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Texas Home Equity Reform Passes

Author: Barry Johnson

As was anticipated, on Tuesday November 7th, Texas voters approved Proposition 2, an amendment to the Texas Constitution that allows Texas equity loans to be refinanced, under certain conditions, with a regular (non-home equity) loan. The amendment also makes important changes to certain constitutional underwriting requirements.

The Amendment takes effect January 1, 2018, so now is the time for all lenders to prepare for these new rules.  In summary, the major changes are:

  • Fee Restrictions:  The 3% fee cap for equity loans is lowered to 2%, but now excludes certain “real estate” related fees including the appraisal fee survey fee, title premium, and title examination charges.
  • Clarification of Authorized Lenders:  The list of “authorized equity lenders” is clarified to now include non-bank subsidiaries of depository institutions.
  • Agricultural Use Land:  Land taxed at agricultural use valuation can now be pledged as collateral for a Texas home equity loan.
  • Home Equity Line of Credit (HELOC) Improvements:  the amendment removes the 50% “collar” on HELOC advances, which restricted advances once the loan advanced to 50% of the appraised value of the collateral, and now advances are only limited to the 80% aggregate loan-to-value ratio.
  • Refinance Rules:  lenders will be allowed to refinance a home-equity loan with a “regular” (non-home equity) loan under certain conditions including the following: (a) the refinance occurs more than one year after the closing of the equity loan; (b) the refinance involves no new cash back to the customer; (c) a special disclosure is given to the customer within three days of application; and (d) the cumulative loan-to-value ratio on the collateral is 80% or less at the time of the refinance.

You can see our more detailed discussion of these changes at our earlier blog entry here.

SettlePou has developed documents and disclosures for these transactions and will be ready on January 1st to close these transactions.  There are still a number of issues to be worked out (for example how these changes will affect title insurance coverage), but nonetheless, SettlePou is prepared to start closing these transactions for our clients.

If you need any further information regarding this subject, please contact Barry D. Johnson at or 214-520-3300.