Texas Voters Say “YES” to Proposition 2 — New Rules for Home Equity Lenders and Consumers
November 15, 2017
by Jesse Rivera, CEO at New Vista Solutions
On November 7, 2017, Texas voters approved a proposed change to the Texas Constitution that affects how home equity loans are regulated in the state. Over two-thirds of votes cast were in favor of Proposition 2 which represents the first legislative change to home equity laws in Texas in over 14 years.
The new provisions set forth by Proposition 2 will take effect on January 1, 2018. Here is a summary of the changes:
Lender Fee Cap is Reduced from 3% to 2%
At first glance, this appears to favor the consumer and hurt the lender, but there’s more to the story. In the past, lenders couldn’t charge the borrower more than 3% of the loan amount plus settlement fees (appraisal, survey, title policy, etc). The new rules exclude settlement fees from the calculation — and bona fide discount points are also excluded — so, in effect, lenders could see their fees increase, which in turn could make smaller home equity loan amounts more attractive to lenders.
Subsidiaries of Depository Institutions Are Now ‘Authorized Lenders’
With this clarification, Banks, Credit Unions and Savings & Loans can now originate home equity loans through their subsidiaries. This allows the Banks, Credit Unions and S&Ls to better manage which loans they keep on their books and which are funneled to subsidiary institutions.
More Refinancing Options for Home Equity Consumers
The days of ‘once a home equity loan, always a home equity loan’ are no more. The new law allows a seasoned home equity loan (minimum one year old) to be refinanced as a rate and term refinance.
The CLTV can’t exceed 80%, and the lender must provide written notice to the borrower no later than three (3) days from application informing them of the personal liability that comes with a non-home equity loan versus a home equity loan. Since non-home equity loans typically come with lower interest rates, the consumer will need to choose which loan type best meets their needs.
All Agricultural Land Can Now Secure a Home Equity Loan
Prior to this new legislation, home equity loans secured by agricultural property in Texas was limited to dairy farms. That limitation has been removed.
Restrictions on Future Advances for HELOCs are Removed
Pre-Prop 2, regulations restricted advances on home equity lines of credit so that the total aggregate indebtedness could not exceed 50% of the value of the property. This rule never made much sense because a borrower could take the entire HELOC amount at closing (80% CLTV) but couldn’t draw more than the 50% CLTV at a later date. The new law removes the 50% restriction on all advances.
So there you have it. Advocates for this new home equity legislation in Texas believe it will benefit home equity lenders and consumers alike. With home equity applications on the rise, the Texas market is likely to see a renewed enthusiasm from lenders and consumers in light of these changes.
At New Vista Solutions, we specialize in providing home equity lenders high quality settlement services products that are delivered with speed and accuracy on a single convenient platform. For more information, visit our website at https://www.newvistasolutions.com or call (866) 721-9295