HBA-JLV H.J.R. 4 77(R) BILL ANALYSIS Office of House Bill AnalysisH.J.R. 4 By: Wolens Financial Institutions 3/12/2001 Introduced BACKGROUND AND PURPOSE In 1997, the Texas Legislature amended the Texas Constitution to authorize home equity loans and reverse mortgages to be secured by liens against the homestead. If a borrower fails to repay the loan or fails to meet the terms of the loan, the lender may foreclose on and sell the home with certain exceptions. Several technical questions concerning home equity and reverse mortgage provisions of the Texas Constitution have arisen over the course of time that home equity loans and reverse mortgages have been available in Texas. As proposed, House Joint Resolution 4 requires the submission to the voters of a constitutional amendment correcting technical errors and clarifying a lender's ability to cure certain violations of the home equity lien provisions. RULEMAKING AUTHORITY It is the opinion of the Office of House Bill Analysis that this resolution does not expressly delegate any additional rulemaking authority to a state officer, department, agency, or institution. ANALYSIS House Joint Resolution 4 amends the Texas Constitution to correct technical errors in home equity lien provisions and clarify a lender's ability to cure certain violations of the home equity lien provisions. The resolution does not require the owner or the owner's spouse to pay fees other than interest, late fees, returned check fees, and the costs of foreclosure necessary to originate, evaluate, maintain, record, or service the loan that exceed three percent of the loan amount (Sec. 50(a)(6)(E)). The resolution provides that no collateral other than the property the owner claims as homestead and the property rights appurtenant to it may be security for the loan (Sec. 50(a)(6)(H)). The resolution also provides that the lender or the holder of the note (lender) forfeits all principal and interest if the lender fails to comply with its obligations, unless the noncompliance is not in bad faith and is discovered within 60 days and the lender either corrects the noncompliance or if correction is not possible, offers the owner a choice of alternatives. The first choice is to allow the owner to refinance the loan at no cost on the same terms as the original loan or by terms otherwise acceptable to both parties. The second choice is to receive a payment from the lender equal to the greater of $500 or the owner's actual damages caused by the noncompliance. The decision must be reached by the owner within 90 days after the offer is received (Sec. 50(a)(6)(S)(iii)). In addition, the resolution provides that if a refinance of debt secured by a homestead includes the advance of additional funds, the additional funds may not be secured by a valid lien against the homestead except to the extent that the refinance of the debt is an extension of credit or a reverse mortgage or the additional funds are for actual costs and reserves required by the lender (Sec. 50(e)). FOR ELECTION This proposed constitutional amendment shall be submitted to the voters at an election to be held November 6, 2001.