Ballot Language:

The constitutional amendment to clarify certain provisions relating to the making of a home equity loan and use of home equity loan proceeds.

HJR-72 History

The author’s intent is important for this one:

Due to a recent lawsuit, ACORN et al. v. Finance Commission of Texas et al., the Texas Finance Commission and the Credit Union Department asked the legislature to clarify the home equity loan provisions in the Texas Constitution. Also, in response to the financial ramifications of hurricanes Rita and Katrina, homeowners need access to the equity in their property in the event of a natural disaster.

Here are the provisions the amendment seeks to clarify:

• whether property is designated for agricultural use, which would make the property ineligible to secure a home equity loan, is determined as of the date of the loan closing;
• the application that begins the 12-day waiting period before the loan may close must be the loan application;
• the borrower must receive a copy of the loan application at least one business day before the loan may close;
• the one-year waiting period between home equity loans may be waived at the borrower’s request in the case of a declared emergency applicable to the area where the property securing the loans is located;
• a borrower may sign a loan document that has blanks left to be filled in if the blanks do not relate to substantive terms of the loan agreement;
• at the time the loan is made the borrower must receive a copy of the final loan application and all executed documents the owner signs at closing and those documents may be provided by a person other than the lender; and
• a borrower may not use an unsolicited preprinted check to obtain an advance on a home equity line of credit

Bigjolly says: After reading, re-reading and reading the arguments on this yet again, I still don’t have a solid yes/no in my mind. There are good arguments on both sides, mostly revolving around how far it goes and that it should have addressed more issues. At this point, I’m going to vote for it.

Click to read comments for and against.

From the Texas Legislative Council Summary (note: 131 page pdf file):

Comments by Supporters: Recent interpretations of home equity lending law by the Finance Commission of Texas and court cases, especially the ACORN case, have created a lot of uncertainty in that area of law that the proposed amendment is intended to address. Additional clarity is especially important because mistakes in following the legal technicalities of the law can result in invalidating a loan. The proposed amendment more closely reflects the actual business practices of lenders while protecting
borrowers from unscrupulous practices.

Hurricanes Rita and Katrina have shown that flexibility is needed in the one-year waiting period between home equity loans, so that borrowers can access the equity in their homes to finance repair of damages caused during a declared state of emergency.

Although the ACORN case involves the issue of what charges are considered fees for the purpose of the constitution’s three percent cap on fees that may be charged in connection with a home equity loan and what charges are considered interest not subject to the cap, the law on this issue is clear and the proposed amendment is correct in not addressing this issue.

Comments by Opponents: Opponents agree that a constitutional amendment is necessary to address uncertainties in the law but disagree as to what uncertainties should be addressed and how the law should be changed. The amendment fails to address crucial issues, such as what charges are subject to the constitutional fee cap and whether an application for a home equity loan may be taken orally. Because the courts tend to favor lenders on these issues, failure of the amendment to address the
issues is the same as settling the issues in the lenders’ favor to the detriment of borrowers.

Moreover, the amendment does not provide enough protection to home equity line of credit borrowers, who are enticed into taking advances on the loan by the use of preprinted checks. A preprinted check should be valid as a means to secure an advance only if it is signed by all owners, as is required of the original application.

The amendment also does not require the lender to provide to the borrower copies of all the documents in the lender’s files related to the loan. Borrowers need this information to be sure that at closing of the loan they are receiving everything to which they are entitled under the agreement.