Continuing our series of commonly asked questions, we asked Houston-based Attorney Ambria Wilmore about refinancing a home using the (f)(2) or “conversion” loan option:
Ambria, what options do borrowers have to refinance their home when their existing lien is an (a)(6) home equity loan?
The Texas Constitution only provides two options in this scenario: (1) another home equity refinance subject to all the rules outlined in Article 16 Section 50(a)(6) with or without additional cash taken out, or (2) a rate/term refinance subject to four additional rules—including the proper disclosure of the (f)(2) notice. This second option, commonly referred to as a “(f)(2)” loan or a “conversion” loan, has been a popular choice of late given the low-interest rate environment.
What are some common questions do you get concerning (f)(2) conversions?
A common issue related to (f)(2) conversion loans is confusion over the 12-day notice. If you recall, home equity (a)(6) loans require a certain disclosure provided to the borrower 12 calendar days prior to closing. Similarly, (f)(2) conversion loans require a disclosure given 12 calendar days prior to closing, but this disclosure must also be provided to the borrower within three (3) business days of application or modified application. It is critical that lenders ensure compliance with both the front-end and back-end timing requirements of the issuance of this notice.
Does BMG offer any additional resources to help lenders comply with these requirements?
Absolutely. If you do not already have access to our Texas Home Equity Manual, then I recommend you reach out to your Client Relations Representative for the password. It’s a comprehensive resource to help compliance professionals dive into the complexities of Texas home equity laws, while also providing quick access to answers of frequently asked questions.