower has already had a chance to rethink the desirability of risking his or her home by borrowing the old money, and now only needs the opportunity to reconsider adding to the risk of losing his or her home by taking on more debt. Our interpretation of the statute and regulation is consistent with that purpose: the right to rescind is limited when the earlier loan was already secured by a security interest in the home. In contrast, under Consumer's interpretation, the exemption turns on the formality of whether a new security interest is drawn up, which has nothing to do with whether the lender's interests will be compromised or what the borrower may need to rethink. 62 In sum, the district court was plainly correct to hold that the 1987 transaction was a refinancing not subject to complete rescission. Porter had the statutory right to rescind the new money portion of her loan, but not the old money portion. 63