We’re checking in with our Dallas Closing Supervisor/Assistant Fulfillment Manager Judy Phothisen, for advice and clarification regarding recent queries on VA Cash Outs and TX CO products.
Judy, we’re hearing from VA borrowers that the Veterans Administration tells them they may do VA Cash Out transactions, citing new legislation that was passed. Some VA borrowers are also telling us that other banks are now offering the TX CO product for veterans. As a result, we fear we may lose some of our portfolio borrowers to other lenders. Can you help us understand and clarify?
I asked BM&G Attorney and Partner Greg Graham for his input on this issue. Greg states there was nothing in the recent Texas Legislative session relating in any way to creating a VA Texas Home Equity loan program. Greg also emphasized that the firm consistently monitors all VA regulatory changes, and there has been nothing new proposed at a federal level on this topic.
Further, the VA does not have a Texas Home Equity loan program, nor does it have any of the required loan documents to support a Texas Home Equity loan. The Texas Regulatory Agencies have jointly stated that the VA guarantee of a Home Equity loan would not comply with the Home Equity prohibition against any surety or guarantor of a Texas Home Equity loan. See Chapter 153 of the Texas Administrative Code, Rule 153.8, which states the following:
“… (2) A guaranty or surety of an equity loan is not permitted. A guaranty or surety is considered additional property for purposes of Section 50(a)(6)(H). Prohibiting a guaranty or surety is consistent with the prohibition against personal liability in Section 50(a)(6)(C). An equity loan with a guaranty or surety would create indirect liability against the owner. The constitutional home equity lending provisions clearly provide that the homestead is the only allowable collateral for an equity loan. The constitutional home equity provisions prohibit the lender from contracting for recourse of any kind against the owner or owner’s spouse, except for provisions providing for recourse against the owner or spouse when the extension of credit is obtained by actual fraud…”
In light of the foregoing, the only way that Texas could have such a program would be to amend the Texas Constitution, and there are no proposed amendments relating to this issue on the November 5, 2019, Texas Constitutional ballot.
According to Greg, here’s the bottom line: The veteran borrowers have been misinformed, or have found lenders that will make loans that do comply with the Texas Constitution. In all likelihood, it is the former.