By Danburg, Patterson, Marchant, Hill, H.B. No. 1188
A BILL TO BE ENTITLED
1-1 AN ACT
1-2 relating to home equity loans, the regulation of certain
1-3 institutions and occupations connected with home equity loans, and
1-4 the consideration of home equity in certain financial assistance
1-5 applications; providing an administrative penalty.
1-6 BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:
1-7 SECTION 1. Section 41.001(b), Property Code, is amended to
1-8 read as follows:
1-9 (b) Encumbrances may be properly fixed on homestead property
1-10 for:
1-11 (1) purchase money;
1-12 (2) taxes on the property;
1-13 (3) work and material used in constructing
1-14 improvements on the property if contracted for in writing as
1-15 provided by Sections 53.059(a), (b), and (c);
1-16 (4) an owelty of partition imposed against the
1-17 entirety of the property by a court order or by a written agreement
1-18 of the parties to the partition, including a debt of one spouse in
1-19 favor of the other spouse resulting from a division or an award of
1-20 a family homestead in a divorce proceeding; [or]
1-21 (5) the refinance of a lien against a homestead,
1-22 including a federal tax lien resulting from the tax debt of both
1-23 spouses, if the homestead is a family homestead, or from the tax
1-24 debt of the owner; or
1-25 (6) an extension of credit defined by Section
2-1 50(a)(6), Article XVI, Texas Constitution.
2-2 SECTION 2. Title 79, Revised Statutes (Article 5069-1.01 et
2-3 seq., Vernon's Texas Civil Statutes), is amended by adding Chapter
2-4 5A to read as follows:
2-5 CHAPTER 5A. EQUITY LOANS
2-6 Art. 5A.01. DEFINITIONS. In this chapter:
2-7 (1) "Application" means an oral or written request for
2-8 an equity loan made according to procedures established by the
2-9 lender.
2-10 (2) "Business day" means a day other than a Sunday or
2-11 a legal public holiday listed by 5 U.S.C. Section 6103(a).
2-12 (3) "Close" or "closing" means, for the purpose of an
2-13 equity loan, the execution by the borrower of the promissory note
2-14 and the security instruments securing the loan.
2-15 (4) "Equity loan" means an extension of credit defined
2-16 by Section 50(a)(6), Article XVI, Texas Constitution.
2-17 (5) "Reverse mortgage" means an equity loan:
2-18 (A) that is secured by a voluntary lien on
2-19 homestead property created by a written agreement with the consent
2-20 of each owner and each owner's spouse;
2-21 (B) that is made to a person who is or whose
2-22 spouse is 55 years or older;
2-23 (C) that is made without recourse for personal
2-24 liability against each owner and the spouse of each owner;
2-25 (D) under which advances are provided to a
2-26 borrower based on the equity in a borrower's homestead;
2-27 (E) that does not permit the lender to reduce
3-1 the amount or number of advances because of an adjustment in the
3-2 interest rate if periodic advances are to be made; and
3-3 (F) that requires no payment of principal or
3-4 interest until:
3-5 (i) the homestead property securing the
3-6 loan is sold; or
3-7 (ii) all borrowers cease occupying the
3-8 homestead property as a principal residence for more than 180
3-9 consecutive days and the location of the homestead property owner
3-10 is unknown to the lender.
3-11 Art. 5A.02. CONSTRUCTION OF CHAPTER. (a) For the purposes
3-12 of this chapter, an equity loan is considered closed on the
3-13 earliest date on which both of the following are executed:
3-14 (1) each promissory note evidencing the equity loan;
3-15 and
3-16 (2) a deed of trust or other security instrument
3-17 securing the equity loan.
3-18 (b) In establishing the fair market value of homestead
3-19 property, a lender shall rely on an appraisal prepared in
3-20 accordance with a state or federal requirement applicable to the
3-21 lender. If no state or federal appraisal requirement applies to an
3-22 equity loan, the fair market value of the homestead property may
3-23 be, at the lender's option, the value estimate set forth in:
3-24 (1) an appraisal prepared by a licensed or certified
3-25 appraiser under the Texas Appraiser Licensing and Certification Act
3-26 (Article 6573a.2, Vernon's Texas Civil Statutes); or
3-27 (2) any other competent appraisal.
4-1 Art. 5A.03. APPLICABILITY OF CHAPTER. A lender making an
4-2 equity loan must comply with:
4-3 (1) Section 50, Article XVI, Texas Constitution, and
4-4 this chapter;
4-5 (2) any nonconflicting requirement of another law
4-6 relied on as authority for the rate or amount of interest provided
4-7 for in the loan; and
4-8 (3) applicable federal law.
4-9 Art. 5A.04. PERCENT OF VALUE LIMIT. (a) The principal
4-10 amount of an equity loan, plus the aggregate total of the
4-11 outstanding balances of other indebtedness secured by valid
4-12 encumbrances of record against the homestead property, may not
4-13 exceed 75 percent of the fair market value of the homestead
4-14 property on the date the equity loan is closed. The lien securing
4-15 the equity loan is valid only if the principal amount of the equity
4-16 loan plus the aggregate total of the outstanding balances of other
4-17 indebtedness secured by valid encumbrances of record against the
4-18 homestead property does not exceed 75 percent of the fair market
4-19 value of the homestead property on the date the equity loan is
4-20 closed. Violation of this article does not affect the validity of
4-21 other indebtedness secured by valid encumbrances of record against
4-22 the homestead property or of the lien securing the equity loan.
4-23 (b) For the purposes of this article, the aggregate total of
4-24 the outstanding balances of indebtedness secured by valid
4-25 encumbrances of record against the homestead property does not
4-26 include any advance made by a lender to protect a lien on the
4-27 homestead property securing the loan, including the payment of
5-1 hazard insurance premiums, repairs to the homestead property, or
5-2 payments on any indebtedness secured by a prior valid encumbrance
5-3 on the homestead property.
5-4 Art. 5A.05. RESCISSION. (a) Each owner or spouse of each
5-5 owner of homestead property securing an equity loan may rescind the
5-6 loan. Compliance with all applicable state and federal law
5-7 regarding the right to rescind, including 12 C.F.R. Sections 226.15
5-8 et seq. and 226.23 et seq., is considered compliance with this
5-9 chapter regarding rescission.
5-10 (b) The right of rescission provided by this article applies
5-11 to each equity loan made under this chapter, regardless of the
5-12 purpose of the loan. An owner of the homestead property securing
5-13 an equity loan may not waive the right of rescission required by
5-14 this article, regardless of whether applicable state or federal law
5-15 provides for a waiver.
5-16 Art. 5A.06. INTEREST. A lender may contract for and receive
5-17 on an equity loan that is not a first lien any fixed or variable
5-18 rate of interest that does not exceed the lesser of the maximum
5-19 rate permitted by Article 1.04 of this title or 7-1/2 percentage
5-20 points above the auction average rate quoted on bank discount basis
5-21 for 26-week treasury bills issued by the United States government,
5-22 as published by the Federal Reserve Board, for the week preceding
5-23 the week in which the rate is contracted for, rounded to the
5-24 nearest one-fourth of one percent. Interest shall be accrued and
5-25 earned by applying the simple annual interest rate or rates under
5-26 the loan contract to the principal balance. In determining the
5-27 amount of interest accrued, the lender may assume that the payments
6-1 have been made as originally scheduled and ignore any difference
6-2 created by later or early payments.
6-3 Art. 5A.07. INSURANCE. (a) Under an equity loan, a lender
6-4 may request or require a borrower to provide insurance:
6-5 (1) in the amounts and under the conditions that apply
6-6 to a secondary mortgage loan under Articles 5.02 and 5.03 of this
6-7 title;
6-8 (2) in the amounts and under the terms and conditions
6-9 of:
6-10 (A) the home equity conversion mortgage
6-11 insurance program, Housing and Community Development Act of 1987,
6-12 Pub. L. No. 100-242;
6-13 (B) Section 255 of the National Housing Act (12
6-14 U.S.C. Section 1715z-20); and
6-15 (C) 24 C.F.R. Part 206; and
6-16 (3) in the amounts and under the terms and conditions
6-17 provided for by any state or federal statute authorizing or
6-18 requiring any type of insurance relating to a loan or other
6-19 extension of credit, including insurance authorized under Chapters
6-20 3, 4, 5, and 15 of this title.
6-21 (b) Premiums for insurance under this article may be added
6-22 to the loan contract.
6-23 Art. 5A.08. REPORT BY LENDERS. (a) Before March 1 of each
6-24 year, a lender that makes an equity loan shall submit to the
6-25 director of the division of access to financial services a report
6-26 of the lender's home equity loan activity during the calendar year
6-27 preceding the year the report is submitted. For each home equity
7-1 loan for which the lender received an application, the report must
7-2 state the primary purpose of the loan, whether the loan was
7-3 granted, and the applicant's income and census tract. The director
7-4 of the division of access to financial services may set and collect
7-5 from the lender a reasonable filing fee in connection with the
7-6 submission of the report in an amount necessary and reasonable to
7-7 enable the director to carry out this article.
7-8 (b) The director of the division of access to financial
7-9 services may accept a copy of a report submitted by the lender to a
7-10 federal agency instead of the report required under Subsection (a)
7-11 of this article if the report submitted to the federal agency
7-12 contains the information required for a report under Subsection (a)
7-13 of this article.
7-14 (c) A lender that does not make a home equity loan during
7-15 the period covered by a report is not required to submit the
7-16 report.
7-17 Art. 5A.09. EQUITY LOAN RECOVERY FUND. (a) The Consumer
7-18 Credit Commissioner shall establish and maintain an equity loan
7-19 recovery fund. The fund shall be used for reimbursing aggrieved
7-20 persons who suffer actual damages as a result of misrepresentation,
7-21 dishonesty, or fraud committed by an authorized lender in the
7-22 course of making an equity loan, if the recovery is ordered by a
7-23 court against the lender and the court determines that the lender
7-24 is unable to make the payment.
7-25 (b) An action for a judgment that subsequently results in an
7-26 order for collection from the equity loan recovery fund may not be
7-27 brought later than two years after the date on which the person who
8-1 suffers damages discovers the lender's misrepresentation,
8-2 dishonesty, or fraud.
8-3 (c) The Finance Commission of Texas shall establish and
8-4 collect reasonable and necessary fees from authorized lenders for
8-5 each home equity loan originated by the lender to accomplish the
8-6 purposes of this article. Fees collected shall be deposited into
8-7 the equity loan recovery fund. The money in the equity loan
8-8 recovery fund shall be held by the Consumer Credit Commissioner in
8-9 trust for carrying out the purposes of the equity loan recovery
8-10 fund.
8-11 (d) The Finance Commission of Texas shall adopt rules
8-12 necessary to implement this article.
8-13 Art. 5A.10. GENERAL PROVISIONS RELATING TO REVERSE
8-14 MORTGAGES. (a) Advances made under a reverse mortgage and
8-15 interest on those advances have priority over a lien filed for
8-16 record in the real property records in the county where the
8-17 homestead property is located after the reverse mortgage is filed
8-18 for record in the real property records of that county.
8-19 (b) A reverse mortgage may provide for an interest rate that
8-20 is fixed or adjustable and may also provide for interest that is
8-21 contingent on appreciation in the fair market value of the
8-22 homestead property.
8-23 (c) If a reverse mortgage provides for periodic advances to
8-24 a borrower, the advances may not be reduced in amount or number
8-25 because of an adjustment in the interest rate.
8-26 (d) A lender who fails to make loan advances as required in
8-27 the loan documents and who fails to cure the default as required in
9-1 the loan documents forfeits all principal and interest of the
9-2 equity loan.
9-3 Art. 5A.11. RELATIONSHIP OF OTHER STATUTES TO REVERSE
9-4 MORTGAGE. A reverse mortgage that is secured by a valid lien
9-5 against homestead property may be made or acquired without regard
9-6 to the following provisions of any other statute of this state:
9-7 (1) a limitation on the purpose and use of future
9-8 advances or other mortgage proceeds;
9-9 (2) a limitation on future advances to a term of years
9-10 or a limitation on the term of open-end account advances;
9-11 (3) a limitation on the term during which future
9-12 advances take priority over intervening advances;
9-13 (4) a requirement that a maximum loan amount be stated
9-14 in the reverse mortgage loan documents;
9-15 (5) a prohibition on balloon payments;
9-16 (6) a prohibition on compound interest and interest on
9-17 interest;
9-18 (7) a prohibition on contracting for, charging, or
9-19 receiving any rate of interest authorized under Article 1.04 of
9-20 this title or under any other statute authorizing a lender to
9-21 contract for a rate of interest; and
9-22 (8) a requirement that a percentage of the reverse
9-23 mortgage proceeds be advanced before the assignment of the reverse
9-24 mortgage.
9-25 Art. 5A.12. STATUS OF REVERSE MORTGAGE LOAN UNDER PUBLIC
9-26 ASSISTANCE PROGRAM. For the purposes of determining eligibility
9-27 under any statute relating to payments, allowances, benefits, or
10-1 services provided on a means-tested basis by this state, including
10-2 supplemental security income, low-income energy assistance,
10-3 property tax relief, medical assistance, and general assistance:
10-4 (1) reverse mortgage loan advances made to a borrower
10-5 are considered proceeds from a loan and not income; and
10-6 (2) undisbursed funds under a reverse mortgage loan
10-7 are considered equity in a borrower's home and not proceeds from a
10-8 loan.
10-9 Art. 5A.13. REVERSE MORTGAGE LOAN INFORMATION AND
10-10 COUNSELING. A lender may not make a reverse mortgage commitment
10-11 unless the loan applicant attests in writing that the applicant
10-12 received from the lender, at the time the notice is required by
10-13 Section 50, Article XVI, Texas Constitution, of this title, a
10-14 statement prepared by the Consumer Credit Commissioner regarding
10-15 the advisability and availability of independent information and
10-16 counseling services on reverse mortgages. The Consumer Credit
10-17 Commissioner shall:
10-18 (1) develop the content and format of the statement;
10-19 (2) provide independent consumer information on
10-20 reverse mortgages and their alternatives; and
10-21 (3) refer consumers to independent counseling services
10-22 with expertise in reverse mortgages.
10-23 Art. 5A.14. SUBSEQUENT HOLDER OF EQUITY LOAN. (a) In
10-24 connection with a sale or lease of goods or services to be financed
10-25 with the proceeds of an equity loan, the seller or lessor may not
10-26 accept full or partial payment for the sale or lease unless the
10-27 equity loan agreement includes the following notice in at least
11-1 10-point, boldface type:
11-2 NOTICE
11-3 ANY HOLDER OF THIS EQUITY LOAN IS SUBJECT TO ALL CLAIMS
11-4 AND DEFENSES THAT THE DEBTOR COULD ASSERT AGAINST THE
11-5 SELLER OR LESSOR OF GOODS OR SERVICES OBTAINED WITH
11-6 PROCEEDS FROM THIS LOAN. THE DEBTOR'S RECOVERY MAY NOT
11-7 EXCEED AMOUNTS PAID BY THE DEBTOR FOR THE GOODS OR
11-8 SERVICES.
11-9 (b) A holder of an equity loan is subject to all claims and
11-10 defenses that the debtor could assert against the seller or lessor
11-11 of goods or services obtained with proceeds of the equity loan. The
11-12 debtor's recovery may not exceed amounts paid by the debtor for the
11-13 goods or services.
11-14 Art. 5A.15. RESTRICTIONS ON EQUITY LOANS. A lender may not
11-15 make an equity loan that is solicited in person by the lender or
11-16 the lender's representative at the homestead or other residence of
11-17 a borrower.
11-18 SECTION 3. Chapter 2, Title 79, Revised Statutes (Article
11-19 5069-2.01 et seq., Vernon's Texas Civil Statutes), is amended by
11-20 adding Article 2.02E to read as follows:
11-21 Art. 2.02E. DIVISION OF ACCESS TO FINANCIAL SERVICES. (a)
11-22 The division of access to financial services is created in the
11-23 Office of Consumer Credit Commissioner to inform, monitor, and
11-24 report on the availability and quality of home equity loans,
11-25 including equity loans offered by lenders in the state to
11-26 agricultural businesses, small businesses, and individual consumers
11-27 in the state.
12-1 (b) The division shall be headed by a director appointed by
12-2 the Consumer Credit Commissioner.
12-3 (c) The director of the division of access to financial
12-4 services shall adequately staff the division to carry out the
12-5 division's functions under this article.
12-6 (d) The division shall:
12-7 (1) conduct research on the effect of equity lending
12-8 on the availability, quality, and cost of equity loans for
12-9 agricultural businesses, small businesses, and individual consumers
12-10 in various regions of the state;
12-11 (2) conduct research on the effect of the practices of
12-12 business entities in the state that provide equity loans to
12-13 agricultural businesses, small businesses, and individual consumers
12-14 in the state;
12-15 (3) conduct a public information campaign to provide
12-16 low-income and elderly consumers with information and counseling
12-17 about the benefits and liabilities associated with equity loans;
12-18 (4) compile a summary of the information received from
12-19 each lender under Article 5A.08, Title 79, Revised Statutes
12-20 (Article 5069-5A.08, Vernon's Texas Civil Statutes), including an
12-21 analysis of census tract demographic data, to produce reports on
12-22 equity lending patterns with regard to the rate of application and
12-23 loan acceptance by income and census tract of the homes;
12-24 (5) not later than December 1 of each even-numbered
12-25 year, provide to the legislature a report detailing the findings of
12-26 the division and recommending any action the division believes is
12-27 necessary to protect consumers with respect to equity lending; and
13-1 (6) prepare information of public interest describing
13-2 the functions of the division and make the information available to
13-3 the public and appropriate state and federal agencies.
13-4 (e) The division may apply for and receive public and
13-5 private grants and gifts and contract with public and private
13-6 entities to carry out studies and analyses under this article.
13-7 (f) The Consumer Credit Commissioner shall establish and
13-8 collect reasonable and necessary fees to accomplish the purposes of
13-9 this article.
13-10 SECTION 4. Chapter 2, Title 79, Revised Statutes (Article
13-11 5069-2.01 et seq., Vernon's Texas Civil Statutes), is amended by
13-12 adding Article 2.02F to read as follows:
13-13 Art. 2.02F. STUDY AND REPORT; EQUITY LOANS. (a) After May
13-14 1, 2000, the director of the division of access to financial
13-15 services shall conduct a study of equity lending under Chapter 5A,
13-16 Title 79, Revised Statutes (Article 5069-5A.01 et seq., Vernon's
13-17 Texas Civil Statutes).
13-18 (b) Before January 1, 2001, the director of the division of
13-19 access to financial services shall submit a report on the study to
13-20 the governor, lieutenant governor, and speaker of the house of
13-21 representatives. The report must include:
13-22 (1) a summary of the information received by the
13-23 director of the division of access to financial services under
13-24 Article 5A.08, Title 79, Revised Statutes (Article 5069-5A.08,
13-25 Vernon's Texas Civil Statutes);
13-26 (2) an analysis of the effectiveness of Chapter 5A,
13-27 Title 79, Revised Statutes (Article 5069-5A.01 et seq., Vernon's
14-1 Texas Civil Statutes), intended to protect borrowers; and
14-2 (3) other information the director of the division of
14-3 access to financial services considers relevant to the regulation
14-4 of equity loans.
14-5 SECTION 5. Subchapter A, Chapter 56, Education Code, is
14-6 amended by adding Section 56.004 to read as follows:
14-7 Sec. 56.004. CONSIDERATION OF HOME EQUITY. (a) In
14-8 determining the eligibility of an applicant for financial
14-9 assistance or the financial need of an applicant in connection with
14-10 an application for financial assistance, an institution of higher
14-11 education, the Texas Higher Education Coordinating Board, the
14-12 Texas Guaranteed Student Loan Corporation, or other state officer
14-13 or agency may not consider the amount of equity the applicant or
14-14 the applicant's family owns in a homestead of the applicant or of a
14-15 member of the applicant's family that is located in this state,
14-16 unless otherwise required by federal law.
14-17 (b) In this section, "financial assistance" includes a
14-18 student loan, grant, scholarship, or work-study position.
14-19 SECTION 6. Title 16, Revised Statutes, is amended by adding
14-20 Article 352 to read as follows:
14-21 Art. 352. REPORT BY FINANCIAL INSTITUTIONS
14-22 Sec. 1. DEFINITIONS. In this article:
14-23 (1) "Financial institution" means a state or national
14-24 bank, state or federal savings and loan association, or state or
14-25 federal credit union in this state that is authorized to make an
14-26 equity loan described by Section 41.001(b)(6), Property Code.
14-27 (2) "Branch office" means an office of a financial
15-1 institution that is approved as a branch by a federal or state
15-2 regulating agency, but does not include an electronic terminal as
15-3 defined by Section 1.002, Texas Banking Act (Article 342-1.002,
15-4 Vernon's Texas Civil Statutes).
15-5 Sec. 2. APPLICATION. (a) This article applies only to a
15-6 financial institution having deposits of $300 million or more or a
15-7 holding company owning or controlling one or more financial
15-8 institutions the combined deposits of which are $300 million or
15-9 more that makes an extension of credit authorized by Section
15-10 50(a)(6), Article XVI, Texas Constitution.
15-11 (b) A financial institution or holding company is not
15-12 required to file a report under this article if all offices of the
15-13 financial institution or holding company are located in a single
15-14 county.
15-15 Sec. 3. REPORT REQUIRED. (a) During each calendar quarter
15-16 a financial institution or holding company shall submit a report of
15-17 its financial activity, as provided by Section 4 of this article,
15-18 as of the end of the previous calendar quarter.
15-19 (b) A bank shall submit the report to the banking
15-20 commissioner, a savings and loan association shall submit the
15-21 report to the savings and loan commissioner, a credit union shall
15-22 submit the report to the credit union commissioner, and a holding
15-23 company shall submit the report to the appropriate commissioner
15-24 regulating the type of financial institution owned or controlled by
15-25 the holding company. A financial institution having deposits of
15-26 $300 million or more shall submit a separate report regardless of
15-27 whether it is owned or controlled by a holding company.
16-1 (c) A report submitted as required by this section must
16-2 provide separate information on each branch office, except that
16-3 branch offices located in a single municipality or in a single
16-4 county may be reported together.
16-5 (d) A report under this article is public information.
16-6 Sec. 4. INFORMATION REQUIRED. A report under this article
16-7 must include:
16-8 (1) information on loans and deposits itemized by
16-9 categories as required by the Financial Institutions Examination
16-10 Council or its successor under 12 U.S.C. Section 3301 et seq. for
16-11 federally supervised financial institutions; and
16-12 (2) reports of condition or similar public reports
16-13 reported by branch office transaction.
16-14 Sec. 5. FORM OF REPORT; FINANCE COMMISSION DUTIES. A report
16-15 under this article must be submitted on a uniform form prescribed
16-16 by the Finance Commission of Texas. The finance commission may
16-17 adopt rules to define terms not defined by this article and to
16-18 provide for the administration of this article.
16-19 Sec. 6. DUE DATE OF REPORT; RECORDKEEPING; PUBLIC NOTICE AND
16-20 AVAILABILITY. (a) A financial institution or holding company
16-21 subject to this article shall submit the required report not later
16-22 than the 30th day after the last day of each calendar quarter and
16-23 shall retain a copy of the report for its records for at least five
16-24 years.
16-25 (b) A financial institution or holding company shall make
16-26 the report available to the public not later than the 30th day
16-27 after the date the report is submitted to the appropriate
17-1 commissioner. The report shall be available to the public for five
17-2 years at the financial institution's home office. If a financial
17-3 institution has a branch office in another county, a report must
17-4 also be available in that county. The report at the branch office
17-5 may include only information relating to transactions in the county
17-6 where that branch office is located.
17-7 (c) A financial institution shall make the report required
17-8 by this article available for inspection and copying during the
17-9 hours the financial institution or branch office, as appropriate,
17-10 is normally open to the public for business. The financial
17-11 institution may charge a reasonable fee for photocopying services.
17-12 (d) A financial institution shall post a notice regarding
17-13 the availability of the report required by this article in the
17-14 lobbies of its home office and any branch office. On request, the
17-15 financial institution shall promptly provide the location of the
17-16 institution's offices where the report is available. A financial
17-17 institution may include the location where the report is available
17-18 in the notice of availability of the report.
17-19 Sec. 7. PENALTY. If the banking commissioner in the case of
17-20 a banking association, the savings and loan commissioner in the
17-21 case of a savings association, or the credit union commissioner in
17-22 the case of a credit union finds that a financial institution has
17-23 violated this article or a rule adopted under this article, the
17-24 commissioner may order the institution to pay an administrative
17-25 penalty. The amount of an administrative penalty under this
17-26 section may not exceed $500 for each day the violation continues.
17-27 A penalty collected under this section shall be deposited in the
18-1 state treasury. The Finance Commission of Texas may adopt rules as
18-2 necessary to carry out this section.
18-3 Sec. 8. PROHIBITION ON CERTAIN LOANS SECURED BY HOMESTEAD.
18-4 A financial institution that is found under Section 7 of this
18-5 article to have violated this article, in addition to the penalty
18-6 provided under that section, is not eligible to make a loan
18-7 described by Section 41.001(b)(6), Property Code, until the
18-8 appropriate commissioner determines that the financial institution
18-9 has come into compliance with this article.
18-10 Sec. 9. FORM OF REPORT: CREDIT UNION COMMISSION DUTIES. For
18-11 the purposes of this article, the Credit Union Commission may adopt
18-12 rules to define terms not defined by this article and to provide
18-13 for the administration of this article, including the
18-14 administration of Section 7 relating to penalties. A credit union
18-15 submitting a report under this article must submit the report on
18-16 the form prescribed by the Credit Union Commission.
18-17 SECTION 7. Title 16, Revised Statutes, is amended by adding
18-18 Article 361 to read as follows:
18-19 Art. 361. AUTOMATED TELLER MACHINE FEES
18-20 Sec. 1. DEFINITION. In this article, "financial
18-21 institution" means a state or national bank, state or federal
18-22 savings and loan association, state or federal savings bank, or
18-23 state or federal credit union.
18-24 Sec. 2. APPLICATION; FEES EXCLUSIVE. (a) This article
18-25 applies only to a financial institution that makes an extension of
18-26 credit under Section 50(a)(6), Article XVI, Texas Constitution.
18-27 (b) A financial institution to which this article applies
19-1 may not charge a fee for use of an automated teller machine except
19-2 as provided by this article.
19-3 Sec. 3. TRANSACTION FEE; FINANCIAL INSTITUTION CUSTOMER. A
19-4 financial institution to which this article applies may charge a
19-5 customer of the financial institution a transaction fee of not more
19-6 than $1 for each transaction the customer makes relating to the
19-7 customer's account with the financial institution using an
19-8 automated teller machine, regardless of whether the financial
19-9 institution is the owner of the automated teller machine.
19-10 Sec. 4. PROHIBITION ON MAKING CERTAIN LOANS SECURED BY
19-11 HOMESTEAD. If the regulatory official responsible for regulating a
19-12 financial institution determines the financial institution has
19-13 violated this article, the financial institution is not eligible to
19-14 make a loan described by Section 50(a)(6), Article XVI, Texas
19-15 Constitution, until the official determines that the financial
19-16 institution has come into compliance with this article.
19-17 SECTION 8. Section 9.02, Insurance Code, is amended by
19-18 adding Subsection (r) to read as follows:
19-19 (r) "Equity loan mortgagee policy" means a Texas promulgated
19-20 Form T-2 mortgagee policy of title insurance that insures the
19-21 validity and priority of an equity loan mortgage, including a deed
19-22 of trust, trust deed, or other security instrument, on homestead
19-23 property.
19-24 SECTION 9. Section 9.07, Insurance Code, is amended by
19-25 adding Subsection (g) to read as follows:
19-26 (g) The commissioner shall promulgate an endorsement that
19-27 must be attached to an equity loan mortgagee policy. The
20-1 endorsement must insure the priority of future advances, made in
20-2 accordance with the mortgage and applicable law, subject to any
20-3 legal limits on priority and to the other terms of the policy. The
20-4 endorsement must insure the validity of the mortgage subject to the
20-5 terms of the policy and subject to an exclusion for compliance by
20-6 the lender with any constitutional or statutory requirements for,
20-7 and limitations on, equity loans secured by a mortgage on a
20-8 homestead. The endorsement must affirmatively insure against
20-9 invalidity of the mortgage because of the failure of each owner and
20-10 the spouse of each owner to join in the mortgage. The commissioner
20-11 may promulgate other policies and endorsements relating to an
20-12 equity loan mortgage on a homestead.
20-13 SECTION 10. Chapter 20, Title 132, Revised Statutes, is
20-14 amended by adding Article 9001 to read as follows:
20-15 Art. 9001. MORTGAGE BROKER REGISTRATION
20-16 Sec. 1. DEFINITIONS. In this article:
20-17 (1) "Commissioner" means the consumer credit
20-18 commissioner.
20-19 (2) "Mortgage" means a lien interest against real
20-20 estate created by a deed of trust, security deed, or other
20-21 instrument for debt.
20-22 (3) "Mortgage applicant" means a person who is
20-23 solicited to purchase or who purchases the services of a mortgage
20-24 broker.
20-25 (4) "Mortgage banker" means any person who makes,
20-26 services, or buys and sells mortgage loans with the person's own
20-27 funds.
21-1 (5) "Mortgage broker" means a person who, for
21-2 compensation, obtains or sells for another person a one-to-four
21-3 family residential mortgage or a person who, for compensation,
21-4 receives for another person an application from a prospective
21-5 borrower and places or attempts to place the application with a
21-6 mortgage banker or other lender for purposes of making a
21-7 one-to-four family residential mortgage. The term does not include
21-8 a person who delivers an application and other loan information for
21-9 a mortgage loan to a mortgage broker either on behalf of or at the
21-10 instruction of the prospective borrower.
21-11 (6) "Registrant" means a person who has been issued a
21-12 certificate of registration under this article.
21-13 Sec. 2. CERTIFICATE OF REGISTRATION REQUIREMENT. (a) A
21-14 person may not act as a mortgage broker in connection with an
21-15 extension of credit described by Section 50(a)(6), Article XVI,
21-16 Texas Constitution, without first having obtained a certificate of
21-17 registration from the commissioner for the person's main office and
21-18 for each other office to be maintained by the person for the
21-19 transaction of business as a mortgage broker in this state.
21-20 (b) An employee of a registrant is not required to obtain a
21-21 certificate of registration.
21-22 (c) A certificate of registration is not required for:
21-23 (1) a bank, savings bank, or savings and loan
21-24 association, or a subsidiary or an affiliate of a bank, savings
21-25 bank, or savings and loan association;
21-26 (2) a state or federal credit union;
21-27 (3) a lender approved by the secretary of housing and
22-1 urban development for participation in a mortgage insurance program
22-2 under the National Housing Act, as amended (12 U.S.C. Section 1701
22-3 et seq.);
22-4 (4) a mortgage banker; or
22-5 (5) a person licensed under Chapter 3, Title 79,
22-6 Revised Statutes (Article 5069-3.01 et seq., Vernon's Texas Civil
22-7 Statutes), who makes, negotiates, or arranges a secondary mortgage
22-8 loan.
22-9 Sec. 3. APPLICATION FOR CERTIFICATE OF REGISTRATION. (a)
22-10 An application for a certificate of registration as a mortgage
22-11 broker must be in writing, under oath, and in the form prescribed
22-12 by the commissioner. The application must be accompanied by an
22-13 application fee of $150 for each office location to be maintained
22-14 by the applicant.
22-15 (b) The application fee is not refundable.
22-16 (c) If the applicant is a corporation or partnership, one of
22-17 the shareholders or partners, as appropriate, must be named in the
22-18 application as the person responsible for managing the operations
22-19 of the location or locations where business is to be transacted.
22-20 Sec. 4. QUALIFICATIONS. To be eligible for a certificate of
22-21 registration, a mortgage broker must:
22-22 (1) have at least one of the following minimum levels
22-23 of education, certification, or experience:
22-24 (A) an associate's degree in an area relating to
22-25 finance, banking, or business administration from an accredited
22-26 college or university, including an accredited community technical
22-27 college;
23-1 (B) the residential mortgage lender or certified
23-2 mortgage consultant certification, issued by the National
23-3 Association of Mortgage Brokers, or other certification similar in
23-4 scope and relevance;
23-5 (C) a real estate broker or salesman license
23-6 under The Real Estate License Act (Article 6573a, Vernon's Texas
23-7 Civil Statutes);
23-8 (D) a license as an attorney in this state;
23-9 (E) a license as a certified public accountant
23-10 in this state; or
23-11 (F) three years of experience:
23-12 (i) in the mortgage and lending field,
23-13 which may include employment with or as a mortgage broker or with a
23-14 financial institution, mortgage lending institution, or other
23-15 lending institution; or
23-16 (ii) that the commissioner determines
23-17 meets a minimum comparable standard for education and experience;
23-18 (2) demonstrate evidence of compliance with the
23-19 financial requirements of this article; and
23-20 (3) have the financial responsibility, experience,
23-21 character, and general fitness to command the confidence of the
23-22 public and warrant the belief that the business will be operated
23-23 honestly and fairly in compliance with the purposes of this
23-24 article.
23-25 Sec. 5. MINIMUM NET ASSETS. (a) A registrant that conducts
23-26 business as a mortgage broker shall maintain net assets of at least
23-27 $25,000 and a surety bond in the amount of at least $25,000 or a
24-1 surety bond in the amount of at least $50,000. The term of the
24-2 surety bond must coincide with the term of the certificate of
24-3 registration.
24-4 (b) This section does not apply to a registrant who is
24-5 licensed to practice law in this state.
24-6 (c) In this section, "net assets" means the difference
24-7 between total assets and total indebtedness, as determined by
24-8 generally accepted accounting principles, except that assets of
24-9 doubtful or uncertain value are disallowed.
24-10 Sec. 6. CRIMINAL HISTORY RECORD INFORMATION. (a) On the
24-11 filing of the application and payment of the application fee by the
24-12 applicant, the commissioner is entitled to obtain from the
24-13 Department of Public Safety criminal history record information
24-14 maintained by the department that relates to a person who is an
24-15 applicant for a certificate of registration.
24-16 (b) Criminal history record information obtained under this
24-17 section is confidential and may not be released or disclosed to any
24-18 person except on court order or with the consent of the person who
24-19 is the subject of the criminal history record information.
24-20 Sec. 7. ISSUANCE OF CERTIFICATE OF REGISTRATION. (a) The
24-21 commissioner shall issue a certificate of registration to a person
24-22 who applies for the certificate not later than the 30th day after
24-23 the date of receipt of a completed application unless the
24-24 commissioner has reason to believe that the eligibility
24-25 requirements of this article are not satisfied or the applicant's
24-26 financial responsibility, experience, character, and general
24-27 fitness do not command the confidence of the public and warrant the
25-1 belief that the business will be operated honestly and fairly in
25-2 compliance with the purposes of this article.
25-3 (b) The commissioner shall notify an applicant in writing if
25-4 the application is denied. An applicant may appeal the decision by
25-5 submitting a written request for a hearing not later than the 30th
25-6 day after the date of the decision.
25-7 (c) A certificate of registration issued under this article
25-8 may be renewed annually on or before its expiration date by payment
25-9 of a renewal fee of $150 for each location of an office to be
25-10 maintained by the applicant and a finding by the commissioner that
25-11 the applicant meets the conditions set forth by Subsection (a) of
25-12 this section and that the applicant's certificate of registration
25-13 is not subject to an order of suspension or revocation by the
25-14 commissioner. If a renewal fee is submitted to the commissioner
25-15 after the registration expires but before the 181st day after the
25-16 expiration date of the registration, the fee must be accompanied by
25-17 a late renewal fee of $100 for each location of an office
25-18 maintained by the applicant for which the renewal fee is late.
25-19 (d) Before the 30th day preceding the effective date of an
25-20 address change, a registrant shall notify the commissioner in
25-21 writing of the new address. If a registrant intends to move the
25-22 business to a location outside the municipality in which it is
25-23 located, a new application must be filed accompanied by the
25-24 application fee and a relocation fee of $15, and a new certificate
25-25 must be obtained before conducting business at the new location.
25-26 (e) An application, renewal, late renewal, or relocation fee
25-27 may not be refunded after a certificate of registration has been
26-1 issued or renewed.
26-2 (f) A certificate of registration issued under this article
26-3 is not transferable and may not be assigned. Ownership or control
26-4 of a registrant may not change without the approval of the
26-5 commissioner.
26-6 Sec. 8. INVESTIGATION AND INSPECTION OF RECORDS. (a) On
26-7 receipt of a written complaint or other probable cause to believe
26-8 that a person is violating a provision of state law to which this
26-9 article applies, the commissioner may request the person to furnish
26-10 information and records relating to a transaction or business
26-11 practice alleged to be in violation of the law. If a person fails
26-12 to comply with a request, the commissioner may conduct an
26-13 investigation to determine whether a violation has occurred.
26-14 (b) All information obtained by the commissioner or an
26-15 employee or other agent of the commissioner by reason of the
26-16 person's official position, including information obtained in the
26-17 course of inspecting or investigating an applicant for a
26-18 certificate of registration, is confidential. That information
26-19 remains confidential for all purposes except for lawful use by the
26-20 commissioner regarding the affairs of the registrant or in
26-21 connection with criminal proceedings.
26-22 Sec. 9. PROHIBITIONS. A registrant or applicant for a
26-23 certificate of registration under this article may not:
26-24 (1) obtain a certificate of registration through a
26-25 false or fraudulent representation or make a substantial
26-26 misrepresentation in a registration application;
26-27 (2) publish or cause to be published an advertisement
27-1 that is misleading, is likely to deceive the public, or in any
27-2 manner tends to create a misleading impression because it fails to
27-3 identify as a registrant the person causing the advertisement to
27-4 be published;
27-5 (3) engage in conduct that constitutes improper,
27-6 fraudulent, or dishonest dealings;
27-7 (4) fail to notify the commissioner if the registrant
27-8 or applicant, in a court of competent jurisdiction of this state or
27-9 another state or in a federal court, is convicted of or enters a
27-10 plea of guilty or nolo contendere to a felony or a criminal offense
27-11 involving fraud;
27-12 (5) fail to use fees collected in advance of closing
27-13 for the purposes for which the fees were paid; or
27-14 (6) charge or receive, directly or indirectly, a fee
27-15 for assisting a mortgage applicant in obtaining a mortgage until
27-16 all of the services that the registrant has agreed to perform for
27-17 the mortgage applicant are completed, and the proceeds of the
27-18 mortgage loan have been disbursed to or on behalf of the mortgage
27-19 applicant except as provided by Section 10 of this article.
27-20 Sec. 10. FEE ASSESSMENT AND DISCLOSURE. (a) Before
27-21 completion of all services, a registrant may charge and receive,
27-22 unless prohibited by law, the following fees for services in
27-23 assisting a mortgage applicant to obtain a mortgage:
27-24 (1) a fee to obtain a credit report;
27-25 (2) a fee for the appraisal of the real estate;
27-26 (3) a fee paid directly by the mortgage applicant to a
27-27 state or federal governmental agency or instrumentality for
28-1 processing a mortgage application relating to a
28-2 government-sponsored or guaranteed mortgage program; or
28-3 (4) subject to Subsection (b) of this section, fees
28-4 for locking in an interest rate, issuing a commitment letter, and
28-5 processing a loan or a loan application in connection with
28-6 obtaining or refinancing a mortgage loan.
28-7 (b) A registrant may not charge and receive a fee for
28-8 locking in an interest rate, issuing a commitment letter, or
28-9 processing a loan or a loan application unless there is a written
28-10 agreement signed by the mortgage applicant and registrant that
28-11 contains:
28-12 (1) the expiration date of the locked-in interest
28-13 rate;
28-14 (2) the principal amount of the mortgage loan;
28-15 (3) the term of the mortgage loan;
28-16 (4) an identification of the property;
28-17 (5) the initial interest rate;
28-18 (6) the discount or points to be paid;
28-19 (7) the amounts and payment terms of the fee for the
28-20 locked-in interest rate and commitment fee;
28-21 (8) a statement of whether a fee described by
28-22 Subdivision (7) of this subsection is refundable and, if so, the
28-23 terms and conditions necessary to obtain the refund; and
28-24 (9) sources and amount or computation of amount to be
28-25 paid to a mortgage broker by a person other than the mortgage
28-26 applicant.
28-27 (c) If a fee is paid by a mortgage applicant for the
29-1 performance of the service described by Subsection (a)(2) of this
29-2 section and the registrant is unable to assist in obtaining a
29-3 mortgage for the mortgage applicant, the registrant shall return to
29-4 the mortgage applicant the original documents prepared by the bona
29-5 fide third party at the time that the request for the mortgage is
29-6 refused or denied.
29-7 (d) For purposes of this section, "bona fide third party"
29-8 means a person who is not an employee of, related to, or affiliated
29-9 with the registrant and who is not used for the purpose of
29-10 circumvention or evasion of this section.
29-11 Sec. 11. SUSPENSION, REVOCATION, OR REFUSAL OF LICENSE;
29-12 INVESTIGATIONS; CEASE AND DESIST ORDERS. (a) After notice and
29-13 opportunity for a hearing, the commissioner may suspend, revoke, or
29-14 refuse to issue or renew a certificate of registration if the
29-15 commissioner finds:
29-16 (1) the registrant has failed to pay a fee or charge
29-17 properly imposed by the commissioner under this article;
29-18 (2) the registrant, knowingly or without the exercise
29-19 of due care, has violated a provision of this article or a rule or
29-20 order made under this article;
29-21 (3) the existence of a fact or condition that clearly
29-22 would have justified the commissioner in refusing to issue the
29-23 certificate of registration, if the fact or condition existed at
29-24 the time the original application for the certificate of
29-25 registration was made;
29-26 (4) the registrant has aided, abetted, or conspired
29-27 with a person to circumvent the requirements of this article;
30-1 (5) the financial responsibility, experience,
30-2 character, or general fitness of the registrant or the registrant's
30-3 owners and managers does not command the confidence of the public
30-4 or warrant the belief that the business will be operated lawfully,
30-5 fairly, and within the purposes of this article; or
30-6 (6) the registrant has failed to maintain the minimum
30-7 financial requirements of this article.
30-8 (b) The commissioner may investigate alleged violations of
30-9 this article, or the rules adopted under this article, and
30-10 complaints concerning those alleged violations. The commissioner
30-11 may make application to any state district court for an order
30-12 enjoining such a violation and, on a showing by the commissioner
30-13 that a person has committed or is about to commit such a violation,
30-14 the court shall grant an injunction, restraining order, or other
30-15 appropriate relief.
30-16 (c) In the course of an investigation, the commissioner by
30-17 subpoena may compel the attendance and testimony of witnesses and
30-18 the production of any book, record, or other document. The
30-19 commissioner is entitled to examine the book, record, or other
30-20 document at the registrant's office or place of business and to
30-21 require that copies of the book, record, or other document relating
30-22 to the matter in question be made as considered necessary. The
30-23 copies must be verified by affidavit of the person or an officer of
30-24 the person who is the subject of the document. When certified by
30-25 the commissioner, the copies may be admissible in evidence in an
30-26 investigation or hearing under this article or other law to which
30-27 this article applies or an appeal to district court. For this
31-1 purpose, the commissioner may sign subpoenas, administer oaths and
31-2 affirmations, examine witnesses, and receive evidence.
31-3 (d) If a person fails to obey a subpoena, the district court
31-4 that has jurisdiction over the witness, on application by the
31-5 commissioner, may issue an order compelling a person to obey the
31-6 subpoena or to testify or produce any book, record, or other
31-7 document relating to the matter. The filing of an application to
31-8 enforce a subpoena shall be treated by the district court in the
31-9 same manner as a motion filed in a civil suit pending in the court.
31-10 The district court shall set the application for hearing and notice
31-11 of the filing of the application, and the hearing shall be served
31-12 on the person to whom the subpoena is directed.
31-13 (e) If the commissioner determines that a person is engaged
31-14 in, or is believed to be engaged in, activities that may constitute
31-15 a violation of this article, the commissioner, after notice and a
31-16 hearing, may issue a cease and desist order.
31-17 Sec. 12. CIVIL ACTIONS; INJUNCTIVE RELIEF; CRIMINAL
31-18 PROSECUTIONS. (a) A mortgage applicant injured by a violation of
31-19 this article may bring an action for recovery of damages and
31-20 reasonable attorney's fees and court costs.
31-21 (b) The commissioner, the attorney general, or a mortgage
31-22 applicant may bring an action to enjoin a violation of this
31-23 article.
31-24 (c) The remedies provided by this section are in addition to
31-25 any other remedy provided by law.
31-26 (d) In a proceeding or action brought under this article the
31-27 burden of proving an exemption is on the person claiming the
32-1 benefit of the exemption.
32-2 (e) A person does not violate this article with respect to
32-3 an act taken or omission made in reliance on a written notice,
32-4 written interpretation, or written report from the commissioner,
32-5 unless a subsequent amendment to the article or rules adopted under
32-6 the article affect the commissioner's notice, interpretation, or
32-7 report.
32-8 (f) On disbursement of mortgage proceeds to or on behalf of
32-9 the mortgage applicant, the registrant that assisted the mortgage
32-10 applicant to obtain the mortgage is considered to have completed
32-11 the performance of the registrant's services for the mortgage
32-12 applicant and owes no additional duties or obligations to the
32-13 mortgage applicant with respect to the mortgage. This subsection
32-14 does not limit or preclude the liability of a registrant for
32-15 failing to comply with this article or a rule adopted under this
32-16 article, for failing to comply with a provision of or duty arising
32-17 under an agreement with a mortgage applicant or lender under this
32-18 article, or for violating any other state or federal law.
32-19 Sec. 13. RULEMAKING POWERS. (a) The commissioner may adopt
32-20 rules consistent with and necessary to accomplish the purposes of
32-21 this article, including rules relating to:
32-22 (1) improper or fraudulent business practices or other
32-23 acts harmful to consumers in this state; and
32-24 (2) the interpretation, implementation, and
32-25 enforcement of this article.
32-26 (b) The commissioner may adopt rules to prohibit false,
32-27 misleading, or deceptive practices by registrants but may not adopt
33-1 any other rules restricting competitive bidding or advertising by
33-2 registrants. In adopting rules to prohibit false, misleading, or
33-3 deceptive practices by registrants, the commissioner may not
33-4 restrict:
33-5 (1) the use of any medium for advertising;
33-6 (2) the personal appearance of or voice of a person in
33-7 an advertisement;
33-8 (3) the size or duration of an advertisement; or
33-9 (4) the registrant's advertisement under a trade name.
33-10 (c) The commissioner by rule shall provide for proportionate
33-11 recovery from registrants of the cost of applications, renewals,
33-12 and investigation.
33-13 (d) The commissioner may not adopt rules that impose
33-14 additional qualifications or requirements for the issuance or
33-15 renewal of a certificate of registration.
33-16 Sec. 14. ACCOUNT. (a) The commissioner shall deliver all
33-17 money received under this article to the comptroller for deposit in
33-18 a special account in the general revenue fund.
33-19 (b) Money in the account may be used only to administer this
33-20 article.
33-21 Sec. 15. EFFECT ON TEXAS CREDIT SERVICES ORGANIZATIONS ACT.
33-22 A registrant is exempt from the requirements of Chapter 18,
33-23 Business & Commerce Code, to the extent that the registrant does
33-24 not charge a fee for any service regulated under that chapter.
33-25 Sec. 16. SECONDARY MARKET TRANSACTIONS. This article does
33-26 not prohibit a mortgage broker from receiving compensation from a
33-27 party other than the mortgage applicant for the sale, transfer,
34-1 assignment, or release of rights on the closing of a mortgage
34-2 transaction, provided that the compensation is disclosed in writing
34-3 to the mortgage applicant.
34-4 SECTION 11. A person is not required to be registered under
34-5 Article 9001, Revised Statutes, as added by this Act, before
34-6 January 1, 1998.
34-7 SECTION 12. The first report of financial institutions
34-8 required by Article 352, Revised Statutes, as added by this Act,
34-9 shall cover the first calendar quarter of 1998 and shall be filed
34-10 during the second calendar quarter of that year.
34-11 SECTION 13. This Act takes effect January 1, 1998, but only
34-12 if the constitutional amendment proposed by H.J.R. No. 31, Acts of
34-13 the 75th Legislature, Regular Session, 1997, allowing voluntary,
34-14 consensual encumbrances on homestead property for the purpose of
34-15 equity loans, is approved by the voters. If that amendment is not
34-16 approved by the voters, this Act has no effect.
34-17 SECTION 14. The importance of this legislation and the
34-18 crowded condition of the calendars in both houses create an
34-19 emergency and an imperative public necessity that the
34-20 constitutional rule requiring bills to be read on three several
34-21 days in each house be suspended, and this rule is hereby suspended.