Texas League issues call to action on home equity reform
AUSTIN, Texas - The Texas Credit Union League appears to be at the forefront of a statewide movement by lenders and lending associations to target home equity reform during Texas' 79th Legislative session that begins in January. Passage of a Texas constitutional amendment in November 1997 made Texas the last...
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AUSTIN, Texas – The Texas Credit Union League appears to be at the forefront of a statewide movement by lenders and lending associations to target home equity reform during Texas’ 79th Legislative session that begins in January. Passage of a Texas constitutional amendment in November 1997 made Texas the last of 50 states to offer home equity loans. But the amendment’s confusing language and burdensome requirements have since discouraged many potential lenders and borrowers. According to TCUL’s General Counsel Ann Graham, the League is focusing on four items of reform that will provide borrowers easier access to their accumulated home equity, while keeping consumer protections intact. They are: 1. Add a line-of-credit provision to Texas home equity loans. Home equity lending in all 49 other states has a line-of-credit provision. In Texas, consumers are allowed only one home equity loan in a 12-month period, regardless of the amount of their remaining home equity reserves. This prevents legitimate borrowers from accessing their money more than once. Also, Graham said consumers who don’t need the lump sum all at once have to “park the full amount somewhere else” and draw from it as needed. Unfortunately, they pay interest on the lump sum from the time it is withdrawn. A line of credit would allow borrowers to withdraw only what they need, when they need it and pay interest only on their outstanding loan balance. 2. Provide lenders authorization to refinance a consumer’s first mortgage and home equity loan into a new mortgage loan. Home equity loans generally carry a higher interest rate than first mortgage loans, and it might be in the consumer’s best interest to roll the two loans together under the lower interest rate. While Texas law does not prevent this, lenders don’t do it because of the different structures of the two types of loans. 3. Designate a state agency that has authority to issue home equity rules and interpretations. Because home equity lending is governed by an amendment in the state’s constitution, the only way to resolve disputes is to litigate them all the way to the Texas Supreme Court. This is costly for borrowers and lenders, and discourages many lenders from offering home equity loans. A state agency would help clarify rules and regulations, providing safe harbor for lenders in compliance. 4. Increase consumer home equity loan repayment options. Currently, Texas borrowers have only one home equity loan repayment option: monthly payments. Many borrowers, according to Graham, want to pay more often to coincide with, for example, receipt of bi-monthly paychecks. This reform would allow borrowers to pay back equal amounts each pay period, enabling them to repay their loans faster and with less interest. TCUL has issued a legislative call to action to Texas credit unions and their members. Statement stuffers urging member involvement in contacting lawmakers are being distributed to credit unions for inclusion in third quarter statements. The message: “Home equity that’s more accessible and affordable. Your support is the key.” “We feel strongly that this is a consumer issue,” Graham said. “Individuals are the hallmark of the credit union movement. They are the voting power in Texas and everyone counts. When they call their representatives and senators, it means something. They need to go visit with their officials when they’re in their district offices and tell them that home equity reform is important. Elections are in November, and candidates are listening to their constituents.” -
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