Seasoned Refinancing. As of January 1, 2018, Texas borrowers are allowed to refinance home equity loans into non-home equity loans. This is known as a “seasoned” refinance and is summarized as follows:
•the refinance is not closed before the first anniversary of the date the home equity loan was closed;
•the refinanced credit does not include the advance of additional funds other than funds advanced to refinance the debt, or costs and reserves required by the lender to refinance the debt;
•the amount of the refinance credit plus the total outstanding principal balance of all other indebtedness secured by the homestead on the date the refinance credit is made cannot exceed 80% of the homestead’s fair market value; and
•the lender provides the owner a prescribed notice on a separate document not later than the third business day after the date the owner submits the loan application to the lender and at least 12 days before the refinance credit is closed.
Required Disclosure. The lender must provide the refinance disclosure to the owner on a separate document not later than the third business day after the date the owner submits the loan application to the lender and at least 12 days before the date the refinance of the extension of credit is closed. See Notice Concerning Refinance of Existing Home Equity Loan into Non-Home Equity Loan located at the end of this Chapter. One copy of the required refinance disclosure may be provided to married owners.
•The application is submitted on the date the owner submits a loan application specifically for a refinance of a home equity loan to a non-home-equity loan.
•If the owner initially applies for another type of loan, then the application is considered submitted on the earliest of:
− the date the owner modifies the application, orally or in writing, to specify that it is for the refinance of a home equity loan to a non-home-equity loan; or
− the date the owner submits a new application specifically for a refinance of a home equity loan to a non-home-equity loan.
Calculation of Waiting Period. For purposes of determining the earliest permitted closing date, the next succeeding calendar day after the date that the lender provides the owner a copy of the required refinance disclosure is the first day of the 12-day waiting period. The refinance may be closed at any time on or after the 12th calendar day after the lender provides the owner a copy of the required refinance disclosure.
Mailing of Disclosure. The lender must deliver the refinance disclosure in person or place it in the mail no later than the third business day after the owner submits the loan application. Since the refinance disclosure must be delivered to the owner at least 12 days before the refinance is closed, if the lender mails the refinance disclosure to the owner, the lender must allow a reasonable period for delivery. A reasonable period of three calendar days, not including Sundays and federal legal public holidays, constitutes a rebuttable presumption for sufficient mailing and delivery.
EXAMPLE: Bob applies for a home equity refinance on Monday, April 1, 2019. The Bank must hand deliver or mail the disclosures on or before Thursday, April 4. If the Bank hand delivers the disclosure on April 4, Friday April 5 is the first day of the 12-day waiting period. The Bank may close the loan on or after April 16. If the Bank mails the disclosure on April 4, it is presumed delivered on April 8. The 12-day waiting period runs on Saturday, April 20, so the loan will close on or after Monday April 22.
Affidavit of Compliance. An affidavit executed by the owner or the owner’s spouse acknowledging that the requirements in Section 50(f)(2) have been met conclusively establishes that the requirements of Section 50(a)(4) have been met. A sample Affidavit and Agreement Concerning Refinance of Existing Home Equity Loan to Non-Home Equity Loan Under Section 50(f)(2), Article XVI, Texas Constitution is located at the end of this Chapter.
Timing Restrictions. The refinance may not be closed before the first anniversary of the closing date of the equity loan.
•The closing date of the refinance is the date on which the owner signs the loan agreement for the refinance.
•The closing date of the equity loan is the date when each owner and the spouse of each owner signs the equity loan agreement. [7 T.A.C. §153.1(3).]
Restriction on Additional Funds. A refinancing should not include multiple future advances and the refinance may not include the advance of any additional funds other than funds advanced to finance actual costs and reserves required by the lender to refinance the debt.
•In order to be included in the funds advanced for the refinance, actual costs must be identifiable, must be actually required by the lender to refinance the debt, and must comply with applicable limitations on costs.
•In order to be included in the funds advanced for the refinance, reserves (e.g., an escrow amount for taxes and insurance) must be actually required by the lender to refinance the debt, and must comply with applicable law.
•Amounts that the owner pays before or at closing (e.g., through cash, checks, or electronic funds transfer) are not advanced by the lender, and are not subject to the limitation on the advance of additional funds.