Mortgage

Lend in Texas? Check out the latest changes to home equity lending laws

4 tips on how to implement changes

Texas officially passed proposition 2 on Tuesday, approving an amendment that will significantly impact Texas home equity lending.

 

 

The industry’s hard work to pass the amendment paid off on Election Day, with the majority of voters (69%) saying yes to the amendment. A total of 588,457 voted yes, while 269,223 voted no, according to ballotpedia.

The vote approved the passing of Senate Joint Resolution 60, which amends Section 50, Article XVI of the Texas Constitution, which applies to the origination or refinance of a home equity loan made on or after Jan. 1, 2018.

Gregg & Valby stated in a release over the changes that the amendment impacts five different practices regarding Texas home equity lending:

  1. Lowering the limitation of fees that can be charged to the borrower from 3% to 2% and removing certain fees from this calculation.
  2. Expanding the list of lenders authorized to make Texas home equity loans.
  3. Allowing Texas home equity loans to be refinanced as rate-and-term refinances.
  4. Repealing the prohibition on originating a Texas home equity loan secured by a homestead property with an agricultural tax exemption.
  5. Eliminating the 50% threshold for advances on a home equity line of credit (“HELOC”).

As a heads up for lenders closing loans around this time, Gregg & Valby said, “If a Texas home equity loan in a lender’s 2017 pipeline cannot close before January 1, 2018 and the current version of the notice in Section 50(g) (commonly referred to as the “12-Day Disclosure”) was provided to the borrower, we recommend that the lender redisclose using the updated 12-Day Disclosure and wait 12 more days before closing.”

“To ensure the creation of a valid lien, we recommend that lenders provide only the updated 12-Day Disclosure to owners on or after January 1, 2018,” it stated.

Gregg & Valby recommended that all Texas home equity lenders prepare to update their internal policies and procedures, which includes:

  1. Refreshing lenders’ written manual to incorporate the changes discussed above.
  2. Training loan originators regarding the availability of and conditions for refinancing existing equity loans with a new “rate-and-term” refinance.
  3. Training employees regarding the changes to the home equity fee cap.
  4. Confirming with technology vendors that their systems will be ready to help lenders comply with the changes, particularly the new disclosures and fee cap.

Steven Kubik, founder and attorney at Kubik Law Firm, explained, that the amendment is a big win for both mortgage lenders and Texas consumers.

“Its passage marks the only changes to the home equity provisions of the Texas Constitution in over 14 years,” he said. “In addition to certain common sense reforms and clarifications, the changes attempt to strike a balance between consumer protections and access to credit.”

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