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In the July 4, 2014 issue of the Texas Register (Volume 39 Number 27), the Finance Commission of Texas and the Texas Credit Union Commission (“commissions”) jointly proposed amendments to the following home equity lending interpretations in the Texas Administrative Code (7 TAC Chapter 153), as set out below:

On July 1, 2014, the Office of the Comptroller of the Currency (OCC), Board of Governors of the Federal Reserve System (FRB), Federal Deposit Insurance Corporation (FDIC), National Credit Union Administration (NCUA) and the Conference of State Bank Supervisors (CSBS) issued guidance to financial institutions regarding home equity lines of credit (HELOCs) nearing their end-of-draw periods.

This memorandum will provide an overview of home equity lending embodied in Article XVI, Section 50, of the Texas Constitution and will also discuss some of the issues lenders face. The full text of Section 50, current to date, is attached to this memorandum (for ease of reference, the home equity and HELOC provisions are highlighted in bold typeface). All references to “sections,” “subsections,” and “parts” in this memorandum refer to the various provisions of Section 50, unless otherwise stated.

On January 31, 2014, The Texas Supreme Court published a Supplemental Opinion in the Norwood home equity case cited above. The original opinion adversely affected the use of powers of attorney, declared bona fide discount point to be subject to the three percent fee cap, and placed per diem interest in a doubtful position relative to the three percent fee cap. The Court’s Supplemental Opinion clarifies its original opinion regarding the above.

The recent Texas Supreme Court decision in Finance Commission of Texas v. Norwood, 2013 WL 3119481 (Tex. June 21, 2013) redefines interest for the purpose of fees and limits the locations where powers of attorney may be executed in connection with home equity loans authorized by Article XVI, Section 50(a)(6) of the Texas Constitution. We previously sent our clients an email alert regarding the Norwood opinion, advising of its effect on discount points for the purposes of the three percent fee cap in section 50(a)(6)(E) and the new limitation where home equity powers of attorney must be executed. The email alert may be found on our website under Articles.

This memorandum will provide an overview of home equity lending embodied in Article XVI, Section 50, of the Texas Constitution and will also discuss some of the issues lenders face. The full text of Section 50, current to date, is attached to this memorandum (for ease of reference, the home equity and HELOC provisions are highlighted in bold typeface). All references to “sections,” “subsections,” and “parts” in this memorandum refer to the various provisions of Section 50, unless otherwise stated.

On January 8, 2009, the Texas Court of Appeals, Third District, at Austin, issued its opinion1 in the civil suit filed by the Association of Community Organizations for Reform Now (ACORN) seeking to invalidate a number of the home equity interpretations (Rules) issued jointly by the Finance Commission of Texas and the Credit Union Commission of Texas (Commissions). The ACORN opinion, in addition to other decisions affecting the Rules that will be the subject of a later memorandum, affirmed the trial court’s judgment invalidating Rule 153.1(11), which defines “interest” for purposes of the three percent fee cap imposed by Section 50(a)(6)(E) of Article XVI of the Texas Constitution (3% fee cap). Rule 153.1(11) defines interest to be “interest as defined in the Texas Finance Code §301.002(4) [sic] and as interpreted by the courts.” Section 301.002(a)(4) defines interest, in pertinent part, as “compensation for the use, forbearance, or detention of money.”

This memorandum will provide an overview of home equity lending embodied in Article XVI, Section 50, of the Texas Constitution and will also discuss some of the issues lenders face. The full text of Section 50, current to date, is attached to this memorandum (for ease of reference, the home equity and HELOC provisions are highlighted in bold typeface). All references in this memorandum to “sections”, “subsections”, and “parts” refer to the various provisions of Section 50, unless otherwise stated.

The Finance Commission of Texas and the Texas Credit Union Commission (“Commissions”) have jointly revised the following home equity Interpretations: §153.22 (Copies of Documents) and §153.84 (Restrictions on Devices and Methods to Obtain a HELOC Advance) to comply with the December 4, 2007 amendments to §§50(a)(6) and (t)(3), Article XVI, of the Texas Constitution. These revised Interpretations are published in the July 4, 2008 issue of the Texas Register and became effective July 10, 2008.