Home Equity Rules

IBAT General Counsel Analysis

These are the initial thoughts of IBAT General Counsel Karen Neeley on the Texas Supreme Court decision in the ACORN v. Finance Commission, et. al.  As we gain greater understanding of the ramifications of this decision, we will continue to update this.

Effective Date
The official Interpretations create a safe harbor until they are overturned by a court in a final decision.  The Supreme Court’s decision was rendered on June 21.  The parties have 15 days to file a motion for rehearing and a possible additional 15 days for extension of time.  Then the court has 10 days to file its mandate.  Thus, the opinion is technically not final for 40 days (unless these time frames were waived).  Nonetheless, we recommend that banks being making changes to their procedures now.

Fee Cap and Origination Fees
In effect, the court concluded that while origination fees are interest for usury purposes, they are fees for the 3% fee cap.  Typically, community banks have used the origination fee to assure that the costs of making the loan can be covered.  With this change in the law, consider the following possible responses:

  • Charge only the origination fee and do not charge any other fees to make the loan.  Keep it at 3% or under.
  • Re-evaluate the minimum size home equity loan that you can make and still cover your out of pocket costs.
  • Increase your interest rate to be sure that costs are covered.
  • Do not charge discount points.

Place of Closing
The opinion stated that applicants may not mail their “consent” to the lender.  This “consent” is the consent under Section 50(a)(6)(A) to the voluntary lien on the homestead.  They must sign this consent at the bank, title company, or attorney’s office under this opinion.  But if the borrowers could get to the bank, title company or attorney’s office to sign the waiver, they wouldn’t need the waiver!  Thus, this part of the opinion appears to simply void the ability to waive the receipt of the closing statement and docs one day in advance.

Also, loans may not be closed under a power of attorney unless the borrowers had signed that power of attorney at the bank, title company or attorney’s office.  The impact of this part is less clear.  I would suggest that most powers of attorney are signed in an attorney’s office.  Therefore, the attorney in fact apparently could sign the home equity docs for the principal providing he does so at the bank, title company or attorney’s office.

Stewart Title sent out a bulletin that will prohibit its agents from closing home equity loans on a power of attorney executed before June 21, 2013. Fidelity National Title is simply prohibiting closing on a power of attorney. Click here to learn more.

The information contained on this page is not legal advice.  If you need legal advice, please consult your attorney.