LEGISLATIVE BUDGET BOARD Austin, Texas FISCAL NOTE 74th Regular Session April 17, 1995 TO: Honorable Ken Armbrister, Chair IN RE: Committee Committee on State Affairs Substitute Senate for Senate Austin, Texas Bill No. 301 FROM: John Keel, Director In response to your request for a Fiscal Note on Senate Bill No. 301 (Relating to a voluntary, consensual encumbrance on homestead property for the purpose of an equity loan.; Relating to a voluntary, consensual encumbrance on homestead property for the purpose of an equity loan.) this office has determined the following: The bill would allow homeowner's to receive an equity loan or reversible mortgage loan from financial institutions against their homestead property. The principal amount of the loan plus all other encumbrances could not exceed 90% of the fair market value of the property used as collateral; only the homestead property securing an equity loan could be used as collateral. Acceleration of an equity loan is prohibited due to a decrease in market value, unless the decrease is caused by damage or destruction to the property, environmental hazards, condemnation or use of the secured property that constitutes a waste or nuisance. Lenders would be required to provide homeowners with a notice, as specified in the bill, once they request application for an equity loan. The bill would also create the division of Access to Financial Services in the Office of Consumer Credit Commissioner. The division will conduct research on equity lending, business practices, prepare a report for the legislature regarding Home Equity Lending. The bill also creates the Equity Loan Recovery Fund to reimburse consumers who suffer damages as a result of misrepresentation, dishonesty, or fraud committed by an authorized lender. The Office of Consumer Credit Commissioner will act as the administrator of the account. The probable fiscal implication of implementing the provisions of the bill during each of the first five years following passage is estimated as follows: Fiscal Probable Revenue Probable Cost Out Probable Revenue Year Gain to GR of GR Gain to Other Consolidated - Consolidated - Funds 997 - Equity Consumer Credit Consumer Credit Loan Recovery Fund Exp Fd 509 Exp Fd 509 1996 $1,256,000 $1,261,072 $85,000 1997 1,261,000 1,200,478 110,000 1998 1,261,000 1,215,951 110,000 1999 1,261,000 1,239,785 110,000 2000 1,316,000 1,341,006 110,000 Fiscal Change in Year Number of State Employees from FY 1995 1996 22.0 1997 22.0 1998 22.0 1999 22.0 2000 22.0 Similar annual fiscal implications would continue as long as the provisions of the bill are in effect. No fiscal implication to units of local government is anticipated. Source: Comptroller of Public Accounts, Office of the Consumer Credit Commissioner LBB Staff: JK, VS, DF