- December 06, 2017
- All Texas Issuing Offices
- UNDERWRITING - SJR 60 Home Equity Loan Changes Effective January 1, 2018
An amendment to the Texas Constitution passed November 2017. It makes significant changes to the provisions related to home equity loans for loan applications made after 1-1-2018. Please note the following changes are effective January 1, 2018:
Repeals prohibition on home equity loans for homesteads designated for agricultural use.
What you should know/do:
This is the most noteworthy change to title insurance practices.
T-42 item 2b) is now redundant and may be deleted upon request.
It reads “b) The land being homestead property designated for agricultural use as provided by statutes governing property tax, as set forth in Subsection (a)(6)(I) of Section 50, Article XVI, Texas Constitution.”
Procedural Rule P-44(B) allows for the deletion of any provision of paragraph 2 if the Title Insurance Company does not consider the additional risk to be insurable. Clearly, the risk of the land being agricultural is no longer a risk at all. You no longer need to determine if all or any of the land has agricultural tax exemptions, or require that such exemptions be removed. Unlike before, the access to a rural homestead may cross agricultural exempt land.
Home equity loans may be refinanced as non-home equity loans and secured with a lien against a home if certain conditions are met.
The refinancing must:
- occur more than 1 year after the home equity loan was closed; see (T-42(2)d)
- not include additional funds other than funds to refinance the types of debt outlined in the Constitution, and costs and reserves required by the lender to refinance the debt; see T-42(2)c
- be of an amount that, when added to the total outstanding principal balances of other indebtedness secured by encumbrances against the home, is not more than 80 percent of the fair market value of the home. (Not really a title insurance issue)
In addition, the lender would be required to give the owner a written notice within three business days of a loan application being submitted and at least 12 days before the loan is closed. The form of the written notice is contained in the Texas Constitution and lists the differences between home equity and non-home equity loans.
What you should know/do:
The T-42 and T-42.1 endorsements deal with some home equity loan refinance issues.
- T-42.1a states the lender provides the closing date in the written closing instructions.
- When refinancing a home equity loan with cash out it be must be refinanced as a Home Equity Loan, and a T-42 endorsement must be issued.
- If refinancing to a non-home equity loan according to the conditions above, we cannot issue a T-42 endorsement.
- You must obtain a fully executed Texas Home Equity Loan Refinancing Affidavitwhen issuing either T-42 or T-42.1.
- We are not responsible for the form of the notice which is found in the constitution in Art. 16, Section 50 a6 subsection (f)(2)(D).When a home equity loan is refinanced with a conventional loan, the lender will be entitled to an R-8 credit.
- If you are asked to insure the refinance of a home equity loan as a non-home equity loan, you should require the owner and spouse to execute the Texas Home Equity Loan Refinancing Affidavit (1-1-2018).
The current list of entities that can make home equity loans is expanded to include subsidiaries of banks, savings and loan associations, savings banks, and credit unions that meet other requirements in the Texas Constitution. Mortgage brokers are removed from the list and mortgage bankers and mortgage companies are added.
What you should know:
This issue is not a title insurance matter.
The cap on fees that can be charged to borrowers is lowered from 3 percent to 2 percent of the principal of the loan and the types of fees that count toward the cap are revised. The following are excluded from the calculation of the fee cap:
- appraisals that are done by third-party appraisers;
- property surveys by state registered or licensed surveyors;
- state base premiums for title insurance with endorsements; and
- title examination report if its cost is less than the state base premiums for title insurance without endorsements
What you should do:
The subject of fees is addressed in the optional T-42.1 item 1.e that requires the lender to approve the closing disclosure showing all fees. Otherwise, this is not a title insurance issue.
Home Equity Lines of Credit
Repeals the current restriction on home equity lines of credit, which prohibits additional advances on a loan from being made if the principal amount outstanding exceeds 50 percent of the fair market value of the homestead, and allows such advances up to 80 percent.
What you should know/do:
T-42 item 3 addresses home equity lines of credit. The constitutional amendment change has no effect on this coverage.
If you have any questions relating to this or other bulletins, please contact a Stewart Title Guaranty Company underwriter.
For on-line viewing of this and other bulletins, please log onto www.vuwriter.com.
THIS BULLETIN IS FURNISHED TO INFORM YOU OF CURRENT DEVELOPMENTS. AS A REMINDER, YOU ARE CHARGED WITH KNOWLEDGE OF THE CONTENT ON VIRTUAL UNDERWRITER AS IT EXISTS FROM TIME TO TIME AS IT APPLIES TO YOU, AS WELL AS ANY OTHER INSTRUCTIONS. OUR UNDERWRITING AGREEMENTS DO NOT AUTHORIZE OUR ISSUING AGENTS TO ENGAGE IN SETTLEMENTS OR CLOSINGS ON BEHALF OF STEWART TITLE GUARANTY COMPANY. THIS BULLETIN IS NOT INTENDED TO DIRECT YOUR ESCROW OR SETTLEMENT PRACTICES OR TO CHANGE PROVISIONS OF APPLICABLE UNDERWRITING AGREEMENTS. CONFIDENTIAL, PROPRIETARY, OR NONPUBLIC PERSONAL INFORMATION SHOULD NEVER BE SHARED OR DISSEMINATED EXCEPT AS ALLOWED BY LAW. IF APPLICABLE STATE LAW OR REGULATION IMPOSES ADDITIONAL REQUIREMENTS, YOU SHOULD CONTINUE TO COMPLY WITH THOSE REQUIREMENTS.
- Bulletins Replaced:
- Related Bulletins:
- TX000037 Home Equity Constitutional Amendment (HJR 31, Proposition 8)
- TX000038 Refinance Issues
- TX000040 Home Equity Mortgages; Constitutional Amendment (HJR 31; Proposition 8) (Effective January 1, 1998)
- TX000043 Current Home Equity Questions
- TX000047 Title Insurance Coverage for Texas 50(a)(6) Mortgages, Fannie Mae LL05-98, Dated 12/04/98
- TX000049 Orders on Home Equity Endorsement (T-42, T-42.1) Effective November 12, 1998
- TX000052 1999 Constitutional Amendments: Homestead; Reverse Mortgages; and Conversion of Separate Property
- TX2010011 Home Owner Association Dues and Home Equity and Reverse Mortgages
- TX2013004 UNDERWRITING - Powers of Attorney in HEL transactions
- TX2016003 UNDERWRITING - Home Equity Loan Disclosure after TRID
- Underwriting Manual:
- TX 8.02 Home Equity Loans
- Exceptions Manual:
- T-42.1 - TX Supplemental Coverage Equity Loan Mortgage Affidavit Checklist for T-42.1 Endorsement 1
- Texas Home Equity Loan Refinancing Affidavit (1-1-2018)
- TX Affidavit for Home Equity Transactions 2
- TX Affidavit for Refinance Transactions 1
- TX Escrow Officers Checklist for Home Equity Transactions 1
- TX Examiners Checklist for Home Equity Transactions 1