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Home Equity Lending Proposed Constitutional Amendments (S.J.R. 60)

Published on Thursday, June 15, 2017 in Client and Friends Memo, Texas Legislation

The Texas Legislature recently passed Senate Joint Resolution 60 (S.J.R. 60), a joint resolution proposing amendments to the Texas Constitution that would change provisions governing Texas Home Equity lending. S.J.R. 60 will be submitted to the voters at an election to be held November 7, 2017, and, if approved, will take effect January 1, 2018. With regard to the amendments proposed by S.J.R. 60, this memorandum discusses the following: (i) changes with substantive effect (Major Changes); (ii) changes with less substantive effect (Minor Changes); (iii) potential implementation issues—including our view that the changes will create a twelve-day window from January 1, 2018, to January 12, 2018, during which home equity loans cannot close (Implementation Issues); and (iv) an assessment of the likelihood of approval (Likelihood of Passage). For reference, the text of S.J.R. 60 is reprinted in an addendum to this memorandum.

Major Changes
If approved by the voters, these proposed amendments will create major changes in Texas Home Equity Lending by: (1) eliminating the ban on home equity loans on homesteads with agricultural exemptions; (2) reducing the 3% fee cap to a 2% fee cap with certain fees excluded from this 2% fee cap; (3) permitting, under certain conditions, a home equity loan to be refinanced as a non-home equity loan; (4) repealing the 50% ceiling on additional advances under Home Equity Lines of Credit; (5) updating who is authorized to make home equity loans; and (6) amending the 12-day notice disclosure to reflect these changes, as more fully discussed below.

(1) S.J.R. 60 proposes to repeal Article XVI, Section 50(a)(6)(I) of the Texas Constitution, the provision prohibiting home equity loans on property with an agricultural exemption other than dairy farms. This would eliminate a major risk factor for lenders generating loans in rural areas as well as provide more options for borrowers.

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