Ordering a Rate/Term Refinance under Section 50(f)(f)
Dear Clients and Friends of PeirsonPatterson, LLP and PPDocs, Inc.,
As you are likely aware, there are significant changes to home equity lending that take effect January 1, 2018.
Among these changes, Section(f)(2) to Article XVI, Section 50 of the Texas Constitution will permit a rate/term refinance of a Texas Home Equity loan,
provided the refinance loan meets all the following requirements:
- 1. The refinance may not be closed before the first anniversary of the date the home equity loan being refinanced was closed;
- 2. The refinance may not include the advance of any additional funds other than:
- 1. Funds advanced to refinance a debt described by Subsections (a)(1) through (a)(7) of Article XVI; or
- 2. The actual costs and reserves required by the lender to refinance the debt.
- 3. The refinance must be of a principal amount that when added to the aggregate total of the outstanding principal balances of all other indebtedness secured by valid encumbrances of record against the homestead does not exceed 80% of the fair market value of the homestead on the date the refinance loan is made.
- 4. The lender must provide the homestead owner with a required notice on a separate document not later than the third business day after the date the owner submits the loan application to the lender and at least 12 days before the refinance loan is closed. The text of this refinance 12-day notice is spelled out verbatim in new subsection (f)(2)(D), and is a different notice than the 12-day notice used in connection with a home equity loan.
A previous memo on the subject prepared by Matt Filpi discussed the implementation and timing issues posed by the requirements above.
To ensure the proper documentation is included your closing and/or review packages for a 50(f)(2) rate/term refinance, we wanted to bring your attention to a new field in our system that will be included in your order forms.
In the figure above, Step 4 contains a drop-down in which the user is required to indicate whether the transaction is a Rate Term Refi of Texas Home Equity.
This field will only appear on order forms in which the user indicates that the transaction is a refinance.
The field will not appear if the user indicates the transaction is a purchase, Texas Home Equity, construction, etc.
This field will control whether important disclosures, such as the Affidavit Acknowledging that Refinance of Home Equity Loan Complies with
Texas Constitution, Article XVI, Section 50(f)(2) Requirements (a disclosure required by Fannie Mae and Freddie Mac for purchase) and the new 50(f)(2)
Acknowledgment of Receipt of 12-day Notice, filter into your package.
On full service and review orders, our operators will continue to review the title commitment and will attempt to inform you should they see a Texas Home Equity lien
on Schedule C in a refinance transaction. However, a reliance on our operators may lead to delays in finalizing and releasing closing documents or the omission of the 50(f)(2)
We hope this information is helpful to you. Thank you for your attention to this matter.