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Questions Arise Regarding Home Equity Loan Closings in January 2018
Thursday, December 14, 2017 6:55 AM

As you have likely heard, home equity lenders in Texas are celebrating the successful amendment of the Texas Constitution effective Jan. 1, 2018. In the new year, home equity loans will involve revised disclosures. The question many credit unions are asking is, “which '12-day notice' do we provide in December 2017 for a home equity loan scheduled to close in early January 2018, the old disclosure or the revised disclosure?” Unfortunately, the conservative answer is “neither.”

This may be a bit of coal in the holiday stocking, but the conservative approach would be to hold off giving the “12-day notice” until after Jan. 1 for any loan expected to close in 2018. This essentially means no home equity loans would close for the first 12 days of January 2018.

Why, you ask, has the Grinch stolen the holiday cheer? Well, unfortunately, neither the Constitution nor even the proposed home equity regulations answer the question regarding which version of the notice to provide during the turning of the new year. The closest answer we can find is an Attorney General Opinion letter from 1997 back when Texas originally passed home equity lending, which was to be effective Jan. 1, 1998. At that time, lenders found themselves in a similar dilemma as today: could they provide the “12-day notice” in December 1997 and close a home equity loan as soon as the constitutional amendment became effective on Jan. 1, 1998?

Dan Morales, Texas attorney general at the time, provided an opinion (Opinion No. DM-452) stating that the 12-day waiting period for home equity loans as required by the constitutional amendment may not begin to run before the amendment's effective date. In November 2017, the Texas Credit Union Department and the other joint financial regulatory agencies issued a statement suggesting the safest course is to follow the 1997 attorney general opinion.

Without an opinion directly on point to our 2018 constitutional amendment, the 1997 Attorney General Opinion is the closest guidance available. As a result, we suggest that credit unions plan to push back the timing of January home equity closings so that that the 12-day notice is given in January 2018, and the closing takes place after the appropriate 12-day waiting period. In other words, no home equity loans should close the first 12 days of January 2018.

As a reminder, we are still waiting for the final adoption of the proposed revised home equity interpretations, issued jointly by the Texas Credit Union Department and other banking regulators. The proposed changes were published for comment in the Texas Register on Nov, 24, 2017. This means the comment period runs though the Christmas holiday; therefore, we will not have a final rule adopted prior to Jan. 1. The Credit Union Commission does not meet until March 9, 2018, and if adopted at the meeting, the rule would be effective as soon as it is filed with the Secretary of State (likely in late March).

Please feel free to contact Suzanne Yashewski, SVP regulatory compliance counsel, Cornerstone Credit Union League, with any questions you may have at or 512-853-8516.