Texas has long had some of the tightest consumer protections in the home equity lending space. After years of lobbying by the industry, a constitutional amendment was submitted to voters on November 7, 2017, aimed at relaxing some of those restrictions. Early returns indicate that Texas voters have approved Proposition 2, which had a ballot title that read:
“The constitutional amendment to establish a lower amount for expenses that can be charged to a borrower and removing certain financing expense limitations for a home equity loan, establishing certain authorized lenders to make a home equity loan, changing certain options for the refinancing of home equity loans, changing the threshold for an advance of a home equity line of credit, and allowing home equity loans on agricultural homesteads.”
The most significant change in Proposition 2 is the downward revision allowing lenders to charge 2 percent fees instead of 3 percent. However, the amendment also allows lenders for the first time to exclude certain fees from this cap. Significantly, these fees include items such as appraisal costs, survey costs, title insurance premiums and title report costs.
Borrowers will now be able to pay for those expenses separately. The net result of this change is a likely increase in the ability to originate smaller home equity loans that were previously not economically viable as a result of the fee cap that included such expenses.
Another significant change is the new ability to refinance seasoned home equity loans to be non-home equity loans. The former prohibition on such refinancing generated a considerable amount of litigation, which this change is meant to avoid.
Proposition 2 also removes the ban on home equity lending to agricultural homesteads, representing a considerable expansion of the ability of farmers and ranchers to obtain home equity loans on a previously excluded class of property.
Notably, Proposition 2 does not involve reverse mortgages. Proposition 2 also does not remove the prohibition against borrowing more than 80 percent of a home’s appraised value, which is often cited as an important consumer protection.
Bottom line, this amendment will trim regulations and will expand the availability of home equity loans to Texans while preserving some of the key consumer protections.