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Update on Home Equity Lending in Texas
Monday, February 10, 2014 6:50 AM

The Supreme Court of Texas recently denied a motion for rehearing of its opinion issued in June of 2013 regarding home equity lending in Texas and issued a related supplemental opinion.

You may remember the 2013 opinion, in which the Supreme Court invalidated several rules implemented by the Texas Credit Union Commission and the Texas Finance Commission. By refusing to rehear the case, these rulings stand.

What does this mean for credit unions?  Unfortunately, we interpret this to effectively prohibit the use of a power of attorney [“POA”] to close a home equity loan.  The Court’s opinion requires the power of attorney form itself to be signed in the office of a lender, the title company, or an attorney’s office (not just the closing documents). We suspect title companies will not be willing to accept POAs for closing due to the difficulty of proving where it was signed.

The supplemental opinion provided some additional information in relation to the Court’s interpretation of the 3% cap.  In the 2013 opinion, the Court clarified that the Texas Constitution required a strict reading of the 3% cap on fees other than interest. The Court defined interest as the loan principal multiplied by the interest rate and nothing else.  The 2014 supplemental opinion clarifies that neither prepaid, per diem interest nor discount points are subject to the 3% cap.

For more information, contact Cornerstone’s Regulatory Compliance Counsel Suzanne Yashewski at syashewski@cornerstoneleague.coop or (512) 853-8516.