Updated Texas Home Equity Refinance Transactions

December 18, 2017

Overview

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 The prior law that stated, “once a home equity loan, always a home equity loan” is no longer applicable.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:

  • Appraisal
  • Survey
  • 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.

Government Agency Approvals

FHA Non-Supervised Mortgagee Approval #:
24751-0000-5
VA Automatic Lender Approval #:
902324-00-00

Mortgagee/Loss Payee Clause

Carrington Mortgage Services LLC
ISAOA/ATIMA
P.O. Box 692408
San Antonio, TX 78269-2408

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This information is provided for your convenience and Carrington Mortgage Services, LLC makes no warranties concerning the accuracy or completeness of any of the information. This is not financial or legal advice and should not be taken as such. This information is for mortgage professionals only and is not intended for distribution to consumers.
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Government Agency Approval | FHA Non-Supervised Mortgage Approval #: 24751-0000-5 | VA Automatic Lender Approval #: 902324-00-00

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