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Texas Home Equity Lending Law Update Filed in House
Wednesday, March 8, 2017 7:00 AM

Chairman of the House Investments and Financial Services Committee Rep. Tan Parker (R-Flower Mound) filed a constitutional amendment, HJR 99, on Tuesday that proposes to update the Home Equity Lending Law. The home equity law is in the state’s constitution, and any changes require a constitutional amendment.

The changes will make it easier for Texas borrowers to access the equity in their homes to secure lower loan rates and provide improved consumer protections. Currently, the law imposes a fee cap of 3 percent on home equity loans, which has become outdated through inflation and other regulatory demands. 

HJR 99 would reclassify third-party expenses such as appraisals, surveys, title policies, or title reports, which are required to make the loan from the 3 percent cap calculation. With removal of those third-party fees from the calculation, the 3 percent cap will be reduced to a 2 percent cap to protect consumers from additional expense. This will address the problem many borrowers face with home equity loans under $50,000 where the fees required to make the loan would exceed the 3 percent cap. The cap has been particularly problematic when making loans in rural areas or to low-income borrowers.

The bill would increase the loan-to-value (LTV) ratio from 50 percent to 80 percent on home equity lines of credit, making it consistent with the closed-end loan LTV ratio. HJR 99 also repeals the prohibition against allowing agricultural homesteads to have access to home equity loans.

The resolution would provide borrowers with another option when refinancing a home equity loan. Currently, when a home equity loan is refinanced, the resulting loan must be a home equity loan. HJR 99 would provide that, if a home equity loan is more than one year old, it will be eligible to be refinanced into a conventional loan. This "seasoned refinance" provides borrowers additional options and access to lower-rate products rather than being limited to refinancing only into a home equity loan.

The Texas Credit Union Association has been working since the last legislative session with Texas bankers, independent bankers, mortgage bankers, realtors, and the Farm Bureau to find common ground on updates to the home equity lending law that all groups can agree on. 

In 2015, Rep. Richard Raymond (D-Laredo) took on the fee cap issue by filing HJR 131, similar legislation that would have removed third-party expenses from the fee cap. Though that bill did not pass, it did advance the discussion among the stakeholders and laid the groundwork to find agreement on the revisions included in HJR 99.

Passage of a constitutional amendment requires the vote of two-thirds of the House and Senate, not just the majority of votes. Once approved by the House and Senate, it would be submitted to the voters on the Nov. 7, 2017, ballot. If it wins voters’ approval, the bill would become law on Jan. 1, 2018.

For more information, please contact Texas Credit Union Association President Jeff Huffman at 469-385-6488 or jhuffman@txcua.coop.