Product Spotlight: HELOCs!
Did you know we can document HELOCs in 49 states (Minus NY)? And we are subject matter experts on the legal requirements for originating and documenting Texas 50(a)(6) HELOC loans!
We can provide you with a compliant document set for a HELOC with a fixed or variable rate interest-only draw period followed by either 1) a balloon payment or 2) a fixed or variable rate fully amortizing repayment period.
We have created a guide to help you get started ordering HELOCs on our platform: Guide
Pricing for a compliant HELOC document set is only $275 per loan.
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To register for this webinar, please click here.
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Texas Home Equity: Business Day Definition Amended
Based on a recommendation from an attorney in our office, the Joint Financial Regulatory Agencies of Texas recently amended the definition of "business day" in the Texas home equity interpretations at 7 T.A.C. §153.1(2) to add the Juneteenth federal holiday to the list of holidays and conform business day with federal law where necessary.
The adopted amendments to §153.1(2), which are effective July 14, 2022, create three definitions of business day for 50(a)(6) home equity and 50(f)(2) rate/term refinance purposes, where there was previously one.
First, for purposes of 7 TAC §153.13 (relating to 50(a)(6) Preclosing Disclosures: Section 50(a)(6)(M)(ii)), the adoption states that a “business day” is a calendar day except for Sunday or a legal public holiday described by federal law. Under Section 50(a)(6)(M)(ii), the lender must provide a preclosing disclosure to the owner at least one business day before the closing of a home equity loan. This new definition is the same as the previous definition of "business day" in §153.1(2), except it adds Juneteenth National Independence Day as an additional listed holiday.
Second, for purposes of 7 TAC §153.45 (relating to a Section 50(f)(2) rate/term refinance of a home equity loan), the adoption amends §153.1(2) to state that a business day is a day on which the lender's offices are open to the public for carrying on substantially all its business functions. Under Section 50(f)(2)(D), when a lender refinances a home equity loan into a non-home-equity loan, the lender must provide a refinance disclosure (i.e., 12-day notice) within three business days after the homeowner submits a loan application. This new business day definition is now the same definition as the “business function test” that applies to the TRID requirement to provide an early disclosure within three business days after a creditor receives the consumer's application (as provided by 12 C.F.R. §1026.18(e)(1)(iii)(A)); thus, confirming that the 12-day notice and TRID early disclosures may be provided simultaneously.
Third, for purposes of 7 TAC §153.25 (relating to Right of Rescission: Section 50(a)(6)(Q)(viii)), the adoption states that a business day has the meaning provided by Regulation Z, 12 C.F.R. §1026.2(a)(6) that applies to rescission, i.e., that a business day is any calendar day except Sundays and legal public holidays listed in federal law. This business day definition is the same as the “more precise rule” that applies for purposes of the consumer’s right to rescind certain mortgage loans within three business days after consummation (as provided by 12 C.F.R. §1026.23(a)(2)); thus, confirming that the Texas home equity and TILA three business day right of rescission are the same.
Below is the amended definition of “business day” in the Texas Home Equity Interpretations:
Any reference to Section 50 in this interpretation refers to Article XVI, Texas Constitution, unless otherwise noted. These words and terms have the following meanings when used in this chapter, unless the context indicates otherwise:
(2) Business day.
(A) As used in Section 50(a)(6)(M)(ii) and §153.13 of this title (relating to Preclosing Disclosures: Section 50(a) (6)(M)(ii)), “business day” means all calendar days except Sundays and the following legal public holidays: New Year’s Day, Birthday of Martin Luther King, Jr., Washington’s Birthday, Memorial Day, Juneteenth National Independence Day, Independence Day, Labor Day, Columbus Day, Veterans Day, Thanksgiving Day, Christmas Day, and any other legal public holiday specified in 5 U.S.C. § 6103(a). When a holiday falls on a Saturday or Sunday, entities might observe the holiday on the preceding Friday or following Monday (e.g., when July 4 falls on a Saturday, entities might observe the holiday on Friday, July 3). For purposes of this subparagraph, these observed holidays (in the example, July 3) are business days.
(B) As used in Section 50(f)(2)(D) and §153.45 of this title (relating to Refinance of an Equity Loan: Section 50(f)), “business day” means a day on which the lender’s offices are open to the public for carrying on substantially all of its business functions. Activities that indicate that the lender is open for substantially all of its business functions include the availability of personnel to make loan disbursements, to open new accounts, and to handle loan inquiries. Activities that indicate that the lender is not open for substantially all of its business functions include a bank’s having its customer-service windows open only for limited purposes such as deposits and withdrawals, bill paying, and related services.
(C) As used in §153.25 of this title (relating to Right of Rescission: Section 50(a)(6)(Q)(viii), “business day” has the meaning provided by Regulation Z, 12 C.F.R. §1026.2(a)(6) that applies for purposes of rescission.
Note: Other than the addition of the new Juneteenth federal holiday, these changes merely clarify and endorse current practice. We have added Juneteenth to our business day definition for Texas home equity loans.
Frequently Asked Question
Question: A loan was locked with a new investor that is charging discount points. Can we use another investor’s rate sheet to show that these discount points are bona fide?
Answer: The regulation does not provide a clear answer to this question, unfortunately. Accordingly, it comes down to a business risk decision.
The term “bona fide discount point” is defined in Section 32 of Regulation Z:
32(b)(3) Bona fide discount point.
32(b)(3)(i) Closed-end credit.
1. Definition of bona fide discount point. Section 1026.32(b)(3) provides that, to be bona fide, a discount point must reduce the interest rate based on a calculation that is consistent with established industry practices for determining the amount of reduction in the interest rate or time- price differential appropriate for the amount of discount points paid by the consumer. To satisfy this standard, a creditor may show that the reduction is reasonably consistent with established industry norms and practices for secondary mortgage market transactions. For example, a creditor may rely on pricing in the to-be-announced (TBA) market for mortgage-backed securities (MBS) to establish that the interest rate reduction is consistent with the compensation that the creditor could reasonably expect to receive in the secondary market. The creditor may also establish that its interest rate reduction is consistent with established industry practices by showing that its calculation complies with requirements prescribed in Fannie Mae or Freddie Mac guidelines for interest rate reductions from bona fide discount points. For example, assume that the Fannie Mae Single-Family Selling Guide or the Freddie Mac Single Family Seller/Servicer Guide imposes a cap on points and fees but excludes from the cap discount points that result in a bona fide reduction in the interest rate. Assume the guidelines require that, for a discount point to be bona fide so that it would not count against the cap, a discount point must result in at least a 25 basis point reduction in the interest rate. Accordingly, if the creditor offers a 25 basis point interest rate reduction for a discount point and the requirements of § 1026.32(b)(1)(i)(E) or (F) are satisfied, the discount point is bona fide and is excluded from the calculation of points and fees.
1. Bona fide discount point. The term bona fide discount point is defined in § 1026.32(b)(3).
3. Example. Assume a transaction that is a first-lien, purchase-money home mortgage with a fixed interest rate and a 30-year term. Assume also that the consumer locks in an interest rate of 6 percent on May 1, 2014 that was discounted from a rate of 6.5 percent because the consumer paid two discount points.
To be considered bona fide, the fee must be used to reduce the interest rate that is available to the consumer. Generally, the consumer must be offered an interest rate without points, and then offered a loan with discount points at a lower interest rate which includes payment for the discount points. By doing so, the lender has proof that the discount points were bona fide because the fee was attributable to receiving a lower interest rate.
Determining whether the discount points are bona fide also comes into play when calculating the points and fees test for purposes of Section 32 and Qualified Mortgage considerations. To determine whether you can exclude bona fide points and fees from those tests, you must know what the interest rate was without the discount points in order to compare that interest rate to the proper APOR.
How a lender chooses to support the fact that discount points are actually bona fide is a business decision. We’d recommend discussing with your internal compliance team because you may have to show proof if challenged by a consumer, auditor, or regulator.