Focus Report, Volume 85, Number 6, September 2017 Page: Page7
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Revising home equity loan provisions
SJR 60 by Hancock (Parker)Background
Home equity lending in Texas is governed by
several subsections of Art. 16, sec. 50 of the Texas
Constitution. These home equity loans are extensions
of credit secured by a lien on a homestead. Under sec.
50(a)(6), the outstanding principal on all debt secured
by a home may not exceed 80 percent of a home's fair
market value. Home equity loans may not be secured by
homesteads designated for agricultural use, except those
used primarily for milk production. Other provisions in
Art. 16, sec. 50 govern numerous aspects of home equity
loans, consumer notices, refinancing, and including the
fees that lenders may charge.
Specific restrictions apply to home equity lines of
credit, which are open-ended accounts that borrowers
may debit from time to time. Art. 16, sec. 50 outlines
* certain conditions on these lines of credit, including
requiring all advances to be at least $4,000 and
prohibiting the use of a credit or debit card to obtain an
advance. In addition to other restrictions, no advances
may be taken on a line-of-credit loan if the outstanding
principal exceeds 50 percent of the home's fair market
value. Home equity lines of credit are held to the
requirement of all home equity loans that the principal
amount borrowed when added to the total outstanding
principal balance on all debt secured by the home may
not exceed 80 percent of the home's fair market value.
Digest
Proposition 2 would amend Texas Constitution, Art.
16, sec. 50 to revise the cap on fees that may be charged
when making a home equity loan, allow the refinancing
of home equity loans into non-home equity loans, revise
a provision governing home equity lines of credit, and
amend the list of the types of approved lenders.
The proposed amendment would lower the cap on
* fees charged to borrowers and revise the type of fees
that count toward the cap. The cap would be lowered
from 3 percent to 2 percent of the principal of the loan.The following would be excluded from the calculation
of the fee cap:
appraisals by third-party appraisers;
property surveys by state registered or licensed
surveyors;
state base premiums for title insurance with
endorsements; and
title examination reports if they cost less than
the state base premiums for title insurance
without endorsements.
Proposition 2 also would allow home equity loans
to be refinanced as non-home equity loans and secured
with a lien against a home if certain conditions were
met. The refinancing:
would have to occur at least a year after the
home equity loan had closed;
could not include additional funds, other than
funds to refinance another type of debt outlined
in the Constitution or costs and reserves
required by the lender to refinance the debt; and
would have to be of an amount that, when added
to the total outstanding principal balances of
other indebtedness secured by the home, was
not more than 80 percent of the fair market
value of the home.
The lender would be required to give the owner
a written notice, prescribed in the Constitution,
within three business days of a loan application being
submitted and at least 12 days before the loan was
closed. The notice would specify differences between
home equity and non-home equity loans.
Proposition 2 would repeal a current restriction on
home equity lines of credit that prohibits additional
advances on a loan from being made if the principal
amount outstanding exceeds 50 percent of the home's
fair market value. The proposed amendment also
would repeal a prohibition on home equity loans for
homesteads designated for agricultural use.House Research Organization Page 7
House Research Organization
Page 7
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Texas. Legislature. House of Representatives. Research Organization. Focus Report, Volume 85, Number 6, September 2017, periodical, September 7, 2017; Austin, Texas. (https://texashistory.unt.edu/ark:/67531/metapth1033148/m1/7/?q=%22~1~1%22~1: accessed July 16, 2024), University of North Texas Libraries, The Portal to Texas History, https://texashistory.unt.edu.; crediting UNT Libraries Government Documents Department.