Home Equity Reform

How do recent changes affect borrowers and lenders?

Big thanks to all of our TBA bankers who voted in the Nov. 7 Uniform Election for Proposition 2. Proposition 2, the TBA-supported home equity reform constitutional amendment, passed with more than 68 percent of the vote, and it will go into effect Jan. 1, 2018.

Basics of Prop 2

Prop 2 lowers the cap on fees that are associated with a home equity loan. The constitution currently sets this cap at 3 percent; Prop 2 lowers this cap to 2 percent but excludes survey fees, appraisal fees and title insurance and title report fees from the fee cap.

So, even though the amount of fees that can be charged are less, because Prop 2 eliminates from the constitutional fee cap fees that are not generated by the lender, we believe the final passage of Prop 2 will make home equity lending more attractive for Texas banks.

Second, Prop 2 allows for a borrower to refinance a seasoned home equity loan (i.e., one that has been on the books for at least one year) into a non-home equity loan. This change will give borrowers the ability to refinance an existing home equity loan into a non-home equity loan, the rate terms of which will likely be better.

Third, Prop 2 eliminates the constitutional prohibition on home equity loans on properties that have agricultural use exemptions. This change ensures that rural Texans whose homesteads are on their working farms or ranches have the ability to tap into their homes’ equity just like urban Texans can.

Next Steps Explained

On Nov. 7, Texas voters approved changes to home equity laws. Celeste Embrey discusses how to implement the changes.

Home Equity Lending from TexasBankers on Vimeo.

Texas Home Equity Webinar

Compliance Alliance's Elizabeth Madlem presents a 45-minute in-depth webinar on the new changes to home equity law.

Home Equity Webinar

Download presentation slides as PDF.