Texas Finance Commission Adopts Changes to Home Equity Interpretations

The Texas Finance Commission has updated Chapter 153 of the Texas Administrative Code to reflect the changes to the Texas Home Equity Lending Laws that took effect in January of 2018.  The updated interpretations become effective March 29, 2018.  The full text and preamble to the official interpretations can be found here.

Chapter 153 of the Texas Administrative Code provides lenders with official interpretations of the constitutional provisions regulating Texas home equity lending.  Reliance on the guidance found in Chapter 153 provides lenders with a safe harbor from liability.

The revised interpretations provide some clarity on several ambiguous areas of the new rule:

50(f)(2) Refinance Disclosure Timing – Time of Application

There was concern among some lenders regarding the timing of the 50(f)(2) refinance disclosure.  Specifically, the 50(f)(2) refinance disclosure must be provided within 3 business days of application.  This 3 day timing requirement created compliance issues if a lender was unaware at the time of application that the loan would ultimately become a 50(f)(2) refinance.  The Finance Commission adopted §153.45(4)(B), which provides:

(B) For purposes of Section 50(f)(2)(D), the application is submitted on the date the owner submits a loan application specifically for a refinance of a home equity loan to a non-home-equity loan.  If the owner initially applies for another type of loan, then the application is considered submitted on the earliest of:

(i) The date the owner modifies the application, orally or in writing, to specify that it is for a refinance of a home equity loan to a non-home-equity loan; or

(ii) The date the owner submits a new application specifically for a refinance of a home equity loan to a non-home-equity loan.

This interpretation gives lenders flexibility in meeting the 3 day timing requirement.  If a borrower initially applies for a 50(a)(6) home equity loan, but later amends their application to a 50(f)(2) refinance, a Lender may issue the 50(f)(2) refinance disclosure within 3 days of the amended application.  Similarly, if a borrower applies for a conventional refinance, unaware they will be refinancing a home equity loan, the borrower may amend their application from a 50(a)(6) home equity loan to a 50(f)(2) refinance and the lender has 3 days to deliver the 50(f)(2) disclosure.

50(f)(2) Refinance Disclosure Timing – Mailbox Rule

The proposed interpretations would have required lenders who mail the 50(f)(2) refinance disclosure to borrowers to put the disclosure in the mail the same day as application.  This proposed interpretation drew criticism from commentators.  Consequently, the Finance Commission amended this interpretation, requiring the the 50(f)(2) disclosure to be delivered to the consumer OR placed in the mail/email within 3 days of application.  This interpretation keeps the timing requirement of the 50(f)(2) refinance disclosure consistent with the timing requirements of the Loan Estimate, so that they may be sent together.  Section 153.45(4)(D) provides:

(D) The lender must deliver the refinance disclosure or place it in the mail no later than the third business day after the owner submits the loan application.  The refinance disclosure must be delivered to the owner at least 12 days before the refinance is closed.  If a lender mails the refinance disclosure to the owner, the lender must allow a reasonable period of time for delivery.  A period of three calendar days, not including Sundays and federal legal public holidays, constitutes a rebuttable presumption for sufficient mailing and delivery.

Two Percent Excludable Fees – Title Endorsements

There was concern among some lenders over which of the Lender’s title policy endorsements may be excluded from the two percent fee cap.  Some lenders took the position that only the T-42 may be excluded from the two percent calculation.  Other lenders felt that all “endorsements” to the Lender’s title policy may be excluded, but “amendments” to the Lender’s title policy must be included.

The Finance Commission addressed this ambiguity in their preamble:

The applicability requirement in adopted §153.5(15)(C) is intended to capture the concept that a lender should not charge the property owner a premium for an endorsement that does not apply to the transaction.  For example, if the property is not a manufactured home, then the property owner should not be required to pay a premium for a manufactured housing endorsement, Form T-31.  Similarly, if the loan is not a home equity line of credit, then the property owner should not be required to pay a premium for a future advance or revolving credit endorsement, Form T-35.  As stated in paragraph (15), TDI’s rules govern the applicability of endorsements…

…At the stakeholder meeting, one attendee explained that some lenders might make amendments to title insurance policies, and that these “amendments” are not necessarily endorsements for which TDI’s rules authorize a premium.  The commissions believe that adopted §153.5(15) appropriately defers to TDI’s rules regarding the applicability of endorsements and authorized amount of the premium.  TDI’s rules, not the labels used by the parties, will determine whether the endorsement is authorized.

Based on the comments in the preamble, all fees for endorsements and amendments to the mortgagee’s policy are excludable from the two percent fee calculation.  Typically our clients require the following endorsements to the Lender’s title policy: T-42, T42.1, T-19, T-30, T-36, T-3, T-17 (if property is in PUD), T-33 (if loan is an adjustable rate) and T-35 (if the loan is a HELOC).  All of these endorsements would be excludable from the two percent calculation.

If you have any questions or concerns regarding the updated Texas home equity interpretations, please contact us.

Sincerely,
BairdLaw
242 W. Sunset, Ste. 201
San Antonio, TX 78209

Posted in Real Estate Law