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On November 30, the Texas Department of Banking, Department of Savings and Mortgage Lending, Office of Consumer Credit Commissioner, and Credit Union Department issued updated guidance on emergency measures for home equity lenders to consider in response to the COVID-19 pandemic. The guidance covers emergency measures in relation to the refinance and modification of home equity loans. The guidance also indicates that lenders are permitted to close loans in any area located at the permanent physical address of the lender, attorney, or title company, including outdoor settings such as parking lots.
On November 30, the Texas joint financial regulatory agencies (Department of Banking, Department of Savings and Mortgage Lending, Office of Consumer Credit Commissioner, and Credit Union Department) issued guidance to replace its April 22, 2020 guidance (previously discussed here) regarding emergency measures for home equity lenders to consider in response to the COVID-19 pandemic. The agencies encouraged lenders to work with borrowers to help borrowers recover and provide an opportunity to repay their debt. However, lenders must ensure that they comply with Texas law to have a valid home equity lien. The agencies reiterated guidance regarding authorized closing locations and noted that lenders should consider ways to close loans in accordance with social distancing recommendations.
On April 22, the Texas Department of Banking, Department of Savings and Mortgage Lending, Office of Consumer Credit and Credit Union Department issued revised home equity lending guidance related to making new loans or adjusting existing loans to facilitate recovery efforts. The agencies encouraged lenders to work with borrowers to assist recovery while providing guidance on how lenders can ensure they maintain a valid home equity lien.
HUD Releases Mortgagee Letter Providing Home Equity Conversion Mortgage Servicing Implementation Guidance
On August 24, HUD published Mortgagee Letter 2017-11, which provides directions for FHA-approved mortgagees to implement certain servicing policy changes outlined in the Federal Housing Administration: Strengthening the Home Equity Conversion Mortgage Program Final Rule (HECM Final Rule), published in the Federal Register in January 2017. The HECM Final Rule’s servicing requirements (including the additional guidance set forth in Mortgagee Letter 2017-11), will take effect for all FHA case numbers assigned on or after September 19, 2017. The Mortgagee Letter furnishes additional details on the following areas of servicing policy included in the HECM Final Rule: (i) “Default for Unpaid Property Charges”; (ii) “Sale of Property Securing a Due and Payable HECM”; and (iii) “Cash for Keys Incentive and Relocation Incentive.”
Texas Supreme Court Allows Capitalization Of Interest, Fees, Escrow Items For Home Equity Loan Modifications
On May 16, The Texas Supreme Court held that the state constitution does not prohibit the restructuring of a home equity loan as long as the original loan met constitutional requirements and terms of the original extension of credit are maintained. Sims v. Carrington, No. 13-638, 2014 WL 1998397 (Tex. May 16, 2014). The court’s holding came in response to a series of questions certified by the U.S. Court of Appeals for the Fifth Circuit, which asked whether (i) a modification agreement that capitalizes past due interest, fees, property taxes or insurance premiums into the principal, but does not satisfy or replace the original note, is a modification or refinance for purposes of the constitutional home equity lending provisions; (ii) the capitalization of past-due interest, fees, property taxes, or insurance premiums constitutes an impermissible “advance of additional funds” under regulations implementing the constitutional provisions; (iii) a modification must comply with constitutional requirements that a home equity loan have a maximum loan-to-value ratio of 80%; and (iv) repeated modifications convert a home equity loan into an open-end account that must comply with certain constitutional requirements related to home equity lines of credit. The Texas Supreme Court determined that the restructuring of a home equity loan that involves capitalization of past-due amounts owed under the terms of the initial loan and a lowering of the interest rate and the amount of installment payments, but does not involve the satisfaction or replacement of the original note, an advancement of new funds, or an increase in the obligations created by the original note, is not a new extension of credit, and is thus not required to comply with the constitutional requirements. The court further held that such a restructuring (i) is not an “advance of additional funds” if those amounts were related to the original loan; and (ii) is not subject to LTV limits because it is not a new extension of credit. Finally, the court held that repeated restructurings, as described, do not convert the loan into a line of credit subject to other restrictions, explaining that in the case of a line of credit repeat transactions are contemplated upfront, a situation that “does not remotely resemble” the modification at issue here.
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