7 TAC §153.13
The Finance Commission of Texas and the Texas Credit Union
Commission ("commissions") jointly propose an amendment to interpretation §153.13,
relating to home equity lending under Texas Constitution, Article XVI, §50(a)(6).
Texas Constitution, Article XVI, Section 50 ("Section 50"), sets out the
only permissible encumbrances on a homestead. Prior to 1998, Section 50 permitted
liens on homestead property for the purposes of purchase money, taxes, an
owelty of partition, the refinance of a lien, including tax liens, and home
improvements. Effective January 1, 1998, Section 50 was amended to authorize
home equity loans, permitting a home owner to obtain a loan secured by a lien
on the homestead, without restricting how the owner can use the loan proceeds.
Section 50 has since been amended in 1999, 2001, 2003, and 2005 to further
address aspects of home equity lending. Section 50 addresses only the elements
necessary to create a valid lien on a homestead. Other statutes and constitutional
provisions must also be consulted to fully evaluate the legality under Texas
law of credit transactions involving the homestead.
The commissions are separately and independently charged with interpreting
Sections 50(a)(5) - (7), (e) - (p), and (t) of the Constitution, see Texas
Finance Code, §§11.308 and 15.413, and Texas Constitution, Article
XVI, Section 50(u). The commissions seek to jointly exercise their authority
to interpret Section 50 in order to promote consistency and better support
the confidence of homeowners and lenders transacting home equity loans in
compliance with Section 50. In addition, the commissions interpret the extent
of their interpretive authority to include not only determinations of the
explicit meaning of words and terms in Section 50, but also to encompass "filling
in the gaps" with respect to material matters that are inadequately addressed
in Section 50, including possible addition of further details to the extent
the commissions believe this to be necessary to fully implement the intent
and purposes of Section 50.
Because of the significantly adverse consequences that can befall a lender
who violates a provision of Section 50, clear and unambiguous guidance regarding
the meaning of such provisions supports the stability of the credit markets.
This stability benefits consumers by ensuring that home equity loans are as
widely available to Texas homeowners as possible. Availability, certainty,
and competition result in reducing the overall transaction cost to consumers
for equity loans. To that end, the commissions have previously adopted interpretations
codified to 7 TAC Chapters 151 and 153. These interpretations are intended
to not only construe the actual language of the Constitution, but also to
provide a practical framework for home equity lending that reflects the constitutional
language and the intent of the legislature and the voters. The commissions
interpret the Constitution in harmony with other statutes and provisions that
govern loans and other credit transactions to ensure consistency in the application
of law.
Concerns have been raised that several jointly adopted interpretations
are potentially ambiguous. Consequently, the Finance Commission and the Credit
Union Commission recently revised and re-adopted §153.13, the home equity
lending interpretation concerning the timing of preclosing disclosures. This
new interpretation, along with two others, was published in the June 23, 2006,
edition of the
Texas Register
(31 TexReg 5080).
Following adoption, a typographical error was discovered in §153.13
that could lead to mistaken conclusions regarding the intent of this interpretation.
Specifically, the word "or" between §153.13(3)(B)(i) and (ii) should
obviously have been the word "and." The purpose of this amendment is to correct
this typographical error. In brief, the requirements of both clauses (§153.13(3)(B)(i)
and (ii)) must be met to establish the
de minimis
good cause standard that permits an owner to consent to delivery of
a modified disclosure on the date of closing.
Texas Constitution, Article XVI, Section 50(a)(6)(M)(ii), requires a lender
to provide an owner with a preclosing disclosure of fees, costs, points, and
charges at least one day prior to closing a home equity loan. Initial delivery
of, or changes to, a timely delivered disclosure are not permitted after that
time unless good cause exists and the owner consents. Generally, revised §153.13
provides that good cause exists to deliver a modified disclosure on the date
of closing if the variance in total costs is insignificant (a
de minimis
increase) under a specified formula (see §153.13(3)(B)(i)).
However, an insignificant change in total costs can be misleading if it
conceals material but offsetting changes in individual fees, costs, points,
and charges. Because variances of this nature demand more thoughtful analysis
and consideration, the
de minimis
good cause
standard requires the variance in any individual fee, cost, point, or charge
to also be insignificant under the formula provided (see §153.13(3)(B)(ii)).
The obviously erroneous use of the term "or" in lieu of "and" between the
two clauses that define the
de minimis
good
cause standard does not mean that satisfying only one of these two conditions
is sufficient to meet the
de minimis
good
cause standard, and the commissions will not endorse or support such a reading.
Harold Feeney, Credit Union Commissioner, on behalf of the Texas Credit
Union Commission and Leslie L. Pettijohn, Consumer Credit Commissioner, on
behalf of the Finance Commission of Texas have determined that for the first
five-year period the amendment to the interpretation is in effect there will
be no fiscal implications for state or local government as a result of administering
the interpretation.
Commissioner Feeney and Commissioner Pettijohn also have determined that
for each year of the first five years the amendment as proposed is in effect,
the public benefit anticipated as a result of the proposed amendment will
be to support the stability of the credit markets and ensure that equity loans
are widely available to Texas homeowners, through the creation of reliable
and accurate standards and guidelines.
There is no anticipated cost to persons who are required to comply with
the amendment as proposed. There will be no adverse economic effect on small
or micro businesses.
Written comments on the proposed amendment may be submitted to Harold Feeney,
Credit Union Commissioner, Credit Union Department, 914 East Anderson Lane,
Austin, Texas 78752-1699, or to Sealy Hutchings, General Counsel, Office of
Consumer Credit Commissioner, 2601 North Lamar Boulevard, Austin, Texas 78705-4207
or by email to commissioner@tcud.state.tx.us or sealy.hutchings@occc.state.tx.us.
To be considered, a written comment must be received on or before the 40th
day after the date the proposed amendment is published in the
Texas Register
. At the conclusion of the 40th day after the proposed
amendment is published in the
Texas Register
,
no further written comments will be considered or accepted by the commissions.
The amendment to §153.13 is proposed pursuant to Texas Finance
Code, §§11.308 and 15.413, which separately and independently authorize
each commission to issue interpretations of the Texas Constitution, Article
XVI, §50(a)(5) - (7), (e) - (p), (t), and (u), subject to Texas Government
Code, Chapter 2001.
The Texas Constitution, Article XVI, §50(a)(6) is affected by the
proposed amendment to the interpretation.
§153.13.Preclosing Disclosures: Section 50(a)(6)(M)(ii).
An equity loan may not be closed before one business 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.
(1)
A lender may satisfy the disclosure requirement of this
section by delivery to the borrower of a properly completed Department of
Housing and Urban Development (HUD) disclosure Form HUD-1 or HUD-1A.
(2)
Bona fide emergency.
(A)
An owner may consent to receive the preclosing disclosure
or a modification of the preclosing disclosure on the date of closing in the
case of a bona fide emergency occurring before the date of the extension of
credit. An equity loan secured by a homestead in an area designated by Federal
Emergency Management Agency (FEMA) as a disaster area is an example of a bona
fide emergency if the homestead was damaged during FEMA's declared incident
period.
(B)
To document a bona fide emergency modification, the lender
should obtain a written statement from the owner that:
(i)
describes the emergency;
(ii)
specifically states that the owner consents to receive
the preclosing disclosure or a modification of the preclosing disclosure on
the date of closing;
(iii)
bears the signature of all of the owners entitled to
receive the preclosing disclosure; and
(iv)
affirms the owner has received notice of the owner's right
to receive a final itemized disclosure containing all actual fees, points,
costs, and charges one day prior to closing.
(3)
Good cause. An owner may consent to receive the preclosing
disclosure or a modification of the preclosing disclosure on the date of closing
if another good cause exists.
(A)
Good cause to modify the preclosing disclosure or to receive
a subsequent disclosure modifying the preclosing disclosure on the date of
closing may only be established by the owner.
(i)
The term "good cause" as used in this section means a legitimate
or justifiable reason, such as financial impact or an adverse consequence.
(ii)
At the owner's election, a good cause to modify the preclosing
disclosure may be established if:
(I)
the modification does not create a material adverse financial
consequence to the owner; or
(II)
a delay in the closing would create an adverse consequence
to the owner
.
[
;
]
(iii)
The term "de minimis" as used in this section means a
very small or insignificant amount.
(B)
At the owner's election, a de minimis good cause standard
may be presumed if:
(i)
the total actual disclosed fees, costs, points, and charges
on the date of closing do not exceed in the aggregate more than the greater
of $100 or 0.125 percent of the principal amount of the loan (e.g. 0.125 percent
on a $80,000 principal loan amount equals $100) from the initial preclosing
disclosure;
and
[
or
]
(ii)
no
[
each
] itemized fee, cost, point,
or charge
exceeds
[
does not exceed
] more than the greater
of $100 or 0.125 percent of the principal amount of the loan than the amount
disclosed in the initial preclosing disclosure.
(C)
To document a good cause modification of the disclosure,
the lender should obtain a written statement from the owner that:
(i)
describes the good cause;
(ii)
specifically states that the owner consents to receive
the preclosing disclosure on the date of closing;
(iii)
bears the signature of all of the owners entitled to
receive the preclosing disclosure; and
(iv)
affirms the owner has received notice of the owner's right
to receive a final itemized disclosure containing all fees, costs, points,
or charges one day prior to closing.
(4)
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.
(5)
The owner maintains the right of rescission under Section
50(a)(6)(Q)(viii) even if the owner exercises an emergency or good cause modification
of the preclosing disclosure.
This agency hereby certifies that the proposal has been
reviewed by legal counsel and found to be within the agency's legal authority
to adopt.
Filed with the Office of
the Secretary of State on August 21, 2006.
TRD-200604379
Leslie L. Pettijohn
Commissioner
Joint Financial Regulatory Agencies
Earliest possible date of adoption: October 1, 2006
For further information, please call: (512) 936-7640