Proposed Changes to Texas’ Home Equity Law

A joint resolution has passed both houses of the Texas Legislature to amend Texas’ Home Equity law. Because Texas’ Home Equity law is contained in the Texas Constitution, any proposed changes must be implemented through Constitutional amendments approved by Texas’ voters. Voters will decide on November 7, 2017 whether to amend the Home Equity law. If passed by a majority of the voters, the changes would become effective January 1, 2018.

Summary of the proposed changes:

  • Survey, Appraisal and Title Premium/Title Search Fee would not be included in the 3% fee cap calculation
  • The 3% cap on fees would be lowered to a 2% cap
  • The prohibition against Home Equity loans on property with an Agricultural Tax Exemption would be eliminated
  • A Home Equity loan may be refinanced into a Conventional loan if the following conditions are met:
    1. At least one year has elapsed since the Home Equity loan was closed
    2. There can be no advance of new money (except closing costs)
    3. The new principal loan balance may not exceed 80% of the property’s fair market value on the day of refinance
    4. The Borrower must be provided with a new disclosure 12 days prior to closing, advising Borrower of the risks of refinancing into a non-Home Equity loan
    5. Borrower and Borrower’s spouse must sign an Affidavit at closing acknowledging that the above four requirements have been met
  • HELOCS – Eliminates the confusing current provision which prohibits additional advances after the initial advance if the loan balance exceeds 50% of the fair market value at closing. The $4,000 minimum draw and 80% maximum loan –to-value ratio would remain in place
Conclusion

These proposed changes are the Texas Legislature’s efforts to streamline and to update the Home Equity law.

  • Although the fees would be capped at 2%, the new law would eliminate Survey, Appraisal and Title fees from the fees calculation. Historically, these fees (Survey, Appraisal and Title) have been the largest component of the total charges
  • Lowering the 3% fee cap to 2% will be more than offset by the elimination of these fees
  • Allowing the refinance of Home Equity loans into Conventional loans will allow borrowers to sidestep the “Once a Home Equity, Always a Home Equity” rule that has prevented many homeowners from taking advantage of the historically low mortgage rates over the past several years
  • Eliminating the prohibition against Home Equity loans on property with an Agricultural Tax exemption will make available to Texas farmers and ranchers a new source of funds
  • The HELOC change clarifies a part of the Home Equity law that has been very difficult to understand and to administer
    Please contact our office if you have any questions on these proposed changes.

BairdLaw, PLLC
242 W. Sunset, Ste. 201
San Antonio, TX 78209
210-828-5844
www.bairdlaw.com

Posted in Real Estate Law