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WBK Industry News - State Regulatory Developments

Constitutional Provisions Regarding Home Equity Loans Up for Vote in Texas

On November 7, 2017, Texans will have the opportunity to vote on Texas Proposition 2, the Home Equity Loan Amendment, which amends portions of Article XVI, Section 50 of the Texas Constitution.  This Section of the Texas Constitution provides strict requirements regarding home equity loans in Texas.  Among other changes, if adopted, Proposition 2 will: (i) lower the cap on fees that are necessary to originate, evaluate, maintain, record, insure, or service the extension of credit from three percent (3%) to two percent (2%) and provide a list of fees not included within that cap; and (ii) permit borrowers to refinance an existing home equity loan into a non-home equity loan if various conditions are met.  If approved, the constitutional amendment will take effect on January 1, 2018.

If adopted, Proposition 2 will exclude the following from the two percent (2%) cap on fees that are necessary to originate, evaluate, maintain, record, insure, or service the extension of credit: (1) bona fide discount points used to buy down the interest rate; (2) an appraisal performed by a third party appraiser; (3) a property survey performed by a state registered or licensed surveyor; (4) a state base premium for a mortgagee title insurance policy with endorsements established in accordance with state law; and (5) a title examination report if it costs less than the state base premium for a mortgagee title insurance policy without endorsements established in accordance with Texas law.

Currently, a borrower may only refinance a home equity loan into another home equity loan or a reverse mortgage.  Under the proposed changes, a borrower will be able to refinance an existing home equity loan into a non-home equity loan if all of the following conditions are met: (1) the refinance is not closed before the first anniversary of the closing of the home equity loan; (2) no additional funds are advanced (with limited exceptions related to the cost of the refinance); (3) the refinance is of a principal amount that, when added to the aggregate total of the outstanding balances, does not exceed 80% of the fair market value of the homestead on the date the refinance is made; and (4) the lender provides the borrower with a specific notice within applicable timeframes.

Proposition 2, if adopted, also will make the following changes: (i) repeal the agricultural restriction; (ii) include subsidiaries of banks, savings and loan associations, savings banks, or credit unions as authorized lenders; and (iii) repeal the limitation that a lender may not provide additional advances under a home equity line of credit if the total principal amount outstanding exceeds an amount equal to 50% of the fair market value of the homestead.

Texas Proposition 2 can be found here: http://www.capitol.state.tx.us/tlodocs/85R/billtext/pdf/SJ00060E.pdf.