After a lot of legwork from the industry, Texans finally have the opportunity to significantly change the state’s home equity lending market next week as people head to the polls on Election Day.
Thanks to a joint resolution passed earlier this year in the Texas Legislature, Texans are able to vote on amendments to the provisions of the Texas Constitution that govern home equity lending.
These amendments will appear on the ballot as Proposition 2.
Steven Kubik, founder and attorney at Kubik Law Firm, explained in a blog post what changes these amendments propose, what it would mean for the state if the amendments pass and why these amendments matter.
Kubik stated that home equity lending in Texas is governed by Texas constitutional provisions, and amendments require voter approval. If Proposition 2 doesn't pass, it would need to be resubmitted during the next legislative session.
In a broad sense, Kubik said, “These are amendments that the industry has been working on for at least 13 years. They were presented to the legislature with the support of the Texas Mortgage Bankers Association, Texas Bankers Association, Independent Bankers Association of Texas, Texas Association of Realtors, and the two credit union trade associations. They are common sense reforms that help both consumers and lenders alike.”
Here’s only a quick list of the proposed changes, which can be found in-depth here.
- Removing the ban on home equity lending to agricultural homesteads.
- Changing the 3% fee cap to a 2% fee cap and excluding certain fees.
- Permitting refinances of seasoned home equity loans as non-home equity loans
- Removing the 50% ceiling for additional advances on HELOCs
- Updating who is authorized to make home equity loans
- Amending the 12-day notice to borrowers to reflect these changes
“Most significantly, these amendments give creditors the ability to better serve Texas homeowners,” said Kubik.
For example, he said that the amendments to the fee cap will allow lenders to close smaller dollar amount home equity loans that would otherwise be prohibited under current law.
And due to the current law, the post noted that lenders have frequently objected that the 3% fee cap limits their ability to originate low loan amount home equity loans because the appraisal fee, survey, and title insurance fees alone often exceed the 3% cap.
Another significant example to point out is the amendment to allow a seasoned home equity loan to be refinanced as a non-home equity loan.
“This will allow borrowers to potentially take advantage of the lower interest rates that typically come with non-home equity, rate and term refinances,” he said.
However, something to consider is that it’s a non-presidential voting year. As a result, voter turnout tends to be down.
While the fight for the amendments to pass doesn’t end if it doesn’t get enough votes, it will be taken back a few steps.