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Overview
On September 13, 2003,
a referendum passed that allows open-end home equity lending in the state
of Texas. In addition, the Texas referendum modifies the rules for closed-end
home equity loans. Texas lenders will now have a greater variety of lending
options to offer their loan applicants.
Summary
of Changes
In general, the referendum
(S.J.R. 42) states that the current Texas closed-end home equity rules
also be applied to open-end home equity lending. It also details new rules
that specifically apply to open-end home equity lending, and some that
apply to both closed- and open-end lending.
Open-End Only
- Minimum advance
of $4,000.
- No access via credit
card, debit card, preprinted solicitation check, or similar device to
obtain an advance.
- Fees allowed only
when the credit plan is established and disallowed when charged or collected
in connection with a debit or advance.
- Unilateral amendments
of credit plan by lender are disallowed.
- Initial payment
must not be more than two months from the date the extension of credit
is established.
- Draw period—during
the period in which the borrower may request advances, payments must
equal or exceed the accrued interest.
- Repayment period—after
the draw period, payments must be substantially equal.
- 80% Loan to Value—the
credit limit and the total of all other loans secured by the homestead
together may not exceed 80% of the fair market value of the homestead
at the time the credit is established.
- 50% Loan to Value—the
credit limit must not be greater than 50% of the fair market value of
the homestead at the time the account is established.
Closed and
Open End
- Payment frequency—repayment
must be in regular, periodic installments and must not be made less
often than monthly or more often than every 14 days.
- Itemized disclosure—an
extension of credit may not be closed before one business day after
the date that the homestead owner receives a final itemized disclosure
of the actual fees, points, interest, costs, and charges that will be
charged at closing (a bona fide emergency exception exists).
- A revised twelve-day
Texas constitutional notice is required.
- Mortgage brokers
may make home equity loans.
- Specific cure methods
for noncompliance are provided.
- Interpretive Authority
and Safe Harbor - SJR 42 allows for interpretive authority and safe
harbor for conformance with the interpretations.
Conclusion
Bankers Systems is
prepared to help you make the transition to a new home equity lending
line of business. We are finalizing our products and are ready to provide
you with staff training, promotional products, paper documents, electronic
documents, and software-like the ARTA® Lending
Documentation System and the Rembrandt® Lending System.
The opportunity for
open-end home equity lending can radically change your home equity line
of business—are you ready for it?
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