Final answer:
The homeowner's lender can hold the borrower liable for the remaining balance of the mortgage through a deficiency judgment, which is contingent upon state laws.
Step-by-step explanation:
When discussing the situation wherein a homeowner refinances his home for an amount larger than the original mortgage and then faces foreclosure that does not cover the mortgage due to a market downturn, it is important to consider the context of the housing market and the banking practices.
During the housing bubble that peaked in the mid-2000s, subprime lending practices were prevalent, and many financial institutions engaged in risky lending. Subprime loans were attractive to lenders because they could be securitized and sold as bonds, which allowed banks to offload the risk of default.
However, when house prices started to stagnate around 2005 and then fell, homeowners found themselves with properties valued at much less than their mortgage. As a result, some homeowners faced bankruptcy, which could leave the bank with a property worth less than the loan value.
In this case, the homeowner's lender has the option to hold the borrower liable for the remaining balance of the mortgage, which is sometimes referred to as a deficiency judgment, depending on the laws of the state where the property is located.