Below is the HillCo client report form the May 21 House Investments & Financial Services Committee hearing.

This report focuses only on discussion of the following interim charge:
 
Review Texas home equity laws. Study and make recommendations for ensuring Texas consumers have appropriate access to the equity in their homes and adequate protections.
 
John Fleming, Texas Mortgage Bankers’ Association

  • Some say that because of restrictions on home equity lending, Texas is saved from being like California, Arizona or Nevada; there are other factors
    • Low tax structure which contributes to a vigorous economy, low unemployment and the low property value rise which allowed for a modest home value slump when those states’ dropped significantly
  • Texas home equity loans are priced a little higher than similar purchased money loans; these pricing differences are due to compliance risk, not credit risk
  • Chairman Mike Villarreal asked if many loans have experienced violations of law or financial institutions that have been acted upon by regulatory agencies because of lack of compliance
    • No, it tends to be litigation risk
  • How power of attorney is used in home equity lending needs to be addressed
  • The committee needs to look at a proposal including fees paid to third parties like title insurance premiums; they should be excluded from the 3% cap; would allow borrowers to take out less money
  • Rep. Larry Phillips noted one thing that could be done is to look at fees and requirements that make it harder to buy and sell real estate; there is a broader issue, Texas keeps increasing expenses and requiring more and more to close a deal; why was 3% chosen to begin with
    • Wasn’t involved when that debate took place
  • Phillips noted he doesn’t like carve-outs; we need consistency across the board
  • There should be provisions to refinance a seasoned home equity loan as a traditional loan

 
Burt Solomons, Texas Association of Realtors

  • In 1997 Texas was the last state to adopt home equity; the bill had many homeowner protections from aggressive lenders
  • Over the years, the legislature has remained very protective to ensure lenders have better business practices and homeowners remained protective
  • One of the reasons for the 3% cap was to keep things under control and stop churning
  • Anything done to change home equity lending must be done very surgically and done to prevent constant refinancing
  • Villarreal asked if the idea of allowing seasoned home equity loans to transfer into traditional loans was considered when the legislation was adopted
    • Do not remember considering that idea; that is done to keep lenders careful about their practices; have to be careful about letting aggressive lenders back into this system

 
Karen Neeley, Independent Bankers’ Association of Texas

  • Fees come from Congress to a large extent; different regulations were put into place at different time in Washington that affect the cost of a residential mortgage loan
  • The 3% fee cap is primarily targeted at the fees the lender is going to receive such as the origination fee; fees paid to a third party at arm’s length do not count toward the fee cap
  • It is time to revisit this cap to determine what is trying to be addressed; if it is the origination fee it should be addressed on its own; should make the system consistent across the board for all loans
  • Phillips asked if any banks make only home equity lines of credit
    • Yes
  • Phillips noted that was opened up to give people another way to access their equity; also allowed home equity loans to be converted to reverse mortgages
    • Yes, reverse mortgages were in there before the recent revisions
  • Phillips asked if those conversions are being made often
    • Not sure, community banks do not make reverse mortgages
  • Would like to see the power of attorney issue addressed as well
  • Agree with Texas Mortgage Bankers with respect to the seasoned refinance issue
  • It is time to look at the ag exemption; the idea was to protect farmers but they want access to their equity; the cost of rural lending is higher and more cumbersome
  • Phillips asked if any witnesses have spoken to farm bureau
    • Not recently
  • Rep. Doc Anderson noted the farm bureau still feels very strongly about that and the issue needs to be addressed

 
John Heasley, Texas Bankers’ Association

  • In 2003, the legislature passed a bill to allow the Credit Union Commission and Finance Commission to promulgate rules, after they did they were sued by ACORN; resolution was gained through the Norwood ruling recently
  • Agrees that power of attorney issue, 3% cap issue and seasoned refinance issue need to be addressed

 
Jeff Huffman, Texas Credit Union Association

  • Many credit unions have issues with the 3% cap; it has become a problem on small rural loans where the 3% cap is hit very quickly; turning away many customers because of this issue
  • Anderson asked what the percentage of loans being turned away is
    • It is not an epidemic but as member owned institutions, we do not want to turn away any loans
  • Phillips noted some things cannot be changed because they are federal regulations but some of the fees the state allows to the counties can be changed because those fees are not being used for document preservation but rather for elevators and things like that
  • The power of attorney issue is important; credit unions need to know the laws are clear regarding that
  • Credit unions are sometimes faced with situations where a home equity loan was given from other institutions but because of the one year limit they are unable to give better rates for the loan; would like to have some type of extraordinary event provision to allow for those better rates to be given in refinanced loans

 
Robert Doggett, Texas Family Council

  • In regard to the risk of noncompliance brought up previously; a borrower only has remedy for violations of the constitution in that they can ask the lender to fix the problem and the lender has 60 days to do so
  • Lenders claimed, when the regulations were implemented, that the fees to lenders should not be included in the 3% cap; courts decided they should in order to protect the marketplace; the 3% cap is in place to help consumers determine which loan is best for them; do not want originators to be incentivized to market loans to consumers who should not take them
  • Keeping fees low on the front end prevents originators from selling loans to people that shouldn’t have them because now it is harder for them to package the loans and sell them to banks as was done in abundance a few years ago
  • Lenders want clarity in these matter in that they want to do away with regulations
  • Flynn noted that lenders do things because there is a public desire to do so; that is what drives changes
    • With the ‘08-‘09 crash everyone ended up paying for it