Texas Section 50(a)(6) Transactions Updates (aka Texas Cash-Out/Texas Equity)

The Texas Legislature recently amended the requirements of Texas Section 50(a)(6) that are effective with transactions closed on and after January 1, 2018.

The changes include:

  • The permissible fees limitation was lowered from 3% to 2% however more fees are excluded from the fee calculation
  • Agricultural properties are now eligible (previously ineligible)
  • A Texas equity is now eligible for a rate/term option subject to specific requirements (previously once a Texas equity always a Texas equity)

Permissible Fee Limitation

The following fees are now excluded from the 2% cap:

  • Bona fide discount points (now expressly stated in the amendment),
  • Homeowners insurance,
  • Title insurance premium and endorsement fees,
  • Survey costs, and
  • Third party appraisal fees

The following fees are NOT excluded from the 2% cap:

  • Escrow fees,
  • Delivery fees,
  • Non-insurance charges,
  • Appraisal fees if affiliated with lender
  • AMC fees (breakdown of costs between appraiser and AMC will be required)

Agricultural Properties

Properties that currently have an agricultural use designation are now eligible.

NOTE:  The borrower cannot obtain an agricultural use designation after they have originated a Texas equity transaction (state of Texas restriction)

12-Day Notice

The current 12-Day Notice will be updated to incorporate the applicable changes regarding the fee limitation and agricultural properties.

Rate/Term Transactions

Texas equity transactions can be refinanced as a rate/term transaction subject to the following:

  • A minimum of one (1) year has passed since the home equity loan closed
  • The borrower cannot receive any cash at close
  • Maximum 80% CLTV still applies

A new Notice is required when borrowers are refinancing from a Texas cash-out to a rate/term transaction advising them the rate/term transaction does not have the same protections as an equity transaction in Texas (rate/term permits foreclosure without a court order and a rate/term has recourse for personal liability to the borrower).  An example of the Notice is attached for reference.

The Notice must be signed by the borrower(s) within 3 business days of application (exclude Sundays and legal holidays when determining 3-day requirement) and at least 12 calendar days before closing.

Additionally, the borrower(s) will be required to sign a new affidavit at loan closing acknowledging that they are aware they are refinancing from an equity loan to a non-equity (rate/term) loan.

Important Information Regarding Loans Currently in the Pipeline

Texas equity loans that do not close prior to December 31, 2017 are subject to the new requirements and the borrower must be provided the new 12-day Notice.  The updated 12-day Notice cannot be issued until January 1, 2018 or later so Texas equity loans that do not close as of December 31 cannot close until January 13th 2018 or later to satisfy the 12-day “cooling off