With rates decreasing, we anticipate clients will originate more (f)(2) loans (also called A6 to A4 conversion loans). To help remind our clients about the product, we asked Houston Attorney Joshua Verkerk to explain what the product is and when to use it.
Prior to 2018, the rule in Texas was: “once a home equity, always a home equity.” Well, that no longer applies. If your borrower has an equity lien on their homestead property, they now have several options, including (1) originating a new equity loan to pay off the existing lien or (2) originate a rate and term refinance of the existing lien.
Although option 2 prohibits the borrower from receiving any equity or cash back on such a transaction, it provides flexibility not afforded on a home equity loan—like the ability to originate an FHA or VA product and allows the borrower to take out a HELOC or second-lien, closed-end home equity loan in the future. Remember there are four critical things to remember when originating (f)(2) loans:
- The refinance cannot close before the first anniversary date of the equity loan;
- The refinance does not include the advance of additional funds other than the funds advanced to refinance the secured lien on property or the actual costs and escrow reserves required by the lender;
- The CLTV of the refinance does not exceed 80% of fair market value of the homestead; and
- The lender must provide the required notice 12 days prior to closing and no later than three business days after the date the owner submits the loan application.
As always, we’re here to help. Please do not hesitate to contact us with questions regarding this or other products in Texas and be sure to schedule your home equity training. For a refresher on the (f)(2) product, view this video from our very own Calvin Mann. https://www.bmandg.com/home-equity-f2-conversion/
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