Texas Legislative Session in Full Swing, FHA Updates Instructions for GSE Security Instruments and Notes, and more!

The 88th Session of the Texas Legislature began at noon on Tuesday, January 10th, and the members of the House and Senate were sworn in later that day. Representative Dade Phelan, R-Beaumont was elected to a second term as Speaker of the House.

The legislature will be facing an unusual budget situation. On January 9, 2023, Texas Comptroller Glenn Hegar announced that the state has a record $188.2 billion available for general purpose spending during the 2024-25 biennium and a $32.7 billion General Revenue-Related funds (GR-R funds) balance (GR-R funds are revenues designated for general-purpose spending). Out of the GR-R funds balance, $10.2 billion is reserved for the state’s Economic Stabilization Fund (more commonly known as the Rainy Day fund) and the State Highway Fund. This large surplus notwithstanding, spending requests by legislators for the 2024-25 biennium will likely exceed it as legislators file thousands of bills before the March 10 deadline.

PPDocs will monitor information from government relations (GR) experts at several Texas associations during the session. We only report news to our clients during the session on time-sensitive issues. When the session is over and the time for the Governor’s veto/signature has passed, we will again lean on our GR friends to let us know which bills affect our industry, report them to you, and timely make any necessary changes to Texas documents.

PPDocs Note: It would be unusual for any bill affecting our industry to take effect before September 1, 2023.

On January 20, 2023, HUD released Mortgagee Letter 2023-01 regarding specific modifications to GSE security instruments and notes. In the announcement, HUD indicated use of the 2023 GSE Forms is not required, and the FHA will continue to accept 2001 GSE Forms that include FHA-specific modifications.

PPDocs Note: Our current forms comply with the 2001 GSE Forms required by FHA, and we are working on modifying the 2023 Forms. We will release an announcement when those are ready.

On Thursday, January 12, 2023, the Office of the Comptroller of the Currency (OCC) issued a revised version of the “Fair Lending” booklet of the Comptroller’s Handbook.

The “Fair Lending” booklet provides information and examination procedures to assist OCC examiners in assessing fair lending risk and evaluating compliance with the Fair Housing Act, the Equal Credit Opportunity Act (ECOA), and ECOA’s implementing regulation, Regulation B. The revised booklet reflects changes to laws and regulations since it was last published to explain the OCC’s current approach to fair lending examinations and to provide additional instructional guidance for examiners. The revised booklet includes new and clarified details and risk factors for a variety of examination scenarios. In addition, it updates references to supervisory guidance, sound risk management practices, and applicable legal standards.

Freddie Mac recently announced a new 12 month seasoning requirement for first lien mortgages that will be paid off by a loan underwritten as a FHLMC “cash out refinance”. The following is from page 4 of Freddie Mac Bulletin 2022-25, issued on December 7, 2022:

Effective for Mortgages with Settlement Dates on and after March 7, 2023

When proceeds of a cash-out refinance Mortgage are used to pay off a First Lien Mortgage, the First Lien Mortgage being refinanced must be seasoned for at least 12 months (i.e., at least 12 months must have passed between the Note Date of the Mortgage being refinanced and the Note Date of the cash-out refinance Mortgage), as documented in the Mortgage file (e.g., on the credit report or title commitment).

PPDocs Note: We are monitoring the effect of this announcement on the broader secondary market and may have further announcements on the topic in the coming weeks.

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