C.S.S.B. 1211 78(R)    BILL ANALYSIS


C.S.S.B. 1211
By: Van de Putte
Financial Institutions
Committee Report (Substituted)



BACKGROUND AND PURPOSE 

Chapter 307, Finance Code permits lenders to protect their interest in
property pledged as collateral for a loan when the borrower fails to
maintain the required property insurance.  It allows lenders to place
collateral protection insurance coverage on the property.  However lenders
are limited to placing coverage in an amount that protects only the
outstanding balance of the loan.  In the case of real property, the
borrower's equity is left completely unprotected.  Homeowners have
experienced difficulty in obtaining insurance coverage for their homes
except that which is required by lenders. To some extent, the Texas Fair
Access to Insurance Requirements (Texas FAIR) program serves as a market
of last resort for homeowners who cannot obtain coverage from insurance
companies.   

C.S.S.B. 1211 amends 307.051, Finance Code to give lenders the option of
placing property coverage that will reasonably protect the borrower's
equity interest in real property pledged as collateral as well as the
lender's loan interest.  

RULEMAKING AUTHORITY

It is the committee's opinion that this bill does not expressly grant any
additional rulemaking authority to a state officer, department, agency, or
institution.  

ANALYSIS

C.S.S.B. 1211 amends Section 307.051, Finance Code to permit a creditor,
at the creditor's option, to obtain collateral protection insurance to
cover either the replacement cost of improvements or the amount of unpaid
indebtedness.  Borrowers are obligated to reimburse the creditor for the
premium, finance charge, and any other charges incurred by the creditor
for this insurance.   

The bill amends Section 307.052, Finance Code to require creditors that
obtain such insurance for real property to inform the borrower that
coverage may be available through the Texas FAIR program at a lower cost.
Contact information for the Texas FAIR plan must also be provided to the
borrower.  

The changes in law made by the bill apply only to credit agreements
entered into on or after the effective date. 

EFFECTIVE DATE

On passage or, if the Act does not receive the necessary vote, the Act
takes effect September 1, 2003.   
COMPARISON OF ORIGINAL TO SUBSTITUTE

The substitute clarifies that the borrower is obligated to reimburse the
creditor for finance charges, and not interest, associated with the
collateral protection insurance obtained for real property.