Updated Texas Home Equity Refinance Transactions
The state of Texas has amended its rules regarding Home Equity Refinances (TX 50(a)(6) loans) effective 1/1/2018. As of 1/1/2018, Borrowers with existing home equity loans are now able to refinance their loans as either a Home Equity loan or a Rate and Term refinance. The prior law that stated, “once a home equity loan, always a home equity loan” is no longer applicable.
Many of the same Home Equity rules still apply, i.e. 12-month seasoning; Acknowledgment of Fair Market Value, etc. The new law requires two (2) new disclosures to be given to borrower(s). If a new rate/term refinance is selected, a new disclosure (Disclosure for Refinance of Home Equity Loan to Non-Home Equity Loan) is required within three (3) business days of the application and there is a new Texas Notice Concerning the Extension of Credit (12 Day Notice) disclosure. Neither disclosure is permitted to be used prior to 1/1/2018.
Another major change to TX Home Equity is the new fee limitation. The prior law limited all fees to 3% with no exceptions. The new law reduces the fees to 2% (of the Principal balance) but allows you to exclude the following fees:
- Lenders Title Insurance and
- Title Endorsements
Pipeline Impact and Process
Existing loans closing 1/1/2018 or later will be affected. Pipeline impact and process:
1. Texas50a6 with a Note Date after 01/01/2018 come under the rule and would be required to receive the new 12 day disclosure. This new disclosure cannot be used until 01/01/2018, and the loan will be subject to the new 2.00% Fee Limit. This means all current TX50a6 loans must have a note date and sign prior to 01/01/2018, or a new 12 day disclosure requirement will apply. The new disclosure requirement will limit fees to 2.00% of the Principal Balance, and will delay the closing to mid-January. EllieMae is launching the disclosure in December 2017.
2. Existing Texas50a6 loans converting from a Home Equity to a Rate and Term Refinance will need to re-apply on or after 01/01/18.
3. When converting a TX50a6 to a Rate and Term, Fair Market Value must be established, and the 80% LTV restriction applies.