Amendments to Texas Home Equity Lending Interpretations

Effective March 29, 2018, the Finance Commission of Texas and the Texas Credit Union Commission (the “Commissions”) adopted amendments to their home equity lending interpretations (the “Amended Interpretations”).[1] As a reminder, Section 50(u) of the Texas Constitution authorizes the legislature to delegate authority to interpret its home equity lending provisions to state agencies, and provides a safe harbor for lenders relying on such interpretations in effect.[2] The Legislature appointed the Commissions to issue these interpretations.[3]

The Amended Interpretations implement the recent changes to Texas home equity lending law in Senate Joint Resolution 60 (“SJR 60”), adopted by Texas voters during the November 7, 2017, election. The DMBA’s November 2017 version of this report discusses the then proposed, now effective changes adopted by SJR 60 in further detail.[4] In November 2017, the Commissions also published their original proposal for interpretations implementing SJR 60 for comment. In the final Amended Interpretations, the Commissions incorporated some important clarifications and changes to these originally proposed interpretations. Below is a summary of some of the most important Amended Interpretations affecting Texas lenders.

Clarifying the Timing of Notices for Refinances of Home Equity Loans as Non-Home Equity Loans.

Perhaps the most important of the Amended Interpretations clarifies timing requirements for providing the new notice required by Section 50(f)(2)(D). As you may recall, the changes from SJR 60 now permit the refinance of a seasoned Texas home equity loan as a non-home equity rate and term refinance. To do so, the notice in Section 50(f)(2)(D) must be provided to the owner within three business days of the application and at least twelve days before closing. This requirement was problematic because consumers often are not aware, and lenders do not discover that the existing loan is a home equity loan until after the title commitment is received more than three days after the application. The Amended Interpretation makes it clear the 50(f)(2)(D) notice must be provided within three days of when the owner modifies the application or submits a new application specifying to refinance a home equity loan as a non-home equity loan.

The Amended Interpretations also bring clarity to the three-day and twelve-day timing requirements for providing the (f)(2)(D) notice. Compliance with the three-day requirement will be presumed timely if the lender mails the disclosure to the owner within the required three business days—consistent with the deadline for providing the loan estimate under federal law. With respect to the twelve-day requirement, the notice must still be delivered to the owner twelve days before closing. The Amended Interpretations provide, however, that if the notice is mailed, a period of three calendar days (excluding Sundays and federal legal public holidays) creates a presumption of sufficient mailing and delivery.

Clarifying the Charges a Lender May Advance in an (f)(2) Refinance.

The Amended Interpretations clarify which charges a lender may advance as part of the principal balance in a refinance of a home equity loans as a non-home equity loan or (f)(2) refinance. Section 50(f)(2)(B) added by SJR 60 provides that for an (f)(2) refinance, the extension of credit may not include funds other than (i) funds advanced to refinance a debt described in subsections (a)(1) through (a)(7); or (ii) actual costs and reserves required by the lender to refinance the debt. The Commission’s originally proposed interpretations, however, limited the costs and fees a lender may roll into the principal balance to those the lender incurred. As you might expect, this would have been problematic because many closing costs are not fees incurred by the lender, but instead costs that the lender requires the borrower to incur or pay (e.g., an origination fee). Thankfully, the Amended Interpretations clarify that lenders may advance actual costs and fees required by the lender.

Other Interpretations.

The Amended Interpretations also provide guidance on how to comply with the two percent fee cap for home equity loans, and bring the Commissions’ interpretations in line with the other changes added SJR 60 (e.g., updating who is an authorized lender, removing the old limitations on HELOC advances, etc.). The full text of the Amended Interpretations can be found here (43 Tex. Reg. 1839).

[1] Specifically, the Commissions adopted interpretations affecting the following sections: §§153.1, 153.5, 153.14, 153.17, 153.84, and 153.86; adopted new §153.45; and adopted the repeal of §153.87. These Amended Interpretations are published in the March 23, 2018, issue of the Texas Register and can be found here.

[2] This safe harbor applies to the Commissions’ interpretations in effect provided that no Texas or US appellate courts hold otherwise. See Tex. Const. art. XVI, § 50 (u).

[3] Tex. Fin. Code 11.308; 15.413.

[4] A copy of the November 2017 version of this report discussing the Constitutional amendments in SJR 60 can be found here.