UPDATE – 03.13.18
The Finance Commission of Texas and the Texas Credit Union Commission (“commissions”) have finalized the amendments to 7 Tex. Admin. Code Pt. 153 that they previously proposed (copies of the finalized amendments can be downloaded here: http://occc.texas.gov/publications/rules). The Commissions have modified their proposed version of Ibid. § 153.45 in several ways, including the following:
- In determining when an owner of a homestead has “submitted” an application for a Texas 50(f)(2) loan (which is used to determine when the new 12-day Notice for these types of loans should be sent), § 153.45(4)(B) states that such an application is only submitted if the owner “submits a loan application specifically for a refinance of a home equity loan to a non-home-equity loan.”
Thus, it is not necessary for lenders to provide the 12-day Notice for any type of rate-and-term refinance transaction in case it turns out to be a 50(f)(2) loan. Rather, it need only be provided for 50(f)(2) specific applications.
- Once an application for a 50(f)(2) loan is submitted, “the lender must deliver the refinance disclosure or place it in the mail no later than the third business day after the owner submits the loan application. . . . If a lender mails the refinance disclosure to the owner, the lender must allow a reasonable period of time for delivery. A period of three calendar days, not including Sundays and federal legal public holidays, constitutes a rebuttable presumption for sufficient mailing and delivery.” (§ 153.45[D]; emphasis added)
Unlike the proposed rule which essentially require the Notice to be placed into the mail the same day an application is submitted, the adopted rule permits the lender to place the Notice in the mail within three business days after an application is submitted. However, if the notice is mailed, it must be delivered within a reasonable period of time, with three calendar days (excluding Sundays and Federal public holidays) being a rebuttable presumption of sufficient mailing and delivery.
Thus, while lenders are provided a bit more of a timeframe for mailing Notices than what was proposed, to obtain “rebuttable presumption status,” the Notice must still be mailed as soon as possible after a loan application is submitted (e.g. overnight or two-day delivery).
As previously announced, we have implemented certain changes to our Texas documents due to the recent passage of amendments to Tex. Const. art. 16, § 50 (http://blog.docutechcorp.com/document-updates-various-texas-home-equity-loan-documents-2). These changes included support for amendments to the 12-day notice required for Texas home equity loans (under Ibid. § 50[g]) and for the new 12-day notice required for a no-cash-out refinance of a Texas home equity loan (see Ibid. § 50[f]).
The text of the changes/additions of the 12-day notices have been configured to trigger when “Closing Date On or After 1/1/2018” equals “Yes”, based on an interpretation that when Texas’ amendments take effect on January 1st, the criteria used to determine whether the 12-day notices were timely provided for a home equity loan (aka “50[a] loan”) or a no-cash-out refinance of a Texas home equity loan (aka “50[f] loan”) is based on whether such notices were provided at least 12 calendar days before closing, regardless of whether these changed/new notices were provided before or after January 1st.
For example, if a 50(a)(6) loan is to be closed on January 1st, the newest version of the 12-day notice under Ibid. § 50(g) must have been provided at least 12 calendar days before closing. It would not be considered sufficiently compliant to have provided the language of the old 12-day notice, even though such language is the only constitutionally-prescribed language under Texas’ Constitution in December, 2017. While the text of the new version would not exist in law until January 1st, this is irrelevant, as the constitutional provisions only concern is whether such new version was provided at least 12 calendar days prior to closing.
The Texas Finance Commission has published a joint “Statement of Passage of SJR 60” on their website (available directly at: http://blog.docutechcorp.com/document-updates-various-texas-home-equity-loan-documents-2) which provides the following guidance concerning the timing requirements of the 12-day notices and the effective date of the amendments (quoted in relevant part):
“SJR 60 applies to all home equity loans made on or after January 1, 2018, and to all home equity loans refinanced on or after January 1. Lenders are responsible for ensuring that they comply with SJR 60 starting January 1. In particular, lenders must comply with the new 2% fee limitation and updated 12-day disclosure requirement for all loans made on or after January 1. . . .
Some stakeholders have asked whether lenders may make home equity loans during the first 12 days of January 2018. SJR 60 takes effect on January 1, 2018, and it states that the amended requirements apply to all home equity loans made on or after January 1, 2018. In opinion DM-452 (1997), the Texas attorney general concluded that if a lender provided the required 12-day notice for home equity loans 12 days before January 1, 1998, and closed the loan on January 1, then the loan would not be enforceable under the constitution, because the disclosure was not ‘prescribed by’ the constitution amendment that went into effect on January 1, 1998. If this same reasoning applies to SJR 60, this would require lenders to wait until January 1, 2018, to begin providing the updated disclosures under SJR 60, and to wait until January 13 at the earliest to begin originating loans. This would be the safest course if lenders wish to avoid civil litigation where homeowners argue that loans originated during the first 12 days of January 2018 are unenforceable.” (emphasis added)
The cited Tex. Atty. Gen. Op. DM-452 (1997) states the following (in relevant part):
“Dear Representative Marchant: . . . You also ask whether the twelve-day waiting period for loans required by the amendment may begin to run before the amendment’s effective date. We conclude that it may not.
Your second question regards the twelve-day waiting period imposed by the constitutional amendment. A lien created pursuant to a home equity loan is unenforceable if the loan is closed before the 12th day after the date the home owner submits a loan application to the lender, or the date the lender provides the owner with a certain written notice regarding the terms of the loan, whichever comes later. You ask whether the twelve-day waiting period may begin to run before the amendment becomes effective on January 1, 1998. In other words, if a borrower has submitted an application and the lender has provided notice twelve days before January 1, 1998, may the loan be closed on January 1, 1998, and be enforceable under the provisions of the amendment? We conclude that it may not.
The amendment provides that a home equity loan may be enforced if it is closed not before ‘the 12th day after the later of the date that the owner of the homestead submits an application to the lender for the extension of credit or the date that the lender provides the owner a copy of the notice prescribed by Subsection (g) of this section.’ Subsection (g) sets out the specific language of the notice and includes references to the requirements of the constitutional amendment. Before the amendment becomes effective, no notice is prescribed by Subsection (g) and the provisions of the amendment referred to in the notice have no legal effect. Notice given before the effective date of the amendment is not notice ‘prescribed by’ the amendment. Therefore, the amendment’s notice requirement is not satisfied if notice is given before the effective date of the amendment, and thus the twelve-day waiting period is not triggered by such a notice.” (emphasis added; full copy of the Opinion is available at: https://texasattorneygeneral.gov/opinion/dan-morales-opinions-1991-1998-pdf)
We note that there are nuances between the Attorney General’s opinion concerning the implementation of the 12-day notice required under Tex. Const. art. 16, § 50(g) and the new 12-day notice required under Ibid. § 50(f)(2) (e.g., the former notice outlines a summary of each requirement for a home equity loan which provisions would not exist until January 1, 1998; the latter cautions borrowers of the pros and cons of refinancing a home equity loan with a 50[a] or 50[f] loan, which options would exist at the time the loan is closed, if closed on or after January 1, 2018).
There are also inconsistencies within the Texas Finance Commission’s statement (e.g. would not the same argument against providing the new 12-day notice prior to January 1, 2018 apply equally to the providing the amended 12-day notice prior to such date?), as well as between the statement and the Attorney General’s opinion (e.g. other parts of the Attorney General’s Opinion hold that creditors may begin accepting applications for home equity loans prior to January 1, 1998, even though such loans could not exist until after such date; if the same logic applies to Texas 50[f] loans, the new 12-day notice must be provided within 3 business days after receipt of the application – which means that the notice must be provided prior to January 1st, if the application is received in November/December, 2017, else the loan cannot be closed as a 50[f] loan in 2018).
However, it is quite clear that the Texas Finance Commission strongly suggests not closing 50(f)(2) loans prior to January 13, 2018 (as does FNMA; see below), in order to safely provide the new 12-day notice within the appropriate time frames to avoid civil litigation over this issue. To reiterate:
“If this same reasoning [in the Att’y Gen. Op. DM-452] applies to SJR 60, this would require lenders to wait until January 1, 2018, to begin providing the updated disclosures under SJR 60, and to wait until January 13 at the earliest to begin originating loans. This would be the safest course if lenders wish to avoid civil litigation where homeowners argue that loans originated during the first 12 days of January 2018 are unenforceable.
Due to differences in interpretation, we will continue to provide the revised/new 12-day notices as announced (i.e. the new language will print if the closing date is on or after January 1, 2018) for those who decline to follow the Commission’s suggestion. For those who wish to take the Commission’s suggestion, we strongly recommend that they re-issue the appropriate versions of the 12-day notices (Cx3640 and Cx4549) on or after January 1, 2018, if such notices were provided prior to January 1st, to ensure that the 12-day timing requirement is met.
If you have any questions or concerns, please contact Client Support at 1.800.497.3584.
Update: The Federal National Mortgage Association (“FNMA”) has issued the following notice in an email (Subject: “December 12 Selling News: Day 1 Certainty Reduces Origination Time; Quarterly Compass; Texas 50(a)(6) Mortgages; and More”):
“Because the State of Texas is implementing new requirements for Texas 50(a)(6) refinance loans effective Jan. 1, 2018, including a revised form of 12-day notice, Fannie Mae will not purchase these loans closed during the first 12 days of 2018. Fannie Mae will purchase Texas 50(a)(6) loans that meet its requirements that are closed on or after Jan. 13, 2018. More details will be provided in a Dec. 19 Selling Guide update. Please note that Texas 50(a)(6) loans closed in 2017 can be delivered any time under normal guidelines.” (emphasis in the original)