Home Equity Lending Hiatus

Nov 22, 2017

We wanted to alert you to an issue relating to Home Equity loans scheduled to be closed after January 1, 2018.  As you know, there will be a new 12-day Home Equity Disclosure beginning January 1, 2018.  The new disclosure can be found here.  This new notice reflects the changes in the law, including the new 2% cap on fees, loans on land with an Ag property tax classification, etc.
Question:  Can a Home Equity lender can give the current 12-day HE Notice for loan applications received before January 1, 2018  and close that loan after January 1, 2018, even if the new required 12-day HE Notice has not been provided to the borrower? 

Question:  Alternatively, can a Home Equity lender provide the new 12-day HE Notice prior to January 1, 2018 for loans closing on or after January 1, 2018?

The Texas Finance Commission issued a statement addressing this issue on November 15, 2017.  That statement can be found here.  We have reproduced the relevant portion of that statement below:

“Some stakeholders have asked whether lenders may make home equity loans during the first 12 days of January 2018. SJR 60 takes effect on January 1, 2018, and it states that the amended requirements apply to all home equity loans made on or after January 1, 2018. In opinion DM-452 (1997), the Texas attorney general concluded that if a lender provided the required 12-day notice for home equity loans 12 days before January 1, 1998, and closed the loan on January 1, then the loan would not be enforceable under the constitution, because the disclosure was not “prescribed by” the constitutional amendment that went into effect on January 1, 1998. If this same reasoning applies to SJR 60, this would require lenders to wait until January 1, 2018, to begin providing the updated disclosures under SJR 60, and to wait until January 13 at the earliest to begin originating loans. This would be the safest course if lenders wish to avoid civil litigation where homeowners argue that loans originated during the first 12 days of January 2018 are unenforceable.”

Based on this advisory, it appears that any HE loans closed on or after January 1, 2018 will require the new 12-day Notice.  For those HE loans that have carried over from 2017, the new HE Notice should be provided and the 12 day waiting period would start when that new notice is provided to the applicant.

This is going to be disruptive to your early January HE closings and may make members mad if they’re not prepared for it.

Please call us at 210-828-5844 if you have questions on how this will impact your home equity lending program in the beginning of 2018.

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

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