On behalf of the Independent Bankers Association of Texas (“IBAT”), Texas Bankers Association (“TBA”), Texas Credit Union League (“TCUL”), and Texas Mortgage Bankers Association (“TMBA”) (collectively the “Associations”), we offer the following comments on proposed home equity interpretation 7 TAC Section 153.22. The Associations are trade associations representing virtually all of the federally insured institutions plus the mortgage banks domiciled in Texas. The Associations’ members make home equity loans and are significantly affected by the interpretations.
First, we would respectfully suggest that this proposed interpretation be rejected. The current interpretation, found at 7 TAC Section 153.22, should remain in effect as originally adopted until the appellate courts have an opportunity to rule on the interpretations in ACORN vs. Finance Commission, et al. We believe that the original interpretation was correct and adequate. Changing it at this point would be premature.
Reconciliation of Home Equity Notice with Substance of Constitution. It is important to note that the notice required to be given to owners as spelled out in the Constitution at Article 16, Section 50(g)(Q)(5) indicates that homeowners are required to “receive a copy of all documents you sign at closing…” The substantive condition to the home equity loans is found in Section 50(a)(6)(Q)(v) and requires: “the lender, at the time the extension of credit is made, provide the owner of the homestead a copy of all documents signed by the owner related to the extension of credit…” The Texas Supreme Court has observed in Stringer v. Cendant Mortg. Corp. that where there is a conflict between the notice and the substance of the Constitution, the substance must control. In the Stringer case, there was an absolutely clear conflict in the terminology. By contrast, the differences between the notice and substance with relation to providing copies of documents is not a conflict but rather a clarification. The Associations believe that the phrase “a copy of all documents you sign at closing” clarifies which of the potential documents should be provided. The phrase “related to the extension of credit” found in the substantive section simply identifies the transaction.
Meaning of Terms. The Code Construction Act in Section 311.011 of the Government Code provides that “words and phrases that have acquired a technical or particular meaning, whether by legislative definition or otherwise, shall be construed accordingly.” The Associations believe that the term “document” has acquired a particular meaning in the financial industry both as a result of other statutes and also as a result of decades of custom and usage.
This particular consumer protection, that is, providing copies of documents, has been in the credit code since the late 60s. It continues in Section 342.451 of the Finance Code to this day. With regard to consumer loans, lenders are required to deliver to the borrower “a copy of each document signed by the borrower, including the note or loan contract…” For approximately 40 years, lenders have been complying with this by providing a copy of the note and the security agreement or deed of trust. The term “document” has consistently been considered to include only those items that actually create the obligation.
Public Policy Issue. It is also important to note that interpreting the Constitution so that only those documents that create the obligation are copied and provided to the borrower at closing will not do any harm to consumers. There are a plethora of other state and federal laws that require a variety of disclosures to be provided to the borrower either before or at closing, including disclosures mandated by the Truth in Lending Act, the Real Estate Settlement Procedures Act, the Equal Credit Opportunity Act (appraisals), and the Flood Disaster Protection Act. Interpreting the documents to be provided at closing as including all documents intended as information for use in the process of evaluating or underwriting the equity loan is not clarifying language but rather is an expansion of the constitutional requirements and will not serve any significant public policy purpose. Rather, it will assure that borrowers receive an excessive amount of documents at closing. Arguably meaningful documents then become hidden in the stacks of paperwork delivered at the closing table.
Risks. If the phrase is interpreted too broadly, there is a risk that the borrower could later assert that the lien is invalid due to failure to satisfy this condition. Admittedly, the Constitution now has a cure provision that permits the lender or holder of the note to avoid forfeiture by performing certain acts.
However, there is still some “reputation” as well as “legal” risk posed by this interpretation and its complexity.
Thank you for this opportunity to comment.
Independent Bankers Association of Texas
Texas Bankers Association
Texas Mortgage Bankers Association
Texas Credit Union League
