TEXAS HOME EQUITY LOANS UPDATE: MORTGAGE LENDING BONANZA JANUARY 1, 1997 HEADLINES: "RUSH TO EQUITY LENDING PREDICTED", Ft. Worth Star-Telegram "TEXAS COULD BE LOAN STAR STATE FOR BOA AND WELLS", San Francisco Business Times "LAWMAKER PREDICTS PASSAGE OF HOME EQUITY AMENDMENT", Amarillo Globe News For 150 years, Texas has banned home equity loans. Texas is the only state in the Union that bans home equity loans. Current law allows very restrictive home equity loans for only home improvements and to pay taxes. Texas is the second-most-populous state and Texans have more than $200 billion of equity in their homes. The voters of Texas will have a chance on November 4, 1997 to overturn this ban on home equity loans by approving a Constitutional Amendment to the Texas Constitution. Most experts predict that the voters will approve the Constitutional Amendment and permit home equity loans beginning January 1, 1997. Many home equity lenders are gearing up to aggressively enter the Texas home equity loan market. The potential for the second mortgage business is comparable to the Oklahoma Land Rush. This site will regularly update you on the status of the November 4th election and vote on this significant issue. HIGHLIGHTS OF CONSTITUTIONAL AMENDMENT TEXAS REGULATED LENDERS LICENSING REQUIREMENTS HERBERT H. THOMAS HOME PAGE MORTGAGE LENDING LIBRARY RESOURCES HIGHLIGHTS OF CONSTITUTIONAL AMENDMENT ï Authorized Lenders Only-home equity loans may only be made by lenders licensed in Texas ï Loan to Value Cap-Loans would be capped at 80% of a home's value ï Judicial Foreclosure-Lenders could not foreclose on a home equity loan without going to court ï Decrease in Market Value-Loan payments could not be accelerated if the market value of the house falls ï Substantially Equal Payments/Full Amortization- Balloon payments would be prohibited. ï Additional collateral- Loans would be made on a non-recourse basis so lenders could not go after other assets if a borrower defaults ï Cooling-Off Period- 12-day waiting period to close after application for loan is submitted ï Right of Recession- 3 day right of recession ï Location Of Closing- Prohibition against the closing of the loan at any location other than lender's office, attorney's office or title company ï Lines of Credit Prohibited ï Prepayment Penalties Prohibited ï Cross Default Prohibited ï Stacking of Loans- Borrower may have only one home equity loan at a time ï Voluntary Liens only-involuntary liens are still prohibited against homesteads TEXAS REGULATED LENDERS LICENSING REQUIREMENTS 1. What Texas state agency regulates licenses for home equity loans? OFFICE OF CONSUMER CREDIT COMMISSIONER 2601 NORTH LAMAR AUSTIN, TEXAS 78705-4207 (512) 479-1288, (214) 263-2016 or 1-800538-1579, (713) 4614074 2. What are the type of loans permitted under a Regulated Lending License? First mortgage loans in Texas do not require a license. Second mortgage loans require a Texas Regulated Lending License. Texas home equity loans that are second mortgages or greater require a Texas Regulated Lending License under the Texas Credit Code, Chapter 3 and Chapter 5. The license is captioned Texas Lending License, and indicates on the face the types of loans which are authorized. This license must be prominently displayed in the licensed office so long as the licensee operates under the Texas Credit Code. 3. What is the net worth requirement? The current requirement is $25,000 per license. See Net Assets Article 3.05(3)(a). 4. What is the experience requirement? New applicants should list credit granting experience in a separate statement. 5.Who are the people that must be listed on an Application? ï Owners - Community Property - List spouse(s) with community property interest. If spouse(s) will not have community property interest, provide documentation establishing or confirming as separate property. ï Corporations - List the names of officers, directors and stockholders owning 5% or more stock at each level. ï Manager (Person responsible for the day-to-day operation) ï Supervisor (Person responsible for supervision of licensed location) List the owner's name in each space if the owner will be manager and/or supervisor. 6. What are the Application fees? FEES: New License Fees - Pay all fees by check or money order. Investigation Fees A $200 investigation fee is required each time one or more application is filed. These fees are nonrefundable. License Fees - A $100 license fee is required for each new application. Fingerprint Fees - Pay all fees by check or money order. The fee to investigate each applicant's fingerprint record is $40. 7. What kind of documentation is required to accompany the Application (Form ADM-10/11)? Exhibit A: a brief narrative explaining the type of lending operation that is planned. Exhibit B: Statutory Agent (Form ADM-13) - Form listing the statutory agent to whom any legal notice should be delivered. Exhibit C: Personal Affidavit (Form ADM-15/16) - Each person listed on the application for license(Form ADM-10/11) must complete a personal affidavit (excluding notary). Exhibit D: Financial Statement (Form ADM-17/18/19) -Financial statement must be dated within sixty (60) days prior to the date of application. Exhibit E: Assumed Name Certificate (Form ADM-20 and Form ADM-21) Corporations - Foreign-Must file with the county clerk in the county(ies) where the corporation's Registered Agent resides and its principal office is located bearing the filing stamp of the county clerk, and the Secretary of State Exhibit F: Loan Forms: Copies of all loan documents to be used in the licensed business Exhibit G: Map - Show location of proposed office. Exhibit H: Statement of Experience - a written statement why the commissioner should approve the application. Exhibit I: Copy of Articles of Incorporation (and any amendments) along with the certificate from the Secretary of State. Exhibit J: Copy of the corporate bylaws. Exhibit K: Minutes of corporate meetings - Election of current officers and directors - Authorization for the application for license Exhibit L: Certificate of authority to do business in Texas from Texas Secretary of State/ Certificate of Good Standing from TX Comptroller of Public Accounts. Exhibit M: Finger Print Cards: Finger print cards are required for all persons listed in the Application except the notary for processing both with the Texas Department of Public Safety and the FBI. Bank Confirmation Forms: Banks who are listed in the Application must verify account balances. 8. What is the normal processing procedure? Normal Processing Procedure: If your application is received by mail, a response will be made within 14 working days of receipt acknowledging completeness, identifying deficiencies, and requesting additional information, if necessary. The commissioner may reject a substantially incomplete application. If a complete application has not been filed with the commissioner within 30 days after the initial review has been sent to the applicant, the application will be denied and the investigation fee shall be forfeited. The annual fee shall be refunded to applicant. The Application must be accepted or rejected by the commissioner within 60 days of the Application submission if the Application is complete. 9. Is there an expedited processing procedure? Expedited Procedure: You may call for an appointment to review your application with someone from the Licensing Section. A completed application is one which conforms to the commissioner's published instructions and for which all fees have been paid. Upon approval, the Commissioner will forward a license to the person filing the application. 10. What is the Commissioner denies the Application? Hearing upon denial: If the Commissioner denies your application, you will be provided an opportunity to appeal the decision. THOMAS LAW FIRM, P.C. 6116 NORTH CENTRAL EXPRESSWAY SUITE 922, L.B.72 DALLAS, TEXAS 75206-5155 214.692.7611 (VOICE) 214.692-7613 OR 696-8902 (FAX) E-Mail Herb Thomas