Bills that Mortgage Bankers Should Follow This Session

The 85th Session of the Texas Legislature is well underway, and several bills have been filed with the potential to dramatically impact Texas mortgage bankers. Below is a synopsis of three noteworthy bills to follow.[1]

Home Equity Lending Reform—HJR 99 and SJR 60

If passed, House Joint Resolution 99 and its senate companion, Senate Joint Resolution 60, would be the most significant changes to Texas home equity lending in 14 years. This bill not only has the support of the Texas Mortgage Bankers Association, but also the Texas Bankers Association, Independent Bankers Association of Texas, the Texas Association of Realtors, and the two credit union trade organizations. With all that support, this bill has the potential to move quickly. Here’s what it does:

Redefines What Is Included in the Fee Cap. The current 3% fee cap for home equity loans often has an unintended consequence of preventing lenders from making—and consumers from obtaining—home equity loans under $100,000. HJR 99 attempts to eliminate this problem by (i) reducing the fee cap from 3% to 2% and (ii) excluding the following charges from the calculation of the 2% fee cap: appraisal fees, survey fees, title premiums or title examination charges in lieu of a title policy. In addition, HJR 99 codifies the Texas Supreme Court precedent[2] that bona fide discount points are not among the fees included in the fee cap.

Cleans up the Definition of an Authorized Lender. Although the Texas Constitution authorizes depository institutions to make home equity loans, it is silent with respect to subsidiaries of depository institutions. HJR 99 makes it clear that subsidiaries of depository institutions are authorized lenders under Article XVI Section 50(a)(6) of the Texas Constitution. Furthermore, the bill substitutes the outdated term “mortgage broker,” with “mortgage banker or mortgage company.”

Permits a Rate and Term Refinance of a Seasoned Home Equity Loan. Current law only allows a refinance of a home equity loan with another home equity loan or reverse mortgage. These provisions are commonly known as the “once a home equity, always a home equity” rule. HJR 99 would allow the refinance of a home equity loan after one year as a traditional rate and term refinance—presumably, at a lower rate and with lower closing costs.

Other conditions must also be met to allow such a rate and term refinance of a home equity loan. The total refinanced amount added to all other debt securing the homestead may not exceed 80% of the value of the property. In addition, borrowers must be provided a notice within three (3) days of their application for the refinance. That notice will, among other things, inform the consumer (i) that they have the option of refinancing as a home equity loan or non-home equity loan; (ii) that non-home equity loans may be foreclosed upon default without court order; (iii) that the consumer will have personal liability for any deficiency, and (iv) that the non-home equity loan may have other terms that are prohibited in a home equity loan.

Eliminates the Prohibition for Agricultural Property. HJR 99 repeals the restriction on making home equity loans secured by agricultural property.

Repeals the 50% limitation for HELOC Future Advances. Current law limits future advances on home equity lines of credit so that the total indebtedness may not exceed 50% of the value of the secured homestead. This restriction for HELOCS has long puzzled lenders and borrowers because Texas law permits home equity loans up to 80% of total value of the property. HJR 99 repeals the 50% limitation for HELOC future advances.

Authorizing Electronic Notaries—HB 1217

Imagine a world where you and your spouse did not need to take off an entire day from work to close a mortgage. This bill could make that world a reality, and move the mortgage industry one step closer from a paper based system to an electronic document system. This bill provides the framework to allow the performance of remote, online notarial acts by an electronic notary public. Naturally, this has drawn national attention as a potential model for electronic notary legislation across the country. As you might expect, the mechanics of this bill are complex and require an extensive credentialing and identity proofing process to prevent fraud. It will be interesting to watch whether this bill gains any traction this legislative session, but the future may be closer than you think.

Notice Requirements for Tax Lien Transfer Loans—HB 2832 and SB1397

These bills would require notice be provided to a mortgage lender before a property owner may take out a property tax lien transfer loan. Current law permits a property owner who is delinquent in paying their property taxes to take out a property tax lien transfer loan without notice to their mortgage lender. Tax liens on real property take priority over all other liens. Accordingly, tax lien lenders are currently permitted to step in front of the mortgage lienholder’s property interest without any notice to the lender. These bills would provide mortgage lenders an opportunity to work with the home owner to avoid both an impairment of their property rights, and the added fees and interest due to a tax lien lender.

[1] For more information regarding how to follow a bill through the Texas Legislature, visit: How to Follow a Bill Using TLO, http://www.capitol.state.tx.us/Resources/FollowABill.aspx (last visited April 4, 2017).

[2]See Fin. Com’n of Texas v. Norwood, 418 S.W.3d 566, 596 (Tex. 2013) (“[T]rue discount points are not fees ‘necessary to originate, evaluate, maintain, record, insure, or service’ but are an option available to the borrower and thus not subject to the 3% cap.”).