Bulletin: TX000070

Dear Associates:

CONSTITUTIONAL AMENDMENT

Last year the Constitutional provisions concerning Home Equity Loans were amended:

• New Section 50(t) Article XVI, Texas Constitution authorizes a home equity line of credit as an open-end account.
  
  
• New Subsections 50(a)(6)(Q)(x)(a) - (f) establish provisions through which a lender may cure most failures to comply with the Constitution within 60 days after being notified. The lender may not cure the failure to secure joinder of each owner and each owner's spouse, unless such individuals subsequently consent.
  
  
• New Section 50(u) authorized delegation (to the Finance Commission and Credit Union Commission) of the power to interpret home equity law.
  
  
• New Subsection 50(a)(6)(M)(ii) prohibits closing before "one day after the date that the owner of the homestead receives a final itemized disclosure of the actual fees, points, interest, costs, and charges that will be charged at closing. If a bona fide emergency or another good cause exists and the lender obtains the written consent of the owner, the lender may provide the documentation to the owner or the lender may modify previously provided documentation on the date of closing."

AMENDED TITLE INSURANCE FORMS

Because of those changes, the Commissioner of Insurance has amended existing forms and rules concerning Home Equity Loans, effective April 1, 2004:

• Equity Loan Mortgage Endorsement (T-42) (See Exhibit 1). The amendments include a new paragraph 3, which insures priority of future advances under a home equity line of credit. Our requirements for issuing the T-42 Endorsement and the rate have not changed (See Exhibit 2). We require execution of our modified Home Equity Affidavit (See Exhibit 3).
  
  
• Supplemental Coverage Equity Loan Mortgage Endorsement (See Exhibit 4). The amendments include a new subparagraph 1(l), which insures that the title company provided the owner with a copy of the final settlement statement at least one calendar day before the business day or subsequent calendar day that the owner executed the mortgage and note. Our requirements for issuing the T-42.1 Endorsement have changed, but the rate has not changed (See Exhibit 5). We require executed of our modified Home Equity Affidavit (See Exhibit 3).
  
  
• Texas Residential Limited Coverage Junior Mortgagee Home Equity Line of Credit/Variable Rate Endorsement (T-46). This Endorsement was amended to insure priority of Home Equity Line of Credit Advances.
  
  
• Texas Residential Limited Coverage Junior Mortgagee Policy Down Date Endorsement (T-45). This Endorsement was amended to refer to correct constitutional provisions.
  
  
• Texas Residential Limited Coverage Junior Mortgagee Policy (T-44). This Policy was amended to refer to correct constitutional provisions.
  
  
• Procedural Rules P-46 and P-47. These Rules were amended to conform to changes in the forms.

AMENDED CLOSING INSTRUCTIONS

Typical lender closing instructions require that (1) the title company secure approval of proposed settlement statement from the lender, (2) the title company then fax the settlement statement to the owner, (3) the owner sign and date its receipt of the settlement statement and/or sign an affidavit at closing that acknowledges receipt of the final settlement statement with correct fees, costs and charges at least one day before closing, (4) the closing not occur before one business day after the owner's receipt of the final settlement statement, and (5) the fees, costs and charges not change from the amounts and types shown on the settlement statement received by the owner. These are reasonable requirements.

PAYOFFS OF PRIOR HOME EQUITY LINES OF CREDIT

Home Equity Lines of Credit have been major sources of claims for title companies in other states. In claim situations, the title company makes a payoff, but the mortgage is not released, and additional advances are made under the line of credit.

Requirements:

Send the "Request to Cancel Home Equity Line of Credit" with your payoff request. (See Exhibit 6) Each owner/seller/borrower must sign. The Request tells the lender to cancel the Home Equity Line of Credit Advances.

If the mortgage sets forth a procedure to cancel the advances, require compliance. Do not accept a payoff statement that is conditional, unless you escrow the maximum debt that can be secured by the Home Equity Mortgage.

At closing, reconfirm payoff.

Remit payoff (e.g., by wire, overnight mail, etc.) immediately after settlement unless Right of Recession.

Require that the owner/seller/borrower complete the Home Equity Line of Credit Payoff Affidavit. (See Exhibit 7)

JOINT INTERPRETATION

The Finance Commission and Credit Union Commission have interpreted several Home Equity Provisions:

• "An owner who has received a preclosing disclosure may consent to receive a subsequent or modified preclosing disclosure on the date of closing under the good cause standard if ?one or more of the items? is less than the disclosed rate or amount of the initial preclosing disclosure."
  
  
• "Section 50(a)(6)(M)(iii) (one year prohibition on new Home Equity Mortgage) does not prohibit modification of an equity loan before one year has elapsed since the loan's closing date. A modification is a transaction in which one or more terms of an existing equity loan is modified, but the note is not satisfied and replaced."
  
  
• "A lender may accept a properly executed power of attorney allowing the attorney-in-fact to execute closing documents on behalf of the owner."
  
  
• "Reasonable and necessary costs to refinance (a purchase money mortgage without making a Home Equity Loan) may include reserves or impounds (escrow trust accounts) for taxes and insurance, if the reserves comply with applicable law."
  
  
• "An equity loan may be closed at any time during normal business hours on the next business day following the calendar day on which the owner receives the preclosing disclosure or any calendar day thereafter."

We will rely on specific powers of attorney from one spouse to another spouse to close a Home Equity Mortgage. We will insure a refinance of a valid non-Home Equity Mortgage (such as a purchase money, mechanic's lien contract or manufactured housing refinance) that includes reserves or impounds for taxes and insurance. Provided the closing instructions allow, we will be willing to issue the T-42.1 Endorsement if we fax the final settlement statement at any time before 5 p.m. of the day before closing, if closing occurs after 8 a.m. on the next business day. Please call our underwriting personnel if you are requested to issue the modified T-42.1 Endorsement and if the closing charges are modified on the date of closing based upon the above good cause exception. Also please call our underwriting personnel if you are requested to issue a T-38 modification of a Home Equity Mortgage within one year after the original closing.