1-1 By: Danburg, et al. (Senate Sponsor - Harris) H.B. No. 1188
1-2 (In the Senate - Received from the House May 14, 1997;
1-3 May 15, 1997, read first time and referred to Committee on State
1-4 Affairs; May 18, 1997, reported favorably by the following vote:
1-5 Yeas 7, Nays 1; May 18, 1997, sent to printer.)
1-6 A BILL TO BE ENTITLED
1-7 AN ACT
1-8 relating to home equity loans, the regulation of certain
1-9 institutions and occupations connected with home equity loans, and
1-10 the consideration of home equity in certain financial assistance
1-11 applications; providing an administrative penalty.
1-12 BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:
1-13 SECTION 1. Section 41.001(b), Property Code, is amended to
1-14 read as follows:
1-15 (b) Encumbrances may be properly fixed on homestead property
1-16 for:
1-17 (1) purchase money;
1-18 (2) taxes on the property;
1-19 (3) work and material used in constructing
1-20 improvements on the property if contracted for in writing as
1-21 provided by Sections 53.059(a), (b), and (c);
1-22 (4) an owelty of partition imposed against the
1-23 entirety of the property by a court order or by a written agreement
1-24 of the parties to the partition, including a debt of one spouse in
1-25 favor of the other spouse resulting from a division or an award of
1-26 a family homestead in a divorce proceeding; [or]
1-27 (5) the refinance of a lien against a homestead,
1-28 including a federal tax lien resulting from the tax debt of both
1-29 spouses, if the homestead is a family homestead, or from the tax
1-30 debt of the owner; or
1-31 (6) an extension of credit defined by Section
1-32 50(a)(6), Article XVI, Texas Constitution.
1-33 SECTION 2. Title 79, Revised Statutes (Article 5069-1.01 et
1-34 seq., Vernon's Texas Civil Statutes), is amended by adding Chapter
1-35 5A to read as follows:
1-36 CHAPTER 5A. EQUITY LOANS
1-37 Art. 5A.01. DEFINITIONS. In this chapter:
1-38 (1) "Application" means an oral or written request for
1-39 an equity loan made according to procedures established by the
1-40 lender.
1-41 (2) "Business day" means a day other than a Sunday or
1-42 a legal public holiday listed by 5 U.S.C. Section 6103(a).
1-43 (3) "Close" or "closing" means, for the purpose of an
1-44 equity loan, the execution by the borrower of the promissory note
1-45 and the security instruments securing the loan.
1-46 (4) "Equity loan" means an extension of credit defined
1-47 by Section 50(a)(6), Article XVI, Texas Constitution.
1-48 (5) "Reverse mortgage" means an equity loan:
1-49 (A) that is secured by a voluntary lien on
1-50 homestead property created by a written agreement with the consent
1-51 of each owner and each owner's spouse;
1-52 (B) that is made to a person who is or whose
1-53 spouse is 55 years or older;
1-54 (C) that is made without recourse for personal
1-55 liability against each owner and the spouse of each owner;
1-56 (D) under which advances are provided to a
1-57 borrower based on the equity in a borrower's homestead;
1-58 (E) that does not permit the lender to reduce
1-59 the amount or number of advances because of an adjustment in the
1-60 interest rate if periodic advances are to be made; and
1-61 (F) that requires no payment of principal or
1-62 interest until:
1-63 (i) the homestead property securing the
1-64 loan is sold; or
2-1 (ii) all borrowers cease occupying the
2-2 homestead property as a principal residence for more than 180
2-3 consecutive days and the location of the homestead property owner
2-4 is unknown to the lender.
2-5 Art. 5A.02. CONSTRUCTION OF CHAPTER. (a) For the purposes
2-6 of this chapter, an equity loan is considered closed on the
2-7 earliest date on which both of the following are executed:
2-8 (1) each promissory note evidencing the equity loan;
2-9 and
2-10 (2) a deed of trust or other security instrument
2-11 securing the equity loan.
2-12 (b) In establishing the fair market value of homestead
2-13 property, a lender shall rely on an appraisal prepared in
2-14 accordance with a state or federal requirement applicable to the
2-15 lender. If no state or federal appraisal requirement applies to an
2-16 equity loan, the fair market value of the homestead property may
2-17 be, at the lender's option, the value estimate set forth in:
2-18 (1) an appraisal prepared by a licensed or certified
2-19 appraiser under the Texas Appraiser Licensing and Certification Act
2-20 (Article 6573a.2, Vernon's Texas Civil Statutes); or
2-21 (2) any other competent appraisal.
2-22 Art. 5A.03. APPLICABILITY OF CHAPTER. A lender making an
2-23 equity loan must comply with:
2-24 (1) Section 50, Article XVI, Texas Constitution, and
2-25 this chapter;
2-26 (2) any nonconflicting requirement of another law
2-27 relied on as authority for the rate or amount of interest provided
2-28 for in the loan; and
2-29 (3) applicable federal law.
2-30 Art. 5A.04. PERCENT OF VALUE LIMIT. (a) The principal
2-31 amount of an equity loan, plus the aggregate total of the
2-32 outstanding balances of other indebtedness secured by valid
2-33 encumbrances of record against the homestead property, may not
2-34 exceed 75 percent of the fair market value of the homestead
2-35 property on the date the equity loan is closed. The lien securing
2-36 the equity loan is valid only if the principal amount of the equity
2-37 loan plus the aggregate total of the outstanding balances of other
2-38 indebtedness secured by valid encumbrances of record against the
2-39 homestead property does not exceed 75 percent of the fair market
2-40 value of the homestead property on the date the equity loan is
2-41 closed. Violation of this article does not affect the validity of
2-42 other indebtedness secured by valid encumbrances of record against
2-43 the homestead property or of the lien securing the equity loan.
2-44 (b) For the purposes of this article, the aggregate total of
2-45 the outstanding balances of indebtedness secured by valid
2-46 encumbrances of record against the homestead property does not
2-47 include any advance made by a lender to protect a lien on the
2-48 homestead property securing the loan, including the payment of
2-49 hazard insurance premiums, repairs to the homestead property, or
2-50 payments on any indebtedness secured by a prior valid encumbrance
2-51 on the homestead property.
2-52 Art. 5A.05. RESCISSION. (a) Each owner or spouse of each
2-53 owner of homestead property securing an equity loan may rescind the
2-54 loan. Compliance with all applicable state and federal law
2-55 regarding the right to rescind, including 12 C.F.R. Sections 226.15
2-56 et seq. and 226.23 et seq., is considered compliance with this
2-57 chapter regarding rescission.
2-58 (b) The right of rescission provided by this article applies
2-59 to each equity loan made under this chapter, regardless of the
2-60 purpose of the loan. An owner of the homestead property securing
2-61 an equity loan may not waive the right of rescission required by
2-62 this article, regardless of whether applicable state or federal law
2-63 provides for a waiver.
2-64 Art. 5A.06. INTEREST. A lender may contract for and receive
2-65 on an equity loan that is not a first lien any fixed or variable
2-66 rate of interest that does not exceed the lesser of the maximum
2-67 rate permitted by Article 1.04 of this title or 7-1/2 percentage
2-68 points above the auction average rate quoted on bank discount basis
2-69 for 26-week treasury bills issued by the United States government,
3-1 as published by the Federal Reserve Board, for the week preceding
3-2 the week in which the rate is contracted for, rounded to the
3-3 nearest one-fourth of one percent. Interest shall be accrued and
3-4 earned by applying the simple annual interest rate or rates under
3-5 the loan contract to the principal balance. In determining the
3-6 amount of interest accrued, the lender may assume that the payments
3-7 have been made as originally scheduled and ignore any difference
3-8 created by later or early payments.
3-9 Art. 5A.07. INSURANCE. (a) Under an equity loan, a lender
3-10 may request or require a borrower to provide insurance:
3-11 (1) in the amounts and under the conditions that apply
3-12 to a secondary mortgage loan under Articles 5.02 and 5.03 of this
3-13 title;
3-14 (2) in the amounts and under the terms and conditions
3-15 of:
3-16 (A) the home equity conversion mortgage
3-17 insurance program, Housing and Community Development Act of 1987,
3-18 Pub. L. No. 100-242;
3-19 (B) Section 255 of the National Housing Act (12
3-20 U.S.C. Section 1715z-20); and
3-21 (C) 24 C.F.R. Part 206; and
3-22 (3) in the amounts and under the terms and conditions
3-23 provided for by any state or federal statute authorizing or
3-24 requiring any type of insurance relating to a loan or other
3-25 extension of credit, including insurance authorized under Chapters
3-26 3, 4, 5, and 15 of this title.
3-27 (b) Premiums for insurance under this article may be added
3-28 to the loan contract.
3-29 Art. 5A.08. REPORT BY LENDERS. (a) Before March 1 of each
3-30 year, a lender that makes an equity loan shall submit to the
3-31 director of the division of access to financial services a report
3-32 of the lender's home equity loan activity during the calendar year
3-33 preceding the year the report is submitted. For each home equity
3-34 loan for which the lender received an application, the report must
3-35 state the primary purpose of the loan, whether the loan was
3-36 granted, and the applicant's income and census tract. The director
3-37 of the division of access to financial services may set and collect
3-38 from the lender a reasonable filing fee in connection with the
3-39 submission of the report in an amount necessary and reasonable to
3-40 enable the director to carry out this article.
3-41 (b) The director of the division of access to financial
3-42 services may accept a copy of a report submitted by the lender to a
3-43 federal agency instead of the report required under Subsection (a)
3-44 of this article if the report submitted to the federal agency
3-45 contains the information required for a report under Subsection (a)
3-46 of this article.
3-47 (c) A lender that does not make a home equity loan during
3-48 the period covered by a report is not required to submit the
3-49 report.
3-50 Art. 5A.09. EQUITY LOAN RECOVERY FUND. (a) The Consumer
3-51 Credit Commissioner shall establish and maintain an equity loan
3-52 recovery fund. The fund shall be used for reimbursing aggrieved
3-53 persons who suffer actual damages as a result of misrepresentation,
3-54 dishonesty, or fraud committed by an authorized lender in the
3-55 course of making an equity loan, if the recovery is ordered by a
3-56 court against the lender and the court determines that the lender
3-57 is unable to make the payment.
3-58 (b) An action for a judgment that subsequently results in an
3-59 order for collection from the equity loan recovery fund may not be
3-60 brought later than two years after the date on which the person who
3-61 suffers damages discovers the lender's misrepresentation,
3-62 dishonesty, or fraud.
3-63 (c) The Finance Commission of Texas shall establish and
3-64 collect reasonable and necessary fees from authorized lenders for
3-65 each home equity loan originated by the lender to accomplish the
3-66 purposes of this article. Fees collected shall be deposited into
3-67 the equity loan recovery fund. The money in the equity loan
3-68 recovery fund shall be held by the Consumer Credit Commissioner in
3-69 trust for carrying out the purposes of the equity loan recovery
4-1 fund.
4-2 (d) The Finance Commission of Texas shall adopt rules
4-3 necessary to implement this article.
4-4 Art. 5A.10. GENERAL PROVISIONS RELATING TO REVERSE
4-5 MORTGAGES. (a) Advances made under a reverse mortgage and
4-6 interest on those advances have priority over a lien filed for
4-7 record in the real property records in the county where the
4-8 homestead property is located after the reverse mortgage is filed
4-9 for record in the real property records of that county.
4-10 (b) A reverse mortgage may provide for an interest rate that
4-11 is fixed or adjustable and may also provide for interest that is
4-12 contingent on appreciation in the fair market value of the
4-13 homestead property.
4-14 (c) If a reverse mortgage provides for periodic advances to
4-15 a borrower, the advances may not be reduced in amount or number
4-16 because of an adjustment in the interest rate.
4-17 (d) A lender who fails to make loan advances as required in
4-18 the loan documents and who fails to cure the default as required in
4-19 the loan documents forfeits all principal and interest of the
4-20 equity loan.
4-21 Art. 5A.11. RELATIONSHIP OF OTHER STATUTES TO REVERSE
4-22 MORTGAGE. A reverse mortgage that is secured by a valid lien
4-23 against homestead property may be made or acquired without regard
4-24 to the following provisions of any other statute of this state:
4-25 (1) a limitation on the purpose and use of future
4-26 advances or other mortgage proceeds;
4-27 (2) a limitation on future advances to a term of years
4-28 or a limitation on the term of open-end account advances;
4-29 (3) a limitation on the term during which future
4-30 advances take priority over intervening advances;
4-31 (4) a requirement that a maximum loan amount be stated
4-32 in the reverse mortgage loan documents;
4-33 (5) a prohibition on balloon payments;
4-34 (6) a prohibition on compound interest and interest on
4-35 interest;
4-36 (7) a prohibition on contracting for, charging, or
4-37 receiving any rate of interest authorized under Article 1.04 of
4-38 this title or under any other statute authorizing a lender to
4-39 contract for a rate of interest; and
4-40 (8) a requirement that a percentage of the reverse
4-41 mortgage proceeds be advanced before the assignment of the reverse
4-42 mortgage.
4-43 Art. 5A.12. STATUS OF REVERSE MORTGAGE LOAN UNDER PUBLIC
4-44 ASSISTANCE PROGRAM. For the purposes of determining eligibility
4-45 under any statute relating to payments, allowances, benefits, or
4-46 services provided on a means-tested basis by this state, including
4-47 supplemental security income, low-income energy assistance,
4-48 property tax relief, medical assistance, and general assistance:
4-49 (1) reverse mortgage loan advances made to a borrower
4-50 are considered proceeds from a loan and not income; and
4-51 (2) undisbursed funds under a reverse mortgage loan
4-52 are considered equity in a borrower's home and not proceeds from a
4-53 loan.
4-54 Art. 5A.13. REVERSE MORTGAGE LOAN INFORMATION AND
4-55 COUNSELING. A lender may not make a reverse mortgage commitment
4-56 unless the loan applicant attests in writing that the applicant
4-57 received from the lender, at the time the notice is required by
4-58 Section 50, Article XVI, Texas Constitution, of this title, a
4-59 statement prepared by the Consumer Credit Commissioner regarding
4-60 the advisability and availability of independent information and
4-61 counseling services on reverse mortgages. The Consumer Credit
4-62 Commissioner shall:
4-63 (1) develop the content and format of the statement;
4-64 (2) provide independent consumer information on
4-65 reverse mortgages and their alternatives; and
4-66 (3) refer consumers to independent counseling services
4-67 with expertise in reverse mortgages.
4-68 Art. 5A.14. SUBSEQUENT HOLDER OF EQUITY LOAN. (a) In
4-69 connection with a sale or lease of goods or services to be financed
5-1 with the proceeds of an equity loan, the seller or lessor may not
5-2 accept full or partial payment for the sale or lease unless the
5-3 equity loan agreement includes the following notice in at least
5-4 10-point, boldface type:
5-5 NOTICE
5-6 ANY HOLDER OF THIS EQUITY LOAN IS SUBJECT TO ALL CLAIMS
5-7 AND DEFENSES THAT THE DEBTOR COULD ASSERT AGAINST THE
5-8 SELLER OR LESSOR OF GOODS OR SERVICES OBTAINED WITH
5-9 PROCEEDS FROM THIS LOAN. THE DEBTOR'S RECOVERY MAY NOT
5-10 EXCEED AMOUNTS PAID BY THE DEBTOR FOR THE GOODS OR
5-11 SERVICES.
5-12 (b) A holder of an equity loan is subject to all claims and
5-13 defenses that the debtor could assert against the seller or lessor
5-14 of goods or services obtained with proceeds of the equity loan. The
5-15 debtor's recovery may not exceed amounts paid by the debtor for the
5-16 goods or services.
5-17 Art. 5A.15. RESTRICTIONS ON EQUITY LOANS. A lender may not
5-18 make an equity loan that is solicited in person by the lender or
5-19 the lender's representative at the homestead or other residence of
5-20 a borrower.
5-21 SECTION 3. Chapter 2, Title 79, Revised Statutes (Article
5-22 5069-2.01 et seq., Vernon's Texas Civil Statutes), is amended by
5-23 adding Article 2.02E to read as follows:
5-24 Art. 2.02E. DIVISION OF ACCESS TO FINANCIAL SERVICES. (a)
5-25 The division of access to financial services is created in the
5-26 Office of Consumer Credit Commissioner to inform, monitor, and
5-27 report on the availability and quality of home equity loans,
5-28 including equity loans offered by lenders in the state to
5-29 agricultural businesses, small businesses, and individual consumers
5-30 in the state.
5-31 (b) The division shall be headed by a director appointed by
5-32 the Consumer Credit Commissioner.
5-33 (c) The director of the division of access to financial
5-34 services shall adequately staff the division to carry out the
5-35 division's functions under this article.
5-36 (d) The division shall:
5-37 (1) conduct research on the effect of equity lending
5-38 on the availability, quality, and cost of equity loans for
5-39 agricultural businesses, small businesses, and individual consumers
5-40 in various regions of the state;
5-41 (2) conduct research on the effect of the practices of
5-42 business entities in the state that provide equity loans to
5-43 agricultural businesses, small businesses, and individual consumers
5-44 in the state;
5-45 (3) conduct a public information campaign to provide
5-46 low-income and elderly consumers with information and counseling
5-47 about the benefits and liabilities associated with equity loans;
5-48 (4) compile a summary of the information received from
5-49 each lender under Article 5A.08, Title 79, Revised Statutes
5-50 (Article 5069-5A.08, Vernon's Texas Civil Statutes), including an
5-51 analysis of census tract demographic data, to produce reports on
5-52 equity lending patterns with regard to the rate of application and
5-53 loan acceptance by income and census tract of the homes;
5-54 (5) not later than December 1 of each even-numbered
5-55 year, provide to the legislature a report detailing the findings of
5-56 the division and recommending any action the division believes is
5-57 necessary to protect consumers with respect to equity lending; and
5-58 (6) prepare information of public interest describing
5-59 the functions of the division and make the information available to
5-60 the public and appropriate state and federal agencies.
5-61 (e) The division may apply for and receive public and
5-62 private grants and gifts and contract with public and private
5-63 entities to carry out studies and analyses under this article.
5-64 (f) The Consumer Credit Commissioner shall establish and
5-65 collect reasonable and necessary fees to accomplish the purposes of
5-66 this article.
5-67 SECTION 4. Chapter 2, Title 79, Revised Statutes (Article
5-68 5069-2.01 et seq., Vernon's Texas Civil Statutes), is amended by
5-69 adding Article 2.02F to read as follows:
6-1 Art. 2.02F. STUDY AND REPORT; EQUITY LOANS. (a) After May
6-2 1, 2000, the director of the division of access to financial
6-3 services shall conduct a study of equity lending under Chapter 5A,
6-4 Title 79, Revised Statutes (Article 5069-5A.01 et seq., Vernon's
6-5 Texas Civil Statutes).
6-6 (b) Before January 1, 2001, the director of the division of
6-7 access to financial services shall submit a report on the study to
6-8 the governor, lieutenant governor, and speaker of the house of
6-9 representatives. The report must include:
6-10 (1) a summary of the information received by the
6-11 director of the division of access to financial services under
6-12 Article 5A.08, Title 79, Revised Statutes (Article 5069-5A.08,
6-13 Vernon's Texas Civil Statutes);
6-14 (2) an analysis of the effectiveness of Chapter 5A,
6-15 Title 79, Revised Statutes (Article 5069-5A.01 et seq., Vernon's
6-16 Texas Civil Statutes), intended to protect borrowers; and
6-17 (3) other information the director of the division of
6-18 access to financial services considers relevant to the regulation
6-19 of equity loans.
6-20 SECTION 5. Subchapter A, Chapter 56, Education Code, is
6-21 amended by adding Section 56.004 to read as follows:
6-22 Sec. 56.004. CONSIDERATION OF HOME EQUITY. (a) In
6-23 determining the eligibility of an applicant for financial
6-24 assistance or the financial need of an applicant in connection with
6-25 an application for financial assistance, an institution of higher
6-26 education, the Texas Higher Education Coordinating Board, the
6-27 Texas Guaranteed Student Loan Corporation, or other state officer
6-28 or agency may not consider the amount of equity the applicant or
6-29 the applicant's family owns in a homestead of the applicant or of a
6-30 member of the applicant's family that is located in this state,
6-31 unless otherwise required by federal law.
6-32 (b) In this section, "financial assistance" includes a
6-33 student loan, grant, scholarship, or work-study position.
6-34 SECTION 6. Title 16, Revised Statutes, is amended by adding
6-35 Article 352 to read as follows:
6-36 Art. 352. REPORT BY FINANCIAL INSTITUTIONS
6-37 Sec. 1. DEFINITIONS. In this article:
6-38 (1) "Financial institution" means a state or national
6-39 bank, state or federal savings and loan association, or state or
6-40 federal credit union in this state that is authorized to make an
6-41 equity loan described by Section 41.001(b)(6), Property Code.
6-42 (2) "Branch office" means an office of a financial
6-43 institution that is approved as a branch by a federal or state
6-44 regulating agency, but does not include an electronic terminal as
6-45 defined by Section 1.002, Texas Banking Act (Article 342-1.002,
6-46 Vernon's Texas Civil Statutes).
6-47 Sec. 2. APPLICATION. (a) This article applies only to a
6-48 financial institution having deposits of $300 million or more or a
6-49 holding company owning or controlling one or more financial
6-50 institutions the combined deposits of which are $300 million or
6-51 more that makes an extension of credit authorized by Section
6-52 50(a)(6), Article XVI, Texas Constitution.
6-53 (b) A financial institution or holding company is not
6-54 required to file a report under this article if all offices of the
6-55 financial institution or holding company are located in a single
6-56 county.
6-57 Sec. 3. REPORT REQUIRED. (a) During each calendar quarter
6-58 a financial institution or holding company shall submit a report of
6-59 its financial activity, as provided by Section 4 of this article,
6-60 as of the end of the previous calendar quarter.
6-61 (b) A bank shall submit the report to the banking
6-62 commissioner, a savings and loan association shall submit the
6-63 report to the savings and loan commissioner, a credit union shall
6-64 submit the report to the credit union commissioner, and a holding
6-65 company shall submit the report to the appropriate commissioner
6-66 regulating the type of financial institution owned or controlled by
6-67 the holding company. A financial institution having deposits of
6-68 $300 million or more shall submit a separate report regardless of
6-69 whether it is owned or controlled by a holding company.
7-1 (c) A report submitted as required by this section must
7-2 provide separate information on each branch office, except that
7-3 branch offices located in a single municipality or in a single
7-4 county may be reported together.
7-5 (d) A report under this article is public information.
7-6 Sec. 4. INFORMATION REQUIRED. A report under this article
7-7 must include:
7-8 (1) information on loans and deposits itemized by
7-9 categories as required by the Financial Institutions Examination
7-10 Council or its successor under 12 U.S.C. Section 3301 et seq. for
7-11 federally supervised financial institutions; and
7-12 (2) reports of condition or similar public reports
7-13 reported by branch office transaction.
7-14 Sec. 5. FORM OF REPORT; FINANCE COMMISSION DUTIES. A report
7-15 under this article must be submitted on a uniform form prescribed
7-16 by the Finance Commission of Texas. The finance commission may
7-17 adopt rules to define terms not defined by this article and to
7-18 provide for the administration of this article.
7-19 Sec. 6. DUE DATE OF REPORT; RECORDKEEPING; PUBLIC NOTICE AND
7-20 AVAILABILITY. (a) A financial institution or holding company
7-21 subject to this article shall submit the required report not later
7-22 than the 30th day after the last day of each calendar quarter and
7-23 shall retain a copy of the report for its records for at least five
7-24 years.
7-25 (b) A financial institution or holding company shall make
7-26 the report available to the public not later than the 30th day
7-27 after the date the report is submitted to the appropriate
7-28 commissioner. The report shall be available to the public for five
7-29 years at the financial institution's home office. If a financial
7-30 institution has a branch office in another county, a report must
7-31 also be available in that county. The report at the branch office
7-32 may include only information relating to transactions in the county
7-33 where that branch office is located.
7-34 (c) A financial institution shall make the report required
7-35 by this article available for inspection and copying during the
7-36 hours the financial institution or branch office, as appropriate,
7-37 is normally open to the public for business. The financial
7-38 institution may charge a reasonable fee for photocopying services.
7-39 (d) A financial institution shall post a notice regarding
7-40 the availability of the report required by this article in the
7-41 lobbies of its home office and any branch office. On request, the
7-42 financial institution shall promptly provide the location of the
7-43 institution's offices where the report is available. A financial
7-44 institution may include the location where the report is available
7-45 in the notice of availability of the report.
7-46 Sec. 7. PENALTY. If the banking commissioner in the case of
7-47 a banking association, the savings and loan commissioner in the
7-48 case of a savings association, or the credit union commissioner in
7-49 the case of a credit union finds that a financial institution has
7-50 violated this article or a rule adopted under this article, the
7-51 commissioner may order the institution to pay an administrative
7-52 penalty. The amount of an administrative penalty under this
7-53 section may not exceed $500 for each day the violation continues.
7-54 A penalty collected under this section shall be deposited in the
7-55 state treasury. The Finance Commission of Texas may adopt rules as
7-56 necessary to carry out this section.
7-57 Sec. 8. PROHIBITION ON CERTAIN LOANS SECURED BY HOMESTEAD.
7-58 A financial institution that is found under Section 7 of this
7-59 article to have violated this article, in addition to the penalty
7-60 provided under that section, is not eligible to make a loan
7-61 described by Section 41.001(b)(6), Property Code, until the
7-62 appropriate commissioner determines that the financial institution
7-63 has come into compliance with this article.
7-64 Sec. 9. FORM OF REPORT: CREDIT UNION COMMISSION DUTIES. For
7-65 the purposes of this article, the Credit Union Commission may adopt
7-66 rules to define terms not defined by this article and to provide
7-67 for the administration of this article, including the
7-68 administration of Section 7 relating to penalties. A credit union
7-69 submitting a report under this article must submit the report on
8-1 the form prescribed by the Credit Union Commission.
8-2 SECTION 7. Title 16, Revised Statutes, is amended by adding
8-3 Article 361 to read as follows:
8-4 Art. 361. AUTOMATED TELLER MACHINE FEES
8-5 Sec. 1. DEFINITION. In this article, "financial
8-6 institution" means a state or national bank, state or federal
8-7 savings and loan association, state or federal savings bank, or
8-8 state or federal credit union.
8-9 Sec. 2. APPLICATION; FEES EXCLUSIVE. (a) This article
8-10 applies only to a financial institution that makes an extension of
8-11 credit under Section 50(a)(6), Article XVI, Texas Constitution.
8-12 (b) A financial institution to which this article applies
8-13 may not charge a fee for use of an automated teller machine except
8-14 as provided by this article.
8-15 Sec. 3. TRANSACTION FEE; FINANCIAL INSTITUTION CUSTOMER. A
8-16 financial institution to which this article applies may charge a
8-17 customer of the financial institution a transaction fee of not more
8-18 than $1 for each transaction the customer makes relating to the
8-19 customer's account with the financial institution using an
8-20 automated teller machine, regardless of whether the financial
8-21 institution is the owner of the automated teller machine.
8-22 Sec. 4. PROHIBITION ON MAKING CERTAIN LOANS SECURED BY
8-23 HOMESTEAD. If the regulatory official responsible for regulating a
8-24 financial institution determines the financial institution has
8-25 violated this article, the financial institution is not eligible to
8-26 make a loan described by Section 50(a)(6), Article XVI, Texas
8-27 Constitution, until the official determines that the financial
8-28 institution has come into compliance with this article.
8-29 SECTION 8. Section 9.02, Insurance Code, is amended by
8-30 adding Subsection (r) to read as follows:
8-31 (r) "Equity loan mortgagee policy" means a Texas promulgated
8-32 Form T-2 mortgagee policy of title insurance that insures the
8-33 validity and priority of an equity loan mortgage, including a deed
8-34 of trust, trust deed, or other security instrument, on homestead
8-35 property.
8-36 SECTION 9. Section 9.07, Insurance Code, is amended by
8-37 adding Subsection (g) to read as follows:
8-38 (g) The commissioner shall promulgate an endorsement that
8-39 must be attached to an equity loan mortgagee policy. The
8-40 endorsement must insure the priority of future advances, made in
8-41 accordance with the mortgage and applicable law, subject to any
8-42 legal limits on priority and to the other terms of the policy. The
8-43 endorsement must insure the validity of the mortgage subject to the
8-44 terms of the policy and subject to an exclusion for compliance by
8-45 the lender with any constitutional or statutory requirements for,
8-46 and limitations on, equity loans secured by a mortgage on a
8-47 homestead. The endorsement must affirmatively insure against
8-48 invalidity of the mortgage because of the failure of each owner and
8-49 the spouse of each owner to join in the mortgage. The commissioner
8-50 may promulgate other policies and endorsements relating to an
8-51 equity loan mortgage on a homestead.
8-52 SECTION 10. Chapter 20, Title 132, Revised Statutes, is
8-53 amended by adding Article 9001 to read as follows:
8-54 Art. 9001. MORTGAGE BROKER REGISTRATION
8-55 Sec. 1. DEFINITIONS. In this article:
8-56 (1) "Commissioner" means the consumer credit
8-57 commissioner.
8-58 (2) "Mortgage" means a lien interest against real
8-59 estate created by a deed of trust, security deed, or other
8-60 instrument for debt.
8-61 (3) "Mortgage applicant" means a person who is
8-62 solicited to purchase or who purchases the services of a mortgage
8-63 broker.
8-64 (4) "Mortgage banker" means any person who makes,
8-65 services, or buys and sells mortgage loans with the person's own
8-66 funds.
8-67 (5) "Mortgage broker" means a person who, for
8-68 compensation, obtains or sells for another person a one-to-four
8-69 family residential mortgage or a person who, for compensation,
9-1 receives for another person an application from a prospective
9-2 borrower and places or attempts to place the application with a
9-3 mortgage banker or other lender for purposes of making a
9-4 one-to-four family residential mortgage. The term does not include
9-5 a person who delivers an application and other loan information for
9-6 a mortgage loan to a mortgage broker either on behalf of or at the
9-7 instruction of the prospective borrower.
9-8 (6) "Registrant" means a person who has been issued a
9-9 certificate of registration under this article.
9-10 Sec. 2. CERTIFICATE OF REGISTRATION REQUIREMENT. (a) A
9-11 person may not act as a mortgage broker in connection with an
9-12 extension of credit described by Section 50(a)(6), Article XVI,
9-13 Texas Constitution, without first having obtained a certificate of
9-14 registration from the commissioner for the person's main office and
9-15 for each other office to be maintained by the person for the
9-16 transaction of business as a mortgage broker in this state.
9-17 (b) An employee of a registrant is not required to obtain a
9-18 certificate of registration.
9-19 (c) A certificate of registration is not required for:
9-20 (1) a bank, savings bank, or savings and loan
9-21 association, or a subsidiary or an affiliate of a bank, savings
9-22 bank, or savings and loan association;
9-23 (2) a state or federal credit union;
9-24 (3) a lender approved by the secretary of housing and
9-25 urban development for participation in a mortgage insurance program
9-26 under the National Housing Act, as amended (12 U.S.C. Section 1701
9-27 et seq.);
9-28 (4) a mortgage banker; or
9-29 (5) a person licensed under Chapter 3, Title 79,
9-30 Revised Statutes (Article 5069-3.01 et seq., Vernon's Texas Civil
9-31 Statutes), who makes, negotiates, or arranges a secondary mortgage
9-32 loan.
9-33 Sec. 3. APPLICATION FOR CERTIFICATE OF REGISTRATION. (a)
9-34 An application for a certificate of registration as a mortgage
9-35 broker must be in writing, under oath, and in the form prescribed
9-36 by the commissioner. The application must be accompanied by an
9-37 application fee of $150 for each office location to be maintained
9-38 by the applicant.
9-39 (b) The application fee is not refundable.
9-40 (c) If the applicant is a corporation or partnership, one of
9-41 the shareholders or partners, as appropriate, must be named in the
9-42 application as the person responsible for managing the operations
9-43 of the location or locations where business is to be transacted.
9-44 Sec. 4. QUALIFICATIONS. To be eligible for a certificate of
9-45 registration, a mortgage broker must:
9-46 (1) have at least one of the following minimum levels
9-47 of education, certification, or experience:
9-48 (A) an associate's degree in an area relating to
9-49 finance, banking, or business administration from an accredited
9-50 college or university, including an accredited community technical
9-51 college;
9-52 (B) the residential mortgage lender or certified
9-53 mortgage consultant certification, issued by the National
9-54 Association of Mortgage Brokers, or other certification similar in
9-55 scope and relevance;
9-56 (C) a real estate broker or salesman license
9-57 under The Real Estate License Act (Article 6573a, Vernon's Texas
9-58 Civil Statutes);
9-59 (D) a license as an attorney in this state;
9-60 (E) a license as a certified public accountant
9-61 in this state; or
9-62 (F) three years of experience:
9-63 (i) in the mortgage and lending field,
9-64 which may include employment with or as a mortgage broker or with a
9-65 financial institution, mortgage lending institution, or other
9-66 lending institution; or
9-67 (ii) that the commissioner determines
9-68 meets a minimum comparable standard for education and experience;
9-69 (2) demonstrate evidence of compliance with the
10-1 financial requirements of this article; and
10-2 (3) have the financial responsibility, experience,
10-3 character, and general fitness to command the confidence of the
10-4 public and warrant the belief that the business will be operated
10-5 honestly and fairly in compliance with the purposes of this
10-6 article.
10-7 Sec. 5. MINIMUM NET ASSETS. (a) A registrant that conducts
10-8 business as a mortgage broker shall maintain net assets of at least
10-9 $25,000 and a surety bond in the amount of at least $25,000 or a
10-10 surety bond in the amount of at least $50,000. The term of the
10-11 surety bond must coincide with the term of the certificate of
10-12 registration.
10-13 (b) This section does not apply to a registrant who is
10-14 licensed to practice law in this state.
10-15 (c) In this section, "net assets" means the difference
10-16 between total assets and total indebtedness, as determined by
10-17 generally accepted accounting principles, except that assets of
10-18 doubtful or uncertain value are disallowed.
10-19 Sec. 6. CRIMINAL HISTORY RECORD INFORMATION. (a) On the
10-20 filing of the application and payment of the application fee by the
10-21 applicant, the commissioner is entitled to obtain from the
10-22 Department of Public Safety criminal history record information
10-23 maintained by the department that relates to a person who is an
10-24 applicant for a certificate of registration.
10-25 (b) Criminal history record information obtained under this
10-26 section is confidential and may not be released or disclosed to any
10-27 person except on court order or with the consent of the person who
10-28 is the subject of the criminal history record information.
10-29 Sec. 7. ISSUANCE OF CERTIFICATE OF REGISTRATION. (a) The
10-30 commissioner shall issue a certificate of registration to a person
10-31 who applies for the certificate not later than the 30th day after
10-32 the date of receipt of a completed application unless the
10-33 commissioner has reason to believe that the eligibility
10-34 requirements of this article are not satisfied or the applicant's
10-35 financial responsibility, experience, character, and general
10-36 fitness do not command the confidence of the public and warrant the
10-37 belief that the business will be operated honestly and fairly in
10-38 compliance with the purposes of this article.
10-39 (b) The commissioner shall notify an applicant in writing if
10-40 the application is denied. An applicant may appeal the decision by
10-41 submitting a written request for a hearing not later than the 30th
10-42 day after the date of the decision.
10-43 (c) A certificate of registration issued under this article
10-44 may be renewed annually on or before its expiration date by payment
10-45 of a renewal fee of $150 for each location of an office to be
10-46 maintained by the applicant and a finding by the commissioner that
10-47 the applicant meets the conditions set forth by Subsection (a) of
10-48 this section and that the applicant's certificate of registration
10-49 is not subject to an order of suspension or revocation by the
10-50 commissioner. If a renewal fee is submitted to the commissioner
10-51 after the registration expires but before the 181st day after the
10-52 expiration date of the registration, the fee must be accompanied by
10-53 a late renewal fee of $100 for each location of an office
10-54 maintained by the applicant for which the renewal fee is late.
10-55 (d) Before the 30th day preceding the effective date of an
10-56 address change, a registrant shall notify the commissioner in
10-57 writing of the new address. If a registrant intends to move the
10-58 business to a location outside the municipality in which it is
10-59 located, a new application must be filed accompanied by the
10-60 application fee and a relocation fee of $15, and a new certificate
10-61 must be obtained before conducting business at the new location.
10-62 (e) An application, renewal, late renewal, or relocation fee
10-63 may not be refunded after a certificate of registration has been
10-64 issued or renewed.
10-65 (f) A certificate of registration issued under this article
10-66 is not transferable and may not be assigned. Ownership or control
10-67 of a registrant may not change without the approval of the
10-68 commissioner.
10-69 Sec. 8. INVESTIGATION AND INSPECTION OF RECORDS. (a) On
11-1 receipt of a written complaint or other probable cause to believe
11-2 that a person is violating a provision of state law to which this
11-3 article applies, the commissioner may request the person to furnish
11-4 information and records relating to a transaction or business
11-5 practice alleged to be in violation of the law. If a person fails
11-6 to comply with a request, the commissioner may conduct an
11-7 investigation to determine whether a violation has occurred.
11-8 (b) All information obtained by the commissioner or an
11-9 employee or other agent of the commissioner by reason of the
11-10 person's official position, including information obtained in the
11-11 course of inspecting or investigating an applicant for a
11-12 certificate of registration, is confidential. That information
11-13 remains confidential for all purposes except for lawful use by the
11-14 commissioner regarding the affairs of the registrant or in
11-15 connection with criminal proceedings.
11-16 Sec. 9. PROHIBITIONS. A registrant or applicant for a
11-17 certificate of registration under this article may not:
11-18 (1) obtain a certificate of registration through a
11-19 false or fraudulent representation or make a substantial
11-20 misrepresentation in a registration application;
11-21 (2) publish or cause to be published an advertisement
11-22 that is misleading, is likely to deceive the public, or in any
11-23 manner tends to create a misleading impression because it fails to
11-24 identify as a registrant the person causing the advertisement to
11-25 be published;
11-26 (3) engage in conduct that constitutes improper,
11-27 fraudulent, or dishonest dealings;
11-28 (4) fail to notify the commissioner if the registrant
11-29 or applicant, in a court of competent jurisdiction of this state or
11-30 another state or in a federal court, is convicted of or enters a
11-31 plea of guilty or nolo contendere to a felony or a criminal offense
11-32 involving fraud;
11-33 (5) fail to use fees collected in advance of closing
11-34 for the purposes for which the fees were paid; or
11-35 (6) charge or receive, directly or indirectly, a fee
11-36 for assisting a mortgage applicant in obtaining a mortgage until
11-37 all of the services that the registrant has agreed to perform for
11-38 the mortgage applicant are completed, and the proceeds of the
11-39 mortgage loan have been disbursed to or on behalf of the mortgage
11-40 applicant except as provided by Section 10 of this article.
11-41 Sec. 10. FEE ASSESSMENT AND DISCLOSURE. (a) Before
11-42 completion of all services, a registrant may charge and receive,
11-43 unless prohibited by law, the following fees for services in
11-44 assisting a mortgage applicant to obtain a mortgage:
11-45 (1) a fee to obtain a credit report;
11-46 (2) a fee for the appraisal of the real estate;
11-47 (3) a fee paid directly by the mortgage applicant to a
11-48 state or federal governmental agency or instrumentality for
11-49 processing a mortgage application relating to a
11-50 government-sponsored or guaranteed mortgage program; or
11-51 (4) subject to Subsection (b) of this section, fees
11-52 for locking in an interest rate, issuing a commitment letter, and
11-53 processing a loan or a loan application in connection with
11-54 obtaining or refinancing a mortgage loan.
11-55 (b) A registrant may not charge and receive a fee for
11-56 locking in an interest rate, issuing a commitment letter, or
11-57 processing a loan or a loan application unless there is a written
11-58 agreement signed by the mortgage applicant and registrant that
11-59 contains:
11-60 (1) the expiration date of the locked-in interest
11-61 rate;
11-62 (2) the principal amount of the mortgage loan;
11-63 (3) the term of the mortgage loan;
11-64 (4) an identification of the property;
11-65 (5) the initial interest rate;
11-66 (6) the discount or points to be paid;
11-67 (7) the amounts and payment terms of the fee for the
11-68 locked-in interest rate and commitment fee;
11-69 (8) a statement of whether a fee described by
12-1 Subdivision (7) of this subsection is refundable and, if so, the
12-2 terms and conditions necessary to obtain the refund; and
12-3 (9) sources and amount or computation of amount to be
12-4 paid to a mortgage broker by a person other than the mortgage
12-5 applicant.
12-6 (c) If a fee is paid by a mortgage applicant for the
12-7 performance of the service described by Subsection (a)(2) of this
12-8 section and the registrant is unable to assist in obtaining a
12-9 mortgage for the mortgage applicant, the registrant shall return to
12-10 the mortgage applicant the original documents prepared by the bona
12-11 fide third party at the time that the request for the mortgage is
12-12 refused or denied.
12-13 (d) For purposes of this section, "bona fide third party"
12-14 means a person who is not an employee of, related to, or affiliated
12-15 with the registrant and who is not used for the purpose of
12-16 circumvention or evasion of this section.
12-17 Sec. 11. SUSPENSION, REVOCATION, OR REFUSAL OF LICENSE;
12-18 INVESTIGATIONS; CEASE AND DESIST ORDERS. (a) After notice and
12-19 opportunity for a hearing, the commissioner may suspend, revoke, or
12-20 refuse to issue or renew a certificate of registration if the
12-21 commissioner finds:
12-22 (1) the registrant has failed to pay a fee or charge
12-23 properly imposed by the commissioner under this article;
12-24 (2) the registrant, knowingly or without the exercise
12-25 of due care, has violated a provision of this article or a rule or
12-26 order made under this article;
12-27 (3) the existence of a fact or condition that clearly
12-28 would have justified the commissioner in refusing to issue the
12-29 certificate of registration, if the fact or condition existed at
12-30 the time the original application for the certificate of
12-31 registration was made;
12-32 (4) the registrant has aided, abetted, or conspired
12-33 with a person to circumvent the requirements of this article;
12-34 (5) the financial responsibility, experience,
12-35 character, or general fitness of the registrant or the registrant's
12-36 owners and managers does not command the confidence of the public
12-37 or warrant the belief that the business will be operated lawfully,
12-38 fairly, and within the purposes of this article; or
12-39 (6) the registrant has failed to maintain the minimum
12-40 financial requirements of this article.
12-41 (b) The commissioner may investigate alleged violations of
12-42 this article, or the rules adopted under this article, and
12-43 complaints concerning those alleged violations. The commissioner
12-44 may make application to any state district court for an order
12-45 enjoining such a violation and, on a showing by the commissioner
12-46 that a person has committed or is about to commit such a violation,
12-47 the court shall grant an injunction, restraining order, or other
12-48 appropriate relief.
12-49 (c) In the course of an investigation, the commissioner by
12-50 subpoena may compel the attendance and testimony of witnesses and
12-51 the production of any book, record, or other document. The
12-52 commissioner is entitled to examine the book, record, or other
12-53 document at the registrant's office or place of business and to
12-54 require that copies of the book, record, or other document relating
12-55 to the matter in question be made as considered necessary. The
12-56 copies must be verified by affidavit of the person or an officer of
12-57 the person who is the subject of the document. When certified by
12-58 the commissioner, the copies may be admissible in evidence in an
12-59 investigation or hearing under this article or other law to which
12-60 this article applies or an appeal to district court. For this
12-61 purpose, the commissioner may sign subpoenas, administer oaths and
12-62 affirmations, examine witnesses, and receive evidence.
12-63 (d) If a person fails to obey a subpoena, the district court
12-64 that has jurisdiction over the witness, on application by the
12-65 commissioner, may issue an order compelling a person to obey the
12-66 subpoena or to testify or produce any book, record, or other
12-67 document relating to the matter. The filing of an application to
12-68 enforce a subpoena shall be treated by the district court in the
12-69 same manner as a motion filed in a civil suit pending in the court.
13-1 The district court shall set the application for hearing and notice
13-2 of the filing of the application, and the hearing shall be served
13-3 on the person to whom the subpoena is directed.
13-4 (e) If the commissioner determines that a person is engaged
13-5 in, or is believed to be engaged in, activities that may constitute
13-6 a violation of this article, the commissioner, after notice and a
13-7 hearing, may issue a cease and desist order.
13-8 Sec. 12. CIVIL ACTIONS; INJUNCTIVE RELIEF; CRIMINAL
13-9 PROSECUTIONS. (a) A mortgage applicant injured by a violation of
13-10 this article may bring an action for recovery of damages and
13-11 reasonable attorney's fees and court costs.
13-12 (b) The commissioner, the attorney general, or a mortgage
13-13 applicant may bring an action to enjoin a violation of this
13-14 article.
13-15 (c) The remedies provided by this section are in addition to
13-16 any other remedy provided by law.
13-17 (d) In a proceeding or action brought under this article the
13-18 burden of proving an exemption is on the person claiming the
13-19 benefit of the exemption.
13-20 (e) A person does not violate this article with respect to
13-21 an act taken or omission made in reliance on a written notice,
13-22 written interpretation, or written report from the commissioner,
13-23 unless a subsequent amendment to the article or rules adopted under
13-24 the article affect the commissioner's notice, interpretation, or
13-25 report.
13-26 (f) On disbursement of mortgage proceeds to or on behalf of
13-27 the mortgage applicant, the registrant that assisted the mortgage
13-28 applicant to obtain the mortgage is considered to have completed
13-29 the performance of the registrant's services for the mortgage
13-30 applicant and owes no additional duties or obligations to the
13-31 mortgage applicant with respect to the mortgage. This subsection
13-32 does not limit or preclude the liability of a registrant for
13-33 failing to comply with this article or a rule adopted under this
13-34 article, for failing to comply with a provision of or duty arising
13-35 under an agreement with a mortgage applicant or lender under this
13-36 article, or for violating any other state or federal law.
13-37 Sec. 13. RULEMAKING POWERS. (a) The commissioner may adopt
13-38 rules consistent with and necessary to accomplish the purposes of
13-39 this article, including rules relating to:
13-40 (1) improper or fraudulent business practices or other
13-41 acts harmful to consumers in this state; and
13-42 (2) the interpretation, implementation, and
13-43 enforcement of this article.
13-44 (b) The commissioner may adopt rules to prohibit false,
13-45 misleading, or deceptive practices by registrants but may not adopt
13-46 any other rules restricting competitive bidding or advertising by
13-47 registrants. In adopting rules to prohibit false, misleading, or
13-48 deceptive practices by registrants, the commissioner may not
13-49 restrict:
13-50 (1) the use of any medium for advertising;
13-51 (2) the personal appearance of or voice of a person in
13-52 an advertisement;
13-53 (3) the size or duration of an advertisement; or
13-54 (4) the registrant's advertisement under a trade name.
13-55 (c) The commissioner by rule shall provide for proportionate
13-56 recovery from registrants of the cost of applications, renewals,
13-57 and investigation.
13-58 (d) The commissioner may not adopt rules that impose
13-59 additional qualifications or requirements for the issuance or
13-60 renewal of a certificate of registration.
13-61 Sec. 14. ACCOUNT. (a) The commissioner shall deliver all
13-62 money received under this article to the comptroller for deposit in
13-63 a special account in the general revenue fund.
13-64 (b) Money in the account may be used only to administer this
13-65 article.
13-66 Sec. 15. EFFECT ON TEXAS CREDIT SERVICES ORGANIZATIONS ACT.
13-67 A registrant is exempt from the requirements of Chapter 18,
13-68 Business & Commerce Code, to the extent that the registrant does
13-69 not charge a fee for any service regulated under that chapter.
14-1 Sec. 16. SECONDARY MARKET TRANSACTIONS. This article does
14-2 not prohibit a mortgage broker from receiving compensation from a
14-3 party other than the mortgage applicant for the sale, transfer,
14-4 assignment, or release of rights on the closing of a mortgage
14-5 transaction, provided that the compensation is disclosed in writing
14-6 to the mortgage applicant.
14-7 SECTION 11. A person is not required to be registered under
14-8 Article 9001, Revised Statutes, as added by this Act, before
14-9 January 1, 1998.
14-10 SECTION 12. The first report of financial institutions
14-11 required by Article 352, Revised Statutes, as added by this Act,
14-12 shall cover the first calendar quarter of 1998 and shall be filed
14-13 during the second calendar quarter of that year.
14-14 SECTION 13. This Act takes effect January 1, 1998, but only
14-15 if the constitutional amendment proposed by H.J.R. No. 31, Acts of
14-16 the 75th Legislature, Regular Session, 1997, allowing voluntary,
14-17 consensual encumbrances on homestead property for the purpose of
14-18 equity loans, is approved by the voters. If that amendment is not
14-19 approved by the voters, this Act has no effect.
14-20 SECTION 14. The importance of this legislation and the
14-21 crowded condition of the calendars in both houses create an
14-22 emergency and an imperative public necessity that the
14-23 constitutional rule requiring bills to be read on three several
14-24 days in each house be suspended, and this rule is hereby suspended.
14-25 * * * * *