Document Updates: Various Texas Home Equity Loan Documents

On November 7, 2017 voters in Texas approved (by approximately 68.60%) Proposition 2, effectively passing Tex. S.J.R. 60 (2017) and amending Tex. Const. art. 16, § 50. Details about some of the changes made by this amendment can be found at: http://blog.docutechcorp.com/time-texas-home-equity-overhaul-texans-set-amend-constitution. These amendments take effect on January 1, 2018.

We are updating our documents and system functions for these amendments and will post updates periodically on this page as they are made. FNMA is currently assessing impact to their documents (see FNMA Ann. SEL-2017-09) and we will update our versions of their documents after FNMA publishes them.

If you have any questions or concerns about these changes, please contact Client Support at 1.800.497.3584.

Updates – December 28, 2017

Both FNMA and FHLMC announced updates to their uniform promissory notes, security instruments, and affidavit used for Texas home equity loans (see FNMA Ann. SEL-2017-10 and FHLMC Guide Bulletin 2017-28) due to the recently passed amendment to Texas’ Constitution. Specifically, the following documents were updated:

• Texas Home Equity Security Instrument First Lien – Form 3044.1 (Cx6178)
• Texas Home Equity Affidavit and Agreement First Lien – Form 3185 (Cx3442)
• Texas Home Equity Note Fixed-Rate – First Lien – Form 3244.1 (Cx6173)
• Texas Home Equity Fixed/Adjustable-Rate Note – 1 Year Treasury Index – First Lien – Form 3522.44 (Cx7859)
• Texas Home Equity Fixed/Adjustable-Rate Note – WSJ One-Year LIBOR – Form 3528.44 (Cx6177)

As a result of these changes, we are updating our duplicates of these forms to match the latest revisions published on FNMA’s website. The text of the updated versions will print when “Closing Date On or After 01/01/2018” (FI 118148) equals “Yes”. We are also monitoring this website for any changes to the Spanish-version of Form 3044.1 and will update this form accordingly.

We will also be modifying the text of our generic “TX Renewal and Extension Exhibit” (Cx4284) by configuring the following paragraph to print only when both new fields “No Cash-Out Refi is Refinancing a TX Home Equity 50(a)(6) Loan” (FI 118143) and “Closing Date On or After 01/01/2018” (FI 118148) equal “Yes” (i.e. this text will only print for Texas 50[a][6] loans and not for Texas 50[f][2] loans; see the rest of this article for details):

“This renewal and extension is not a refinance of a debt any portion of which is an extension of credit as defined by Section 50(a)(6) or Section 50(a)(7), Article XVI, of the Texas Constitution.”

These changes will take effect on December 29, 2017. If you have any questions or concerns about these changes, please contact Client Support at 1.800.497.3584.

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DR 250944

Updates – November 28, 2017

Overview of Changes

One of the substantial changes to Tex. Const. art. 16, § 50 is that a Texas home equity loan may now be refinanced by a no-cash out refinance loan, without such loan being considered a home equity loan, if certain conditions are met (see Tex. Const. art 16, § 50[f], as amended by Tex. S.R. 60 [2017]; all citations in this update are to Tex. Const. art. 16, § 50, as amended). Such loans are subject to Ibid. § 50(a)(4), rather than Ibid. § 50(a)(6) (see Ibid. § 50[f][2] & [f-1]). If the conditions are not met, then the no-cash out refinance loan must be structured as a loan subject to Ibid. § 50(a)(6).

As such, it is necessary to configure language and print configurations for documents to print for these different types of loans. For the sake of simplicity, the following references are made in this update:

• “Texas 50(a)(6) loan” refers to a loan subject to § 50(a)(6), whether it be a home equity loan or a no-cash out refinance of a home equity loan which fails to meet the conditions under Ibid. § 50(f)(2).
• “Texas 50(a)(4) loan” refers to a no-cash out refinance loan.
• “Texas 50(f)(2) loan” refers to a Texas 50(a)(4) loan which refinances a Texas 50(a)(6) loan and is considered a Texas 50(a)(4) loan under § 50(f)(2) and (f-1).
  

Creation of New Fields

To make necessary changes to our current documents, we have created a new field entitled “No Cash-Out Refinancing a TX Home Equity 50(a)(6) loan” (FI 118143). This field will primarily be used to determine whether a loan in our system is a Texas 50(f)(2) loan.

If clients can identify, through their LOS, which loans are Texas 50(f)(2) loans and which are Texas 50(a)(6) loans, we strongly recommend that clients use an indicator for this field accordingly. Absent such, we will globally set this field under the following conditions (“/=” means “does not equal”):

• Globally mapped to “No” if:
  • Property State /= NIL
  • Property State /= Texas
  • Loan Purpose /= NIL
  • Loan Purpose /= NoCashOutOther
  • Occupancy /= NIL
  • Occupancy /= PrimaryResidence
  • Closing Date On or After 01/01/2018 = No
  • Globally mapped to “Yes” if:
    • No Cash-Out Refi is Refinancing a TX Home Equity 50(a)(6) loan = NIL
    • Property State = Texas
    • Loan Purpose = NoCashOutOther
    • Occupancy = PrimaryResidence
    • Is This a Texas Home Equity Section 50(a)(6) loan? /= Yes
    • Previous Loan Purpose = Cash Out Refinance
    • Closing Date On or After 01/01/2018 /= No

    We will also be adding an optional, global prompt for clients to set this field, if the following conditions exist:

    • No Cash-Out Refi is Refinancing a TX Home Equity 50(a)(6) loan = NIL
    • Document Package Type = Initial Disclosure or Closing
    • Property State = Texas
    • Loan Purpose = NoCashOutOther
    • Occupancy = Primary Residence
    • Is This a Texas Home Equity Section 50(a)(6) loan? /= Yes
    • CLTV/LTV is greater than 80% /= Yes
    • Net Tangible Benefit – Potential Issue – Previous Loan Less Than 12 Months Ago /= Yes
    • Closing Date On or After 01/01/2018 /= No

    We will also be creating new field “Closing Date On or After 01/01/2018” (FI 118148), since the amendments to Texas’ Constitution do not take effect until January 1, 2018.

    Modifications to Current Fields

    We will be renaming field “Convert Failed 3% Points and Fees Test to ‘Pass’” (FI 81963) to “Convert Failed 2% Points and Fees Test to ‘Pass’”, due to changes in the amount of fees which may be charged (see Tex. Const. art. 16, § 50[a][6][E], as amended).

    We will also be modifying the optional global field prompt for “Is this a Texas Home Equity Section 50(a)(6) loan?” (FI 29932) by adding “Document Package Type = Initial Disclosure” as a condition to current conditions. This is due to changes we are making to document configurations (as set forth below).

    Modifications to Current Documents
    

    We will be modifying our current document library as follows:

    TX Notice Concerning Extensions of Credit – Spanish (Cx3640). We will be modifying the current content of this document to match the forms supplied by the Texas Finance Commission on their website (https://www.fc.texas.gov/homeinfo/homeinfo.html), which reflect the constitutionally-prescribed text set forth in Tex. Const. art. 16, § 50(g) (albeit translated into Spanish, as required under ) which must be provided in connection with a Texas 50(a)(6) loan.

    In addition, we are merging into this document the new 12-day notice required to be provided under amended Ibid. § 50(f)(2)(D) for Texas 50(f)(2) loans (we will be modifying the print configurations for this document to print for both types of loans, as described later). The language for this notice is also based on the forms provided by the Texas Finance Commission, which matches the constitutionally-prescribed text set forth in Ibid. (albeit translated into Spanish). We note that this notice is not required to be provided in Spanish, but we will be providing it nevertheless, due to client demand.

    The language of the 12-day notice for Texas 50(f)(2) loans will appear under the following conditions (else the language for Texas 50[a][6] loans will print):

    • Is this a Texas Home Equity Section 50(a)(6) loan? /= Yes
    • No Cash-Out Refi is Refinancing a TX Home Equity 50(a)(6) loan = Yes
    • Closing Date On or After 01/01/2018 = Yes

    TX Affidavit of Fair Market Value of Homestead Property (Cx3653). The text of this document does not need to be changed for a Texas 50(a)(6) loan. However, in order for a Texas 50(a)(4) loan to be considered a Texas 50(f)(2) loan, it must be “of a principal amount that when added to the aggregate total of the outstanding principal balances of all other indebtedness secured by valid encumbrances of record against the homestead does not exceed 80 percent of the fair market value of the homestead on the date the refinance of the extension of credit is made” (amended Tex. Const. art. 16, § 50[f][2][C]).
    

    To demonstrate that the creditor and the owner both agree to the fair market value at the time of closing for a Texas 50(f)(2) loan, we will be modifying Cx3653 so that it may be provided for such loans (details are provided later). As such, we will be modifying the text of the document as follows for these types of loans:

    Changing the citation in the subtitle of the document from “(Pursuant to Section 50(a)(6), Article XVI, Texas Constitution)” to “(Pursuant to Section 50(f)(2)(C), Article XVI, Texas Constitution)”; and
    

    Removing the text and field in the third numbered bullet point: “at the office of [Field 1992 ‘Title Company Name’]”. The reason for this is that a Texas 50(f)(2) loan is not required to be closed at the office of a title company, unlike a Texas 50(a)(6) loan, which must be closed at the office of the lender, title company, or an attorney (see § 50[a][6][N]).

    These changes will only apply under the following conditions (else the current text used for a Texas 50[a][6] loan will print):

    • Is this a Texas Home Equity Section 50(a)(6) loan? ≠ Yes
    • No Cash-Out Refi is Refinancing a TX Home Equity 50(a)(6) loan = Yes
    • Closing Date On or After 01/01/2018 = Yes
      

    TX Notice Concerning Extensions of Credit (Cx4549). Similar to the changes to Cx3640 (described above), we will be merging the new 12-day notice required for a Texas 50(f)(2) loan into the document which contains the current 12-day notice required for Texas 50(a)(6) loans. The language of the notice for Texas 50(f)(2) loans will print under the following conditions (else the current text, which we are modifying to match the constitutionally-prescribed language under Tex. Const. art. 16, § 50[g] as amended, will print for Texas 50[a][6] loans):

    • Is this a Texas Home Equity Section 50(a)(6) loan? ≠ Yes
    • No Cash-Out Refi is Refinancing a TX Home Equity 50(a)(6) loan = Yes
    • Closing Date On or After 01/01/2018 = Yes
      

    TX Home Equity Certificate From Originating Lender (Cx5007). We will be modifying the text of this document as follows:
    

    • In Paragraph (2), we will be changing the percentage listed from 3% to 2%, as well as including language concerning charges which are not subject to the 2% fee limit set forth in Tex. Const. art. 16, § 50(a)(6)(E) (g. interest, bona fide discount points, etc.);
      
    • Removing Paragraph (3), since the prohibition against securing a Texas 50(a)(6) loan with property used primarily for agricultural purposes has been repealed (see § 50[a][6][I]). We will renumber subsequent paragraphs;
      
    • Adding to the end of Subparagraph (7)(i) (renumbered to [6][i]): “including a subsidiary of a bank, savings and loan association, savings bank, or credit union described in this subparagraph”. This is due to amendments to § 50(a)(6)(P)(i), which permits these types of entities to make Texas 50(a)(6) loans;
      
    • Modifying the phrase “mortgage broker” in Subparagraph (7)(vi) (renumbered to [6][vi]) to “mortgage banker or company”, due to § 50(a)(6)(P)(vi);
      
    • Changing the revision date in the footer to “Rev. 1/1/2018”; and
      
    • Removing Subparagraph (14)(ii), which affirms that the originating lender has obtained title insurance against land being used for agricultural purposes, and renumbering subsequent subparagraphs.

    We note that the Texas Department of Insurance has not modified their handbook and Equity Loan Mortgage Endorsement (T-42) to reflect Ibid. § 50(a)(6)(I), which no longer prohibits a Texas 50(a)(6) loan from being secured by property used primarily for agricultural purposes (see http://www.tdi.texas.gov/title/titlem4i.html#p44). However, the affirmations set forth in Paragraph (14) (renumbered to [13]) are not an exhaustive attestations of the type of title insurance obtained by the originating lender; thus, absence of a reference to this title insurance does not preclude the lender from obtaining (or not obtaining) such insurance.

    These changes will only appear when “Closing Date On or After 01/01/2018” equals “Yes”, else the current text will continue to print.

    TX Owner’s Affidavit of Compliance (Cx5008). Similar to the changes to Cx3640, Cx3653, and Cx4549 (outlined above), we will be merging into this document the affidavit referenced by Tex. Const. art. 16, § 50(f-1), which states that “an affidavit executed by the owner or the owner’s spouse acknowledging that the requirements of Subsection (f)(2) of this section have been met conclusively establishes that the requirements of Subsection (a)(4) of this section have been met.”
    

    The current text of Cx5008 (which will continue to print for Texas 50[a][6] loans) will be modified as follows:

    • Removing the paragraph entitled “No Agricultural Use” (Paragraph [3]), due to the amendments to § 50(a)(6)(I), and renumbering subsequent paragraphs (and references to such paragraphs);
    • Minor punctuation and grammatical changes; and
    • Changing the revision date in the footer to “(1/18)”.

    These changes will appear when “Closing Date On or After 01/01/2018” equals “Yes”, else the current text will continue to appear for Texas 50(a)(6) loans.

    For a Texas 50(f)(2) loan, different text will appear in which the borrowers swear that the conditions set forth in Ibid. § 50(f)(2) are met. The style of the language is similar to the current language used in Cx5008, but the words are modified for meeting the purposes set forth in Ibid. § 50(f-1). This text for Texas 50(f)(2) loans will appear under the following conditions (else the text applicable to a Texas 50[a][6] loan will appear):

    • Is this a Texas Home Equity Section 50(a)(6) loan? ≠ Yes
    • No Cash-Out Refi is Refinancing a TX Home Equity 50(a)(6) loan = Yes
    • Closing Date On or After 01/01/2018 = Yes
      

    TX Home Equity Addendum to Closing Instructions From Lender (Cx5011). While no changes were necessary for this document due to the amendments to Texas’ Constitution, a minor grammatical error was identified in Paragraph 5 and will be corrected.
    

    Print Configuration Changes

    As more thoroughly described above, several new disclosures required for Texas 50(f)(2) loans will be merged into documents we currently provide only for Texas 50(a)(6) loans. To have these documents print for both types of loans (and have the text applicable to each type of loan print under the proper circumstances), we will be modifying the print configurations for the following documents so that they print under the following conditions:

    TX Notice Concerning Extensions of Credit – Spanish (Cx3640)

    • Document Package Type = Initial Disclosure
    • Is This a Texas Home Equity Section 50(a)(6) loan? = Yes
    • Loan Purpose = CashOutOther
    • Loan Purpose = HELOC
    • Loan Purpose = NoCashOutOther
    • Occupancy = PrimaryResidence
    • Print Spanish Texas Forms = Yes
    • Property State = Texas
    • Document Package Type = Initial Disclosure
    • Loan Purpose = NoCashOutOther
    • No Cash-Out Refi is Refinancing a TX Home Equity 50(a)(6) loan = Yes
    • Occupancy = PrimaryResidence
    • Print Spanish Texas Forms = Yes
    • Property State = Texas

    TX Home Equity Affidavit of Fair Market Value of Homestead Property (Cx3653)

    (Renamed to “TX Affidavit of Fair Market Value of Homestead Property”)

    • Document Package Type = Closing
    • Is This a Texas Home Equity Section 50(a)(6) loan? = Yes
    • Loan Purpose = CashOutOther
    • Loan Purpose = HELOC
    • Loan Purpose = NoCashOutOther
    • Occupancy = PrimaryResidence
    • Property State = Texas
    • Document Package Type = Closing
    • Loan Purpose = NoCashOutOther
    • No Cash-Out Refi is Refinancing a TX Home Equity 50(a)(6) loan = Yes
    • Occupancy = PrimaryResidence
    • Property State = Texas

    TX Notice Concerning Extensions of Credit (Cx4549)

    • Document Package Type = Initial Disclosure
    • Is This a Texas Home Equity Section 50(a)(6) loan? = Yes
    • Loan Purpose = CashOutOther
    • Loan Purpose = HELOC
    • Loan Purpose = NoCashOutOther
    • Occupancy = PrimaryResidence
    • Property State = Texas
    • Document Package Type = Initial Disclosure
    • Loan Purpose = NoCashOutOther
    • No Cash-Out Refi is Refinancing a TX Home Equity 50(a)(6) loan = Yes
    • Occupancy = PrimaryResidence
    • Property State = Texas

    TX Home Equity Owner’s Affidavit of Compliance (Cx5008)

    • Renamed to “TX Owner’s Affidavit of Compliance”
    • Document Package Type = Closing
    • Is This a Texas Home Equity Section 50(a)(6) loan? = Yes
    • Loan Purpose = CashOutOther
    • Loan Purpose = HELOC
    • Loan Purpose = NoCashOutOther
    • Occupancy = PrimaryResidence
    • Property State = Texas
    • Document Package Type = Closing
    • Loan Purpose = NoCashOutOther
    • No Cash-Out Refi is Refinancing a TX Home Equity 50(a)(6) loan = Yes
    • Occupancy = PrimaryResidence
    • Property State = Texas

    Important Notice: Currently by default, we provide the 12-day notice required for Texas 50(a)(6) loans (Cx3640 and Cx4549) for all types of refinance transactions and HELOCs, to mitigate any adverse effects which may occur if a borrower changes loan types after Initial Disclosures are provided. For example, the notice is provided in Initial Disclosures for a Texas 50(a)(4) loan, in case the borrower decides later in the loan process to change to a Texas 50(a)(6) loan, and thus avoid adding an extra 12-day waiting period required under Tex. Const. art. 16, § 50(g). We also provide it for all refinance transactions since, under current rules, any refinance of a Texas 50(a)(6) loan must be structured as either a Texas 50(a)(6) loan or a reverse mortgage (see current Ibid. § 50[f]) and we would not know if the refinance loan was refinancing a Texas 50(a)(6) loan or not.

    Under these changes, Cx3640 and Cx4549 will only be provided for Texas 50(a)(6) and Texas 50(f)(2) loans. If a Texas 50(a)(4) loan is not otherwise indicated in our system to be one of these, these notices will not be provided for them. In such a case, clients will need to provide these notices separately if it is later determined that they are needed (e.g. if the borrower changes a Texas 50[a][4] loan to a Texas 50[a][6] loan).

    Generic Documents Reviewed, But Not Modified
    

    The following generic documents provided for Texas 50(a)(6) loans were reviewed due to the amendments to Tex. Const. art. 16, § 50, but it has been determined that no changes to the generic text are necessary:
    

    • TX Home Equity Loan Closing Instructions Addendum (Cx5004)
    • TX Home Equity Owner’s Affidavit Acknowledging Lender’s Compliance (Cx5010)
    • TX Home Equity Discount Point Acknowledgment (Cx5029)
    • TX Home Equity Plain Language Closed End 2 nd Note (Cx9420)
    • TX Home Equity Plain Language Closed End 2 nd Security Instrument (Cx9421)
    • TX Home Equity Election Not to Rescind (Cx9522)

    Docutech will not make any modifications to any CUSTOM changes to any of the documents listed in this announcement to ensure compliance with the constitutional amendments. We strongly encourage clients to review with their own licensed, legal counsel, any customizations they have made to these documents (and any custom documents they have for Texas 50[a][6] loans).

    These changes will be in effect on December 5, 2017. If you have any questions or concerns about these changes, please contact Client Support at 1.800.497.3584.

    Note: All of the changes are on Stage servers for testing.