Effective September 1, 2001, a lender must give the attached
disclosures to a loan applicant within three days of loan application in the event the
loan contemplated will be secured by a one-to-four family property and such security is
the primary residence or is intended to become the primary residence of the
applicant and if the intended loan will have a contract rate that
exceeds 12% or has the possibility of exceeding 12% in the event the proposed loan is an
adjustable rate mortgage transaction.
In addition to giving the
disclosures, the lender must provide a list of HUD-approved counseling agencies to the
borrower and advise of counseling in connection with
the proposed loan.
The attached disclosures were promulgated by the Office of Consumer
Credit Commissioner. One is in English and
one is in Spanish. If the borrower's
primary language is Spanish, then you must give the Spanish version.
Failure to comply with this new statute could subject you to actual
damages and punitive damages in the amount of $10,000 per violation.
We are also enclosing a printed list of HUD-approved counseling
agencies for your reference.
The new rule promulgated by the Consumer Credit Commissioner is also
attached. Should you have questions regarding this new law, please feel free to
contact an attorney in our offices closest to you.
Title 7. Banking and Securities
Part 1. Finance Commission of Texas
Chapter 5. Home Loans
7 TAC §5. 1. Required Disclosures in Connection with Certain Home Loans
The Finance Commission of Texas adopts new rule 7 TAC §5. 1,
concerning required disclosures in connection with certain home loans.
The purpose of this section is to establish the
required disclosures mandated in Senate Bill 1581, 77th Legislature, and to provide the
means by which lenders may comply with the notice requirements of the Texas Finance Code,
Section 343.102. Senate Bill 1581 primarily restricts certain mortgage lending practices
or requires enhanced disclosure in connection with certain triggering events. There was a
general agreement among the parties involved with Senate Bill 1581 that the interim period
between the 77th and 78th Legislature would be used to study mortgage lending practices
with an emphasis oil identifying any types of pattern or practice that might require
future legislative action. One benefit of the disclosure required by the
rule is that it provides a source for consumers to contact state regulatory agencies to
report complaints as well as providing all avenue for general information, housing
counseling, and education. The state regulatory agencies may then
collect and analyze data related to consumer contacts and complaints and report to the
78th Legislature regarding the effectiveness of the disclosure or identification of
potential pattern or practices of concern. By statute the requirement to provide the
notice oil covered loans expires September 1, 2003. Compliance with this section is deemed
compliance with these notice requirements.
The rule describes the applicability of the notice
requirements, the actual content requirements of the notices, provisions relating to
timing of delivery of the notice, and provisions relating to record retention.
The new rule is adopted with changes to the proposal
as published in the July 6, 200 1, issue of the Texas Register (26 TexReg 4948).
The agency received several comments generally in
support of the rule, but raising concerns over individual requirements
of the rule proposal. The agency worked to resolve issues by
consensus among interested parties; however, a few issues were not able
to be resolved through consensus. Due to the limited time for implementation of the
required disclosure by the legislation's September 1
effective date, the agency was faced with very little opportunity to work through some of
these issues in advance of the initial
proposal. In the initial proposal it was
the Finance Commission's intent to bring forward
all of the various issues and during the comment period the interested parties could work
through the issues with an opportunity for some modifications. The
interested parties worked on the language and arrived at a draft that
addressed many of the concerns of the parties and represented a workable
product for the majority of lenders who would be required to distribute
the notice. The working group was comprised of representatives of the following
organizations:
Consumers Union
Citifinancial / Travelers Bank & Trust
Independent Bankers of Texas
Texas Association of Community Development
Corporations
Texas Association of Mortgage Brokers
Texas Bankers Association
Texas Financial Services Association Texas Low
Income Housing Service
Texas Mortgage Bankers Association
Texas Savings and Community Bankers Association
Texas Department of Banking
Texas Office of Consumer Credit Commissioner (OCCC)
Texas Savings & Loan Department
A comment letter
was also received from Bank of America requesting clarification on complying with the
provision to distribute a list of HUD-approved counseling agencies and expressing concern
over the text and content of the official notice.
There were five issues upon which the working group
was unable to reach agreement, so the Finance Commission held
a special meeting on July 20, 2001, to take
testimony and deliberate on the policy issues and merits of the alternatives of
these five issues. Members of the working group were present and given
the opportunity to provide public comment. The five issues are
discussed within the specific subsections of the rule that they affect.
Subsection (a) describes the purpose and
applicability of the rule. At the Finance Commission July 20, 2001, meeting a
representative from the Independent Bankers Association of Texas raised a question
concerning the applicability of the section to adjustable rate
mortgages. After discussion and deliberation, the Finance Commission made recommended
amendments to this section to appropriately describe the types of adjustable rate
mortgages that would be covered by the section. The amended language addresses adjustable
rate mortgages in two ways: 1) an adjustable rate mortgage that may not
initially bear a ate of 12%, but through a series of rates or steps specifies a fixed rate
of 12% later in the contract would require disclosure and 2) a variable rate mortgage with
a floating index that when applying the maximum margin increases to the floating
index base at the time of application results in a rate of 12% or greater would also
require disclosure. This method would eliminate the uncertainty
surrounding the impact of the future volatility of interest rates will the general
economy. This subsection is necessary to advise lenders concerning
which mortgages loans are required to receive the notices required under
Texas Finance Code §343.102.
Some concern was expressed over the types of
transactions covered by this section of the statute and the proposed rule. Section
343.102, Texas Finance Code states that: "For a home loan with an interest rate of 12
percent or greater a year, when the lender makes the disclosure required under
the Real Estate Settlement Procedures Act, as amended, for the good faith estimate, or if
that Act does not apply, within three days after the date the application is made, the
lender shall provide to the borrower..." The statutory
language expressly provides that these provisions apply to "home loans." One
commenter inquired if the disclosure requirements would apply to a retail installment sale
of home improvements between a contractor and a home owner. The
applicable statutes in the Texas Finance Code provide distinct differences between loans
and retail installment sales. The transactions have different legal treatment and basis in
statute. The rule does not specifically address or include retail installment sales within
its application as the statute is expressly stated to apply to loans and not retail
installment sales.
Subsection (b) details definitions that are
necessary to ensure that terms are uniformly applied and used. The term
application was drafted closely following the provisions of the Real Estate Settlement
Procedures Act to ensure consistency among lenders in determining the timing of the
disclosure the notice required by Texas Finance Code §343.102 and the delivery of the
good faith estimate required under the Real Estate Settlement Procedures Act.
Subsection (c) contains the notice requirements.
Subsection (c)(1) prescribes the content of the notice. Members of the working group
arrived at a consensus on the content of the notice with two exceptions. Members of the
working group have expressed strong feelings about the location and layout of the
"official notice concerning high cost home loans." While the members have agreed
on the content of the official notice, there was disagreement about its placement on the
disclosure and use of the state seal in the official
notice. The Finance Commission took testimony on these items. Consumers Union
and Texas Low Income Housing Information Service
favored placing the text box with the official notice information at the top
of the page. Additionally, they recommended that the state seal accompany the official
notice. Representatives from the Texas Bankers Association and the
Independent Bankers Association of Texas, as well as other lending industry
representatives voiced concern over the placement of the notice at the top and the use of
the state seal, recommending placement of the notice at the bottom of the page. In citing
their concern, these representatives expressed that the entirety
of the disclosure was not "an official notice
from the Finance Commission." The remainder of the disclosure addresses other
statutorily required items of information, such as the availability of housing counseling.
The banking representatives stated that they believed the
disclosure would be misleading to consumers if the official notice text box were placed at
the top of the page. The Finance Commission agrees with
reasons stated by the banking representatives and adopts the rule with the official notice
text box at the bottom of page. The Finance Commission agrees with the representatives
from Consumers Union and Texas Low Income Housing Information Service that an
accompanying state seal conveys the importance of the official notice and thus adopts the
rule to include the state seal in the official notice text box.
Subsection (c)(3) provides that a lender may request
an applicant to acknowledge receipt of the disclosure. The
proposed rule required the lender to obtain the applicant's signature on the notice.
Several parties, including the Texas Bankers Association and the
Independent Bankers Association, offered comments in opposition to this section.
Generally these commenters believed that the requirement to obtain a signature
exceeds the statutory requirement and thus should not be adopted in the
rule. The commenters did acknowledge that the practice of obtaining an acknowledgment is a
good business practice that many lenders would probably require as part
of their loan procedures. The representative from Consumers Union expressed support for
the proposed rule as well as an alternative proposed procedure that permitted the lender
to obtain a statement acknowledging receipt of the disclosure at closing. The Finance
Commission agrees with the comments from the lending industry that the rule should not
require an acknowledgment and adopts the rule accordingly.
The proposed rule also contained a subsection that required a retention period for
authenticated acknowledgments. Since the adopted rule will not
require an acknowledgment of the notice, there is no need for a subsection requiring
retention of the authenticated acknowledgments.
Subsection (c)(4) in the proposed rule required that
a lender provide a borrower with a list of the HUD-approved housing counseling agencies
located in Texas. The statute requires that a lender distributes a list of the
"nearest" housing counseling agencies. Some lenders expressed concern about the
cumbersome nature of distributing the entire list, which at the time of
rule proposal consisted of 122 agencies. Other lenders though expressed concern that the
lender did not want to determine, with exact precision, which agencies were nearest the
applicant's residence. The Finance Commission agrees with both concerns and adopts the
rule to permit lender's flexibility in this area by supplementing the proposed rule with
another option for providing the borrower with this required information. Subsection
(c)(4) was amended to provide an alternative of providing the entire list for Texas
or to provide a list of at least five agencies nearest the applicant's residence. The
Texas Financial Services Association also suggested that the Office of Consumer Credit
Commissioner publish a reformatted list of HUD-approved counselors quarterly, so that
lenders have a consistent and concise list. The agency, as a matter of practice, plans to
accommodate this request. Additionally, the Texas Financial Services Association suggests
that lenders be able to add a disclaimer to the list of counselors. For
example, the disclaimer might read: "The lender is not affiliated with any of the
housing counseling agencies whose names are provided to you with this notice. The lender
is not responsible for information or advice given by a housing counseling
agency from which you may seek advice." The Finance Commission has
no objection to the addition of this disclaimer to the notice, but
does not believe that an amendment to the rule is necessary.
Subsection
(c)(5) requires that a Spanish translation of the notice must be given if the transaction
is conducted primarily in Spanish. The Independent Bankers Association, the Texas Bankers
Association, and the Texas Mortgage Bankers Association disagree with the
adoption of this subsection because they believe it exceeds the statutory authority in
Senate Bill 1581. The Finance Commission believes that it is
the appropriate public policy decision to require the notice to be given
in Spanish when the borrower and the lender are conducting the
transaction primarily in Spanish. Several provisions were added to the Finance Commission
Agencies' responsibilities during the Sunset Process in 2000-2001 that require the
agencies to ensure that contracts and publications are printed in
Spanish as well as English. Specifically, Senate Bill 317 requires contracts to be in
plain language, whether in English or in Spanish, and requires the Finance Commission to
adopt rules providing model contract provisions and disclosures. The Finance
Commission will provide the standard Spanish disclosure text. It is important to note that
the rule does not prohibit a lender from giving a Spanish disclosure in every transaction,
in addition to the English disclosure. Some lenders may choose to implement this type of
disclosure with English on one side and Spanish on the other. Use of a
disclosure of this type would comply with the rule.
Subsection (d)
provides the procedures for delivery of the notice. The delivery procedures established in
this section parallel the delivery procedures for other types of notices in
mortgage loans, such as the good faith estimate or the 12-day notice for home equity
loans.
Subsection (e) states that this rule will be
considered for repeal or amendment in June 2003. As stated above, the statute requiring
the disclosure expires September 1, 2003. Consumers Union and Texas Low Income Housing
Information Service expressed a desire to urge the Finance Commission to continue the
disclosure requirement beyond September 1, 2003, even if the
statute expires. The lending industry groups generally expressed a desire to sunset the
rule at the same time as the statute. The language added in this subsection merely informs
the reader that the Finance Commission will reconsider this rule and the arguments of
these parties in June 2003 rather than at this time.
The new section is adopted under the Texas Finance
Code § 11.304, which authorizes the Finance Commission to adopt rules to ensure
compliance with Title 4 of the Texas Finance Code and §343.102 which requires the Finance
Commission to promulgate a high cost home loan notice.
These rules
affect new Chapter 343, Texas Finance Code.
§§5.1 Required Disclosures in Connection with Certain Home Loans
(a) Purpose and
Applicability.
(1) The purpose of this section is to provide the means by which
lenders may comply with the notice requirements of the
Finance Code, Section
343.102. Compliance with this section is deemed compliance with these notice requirements.
(2) This section applies to any mortgage application received on or
after September 1, 2001, for each home loan that:
(A) is a fixed rate loan that has a contract
interest rate of 12% or greater a year; or
(B) is an adjustable rate loan that:
(i) has a maximum fixed rate
of interest pursuant to a schedule of steps or tiered rates that is 12% or greater a year;
or
(ii) has a maximum variable
rate of interest that when calculated upon the index's value at the time of application
plus
maximum margin increases may result in an interest rate of 12% or greater a year.
(b) Definitions.
(1) Application means the submission of a borrower's
financial information in anticipation of a credit decision, whether
written or computer
generated. If the submission does not state or identify a specific property, the
submission is
not
an application for the purposes of this section.
(2) Authenticate means:
(A) to sign; or
(B) to execute or
otherwise adopt a symbol, or encrypt or similarly process a record in whole or in part,
with the
present intent of the authenticating person to identify the person and adopt or accept a
record.
(3) Home Loan shall have the meaning given in
Finance Code §343.001(2).
(4) Lender means, generally, the secured creditor or
creditors named in the debt obligation and document creating the
lien.
(c) Notice Requirements.
(1) Prescribed content. Attach Graphic. The notice
must appear on a full, separate page with no text other than that
provided in this section. The form of the notice shall be substantially similar to that
provided by this section.
(2) Notice Requirement. A lender shall deliver a
notice for each home loan described in subsection (a)(2) of this section.
(3) Acknowledgement. A lender may request that the
applicant authenticate the notice acknowledging applicant's timely
receipt of the notice.
(4) List of housing counseling agencies.
(A) A lender must provide
the applicant with either:
(i)
a list of the Texas-located housing counseling agencies approved by the United States
Department of Housing and
Urban Development ("HUD"); or
(ii)
a list of at least five HUD-approved housing counseling agencies nearest the applicant's
residence.
(B) The list provided
under subparagraph (A) of this paragraph must contain housing counseling agency
information that
is not more than 90 days old or if more than 90 days old, is the most recent information
available from HUD.
(5) Spanish translation. A Spanish translation of the notice, provided
by the Finance Commission, is required if the transaction
is conducted primarily in Spanish.
(d) Delivery of notice.
(1) The notice shall be delivered to an applicant:
(A) on the date required for
delivery of the Good Faith Estimate under the Real Estate Settlement Procedures Act;
(B) within three business
days after application if the Real Estate Settlement Procedures Act does not apply to the
covered mortgage loan; or
(C) within three business
days of determining that the loan will be covered by this section, if on the date for
delivery
under subparagraph (A) or (B) of this paragraph the lender after reasonable diligence has
not yet determined
whether the home loan is a loan as described in subsection (a)(2) of this section.
(2) The notice must be delivered to an applicant at
least one business day prior to closing.
(3) A mortgage broker may deliver the notice for the
lender.
(4) Mail delivery. The notice may be delivered by
placing it in the mail or with an overnight delivery service on the date
required for delivery, addressed to the
applicant at the given mailing address. An applicant is presumed to have
received
the notice within three business days of mailing with prepaid first-class postage or
within one business day of deposit with an overnight delivery service.
(5) Electronic delivery. A lender may provide the
required disclosure by electronic communication in compliance with state and federal law
governing electronic signatures and electronic transactions [15 U.S.C. §7.001 et seq;
TEX. BUS.& COMM. CODE §43.001 et seq]. A consumer must affirmatively consent to
receive the notice electronically. A lender that uses electronic communication to provide
the disclosure shall:
(A) send the disclosure to
the consumer's electronic address; or
(B) make the disclosure
available at another location such as an Internet website; and
(i)
alert the consumer of the disclosure's availability by sending a notice to the consumer's
electronic address. The
notice shall identify the account involved and the address of the Internet website or
other location where the
disclosure is available; and
(ii)
make the disclosure available for at least 90 days from the date the disclosure first
becomes available or from the
date of the notice alerting the consumer of the disclosure, whichever comes later.
(6) Denied Applications. If the application is
denied before the time for delivery of the notice, the lender need not provide
the denied borrower
with notice.
(7) Multiple Applicants. In the case of multiple
applicants for a home loan, it is only necessary for the lender to deliver the
notice to one
applicant.
(e) Sunset provision. This section
will be considered for repeal or amendment in June 2003.
IMPORTANT NOTICE TO HOME
LOAN BORROWERS
READ THIS N0TICE TO GIVE YOU IMPORTANT INFORMATION THAT CAN HELP YOU, PROTECT YOU, AND
MAYBE SAVE YOU MONEY.
WHY AM I RECEIVING THIS NOTICE?
Texas law requires your lender to give you this Notice when you apply for a home loan
with an interest rate of 12% or greater.
CAN HOUSING COUNSELING REALLY HELP ME?
Yes. Contacting a housing counselor before closing might save you hundreds
or thousands of dollars. Borrowing money with your home as collateral is a complicated
process. Housing counselors understand this process and the documents used. Do not sign
any documents until you have read and understand them. You are entitled to have your own
attorney review any documents before closing the loan.
ARE THERE HOUSING COUNSELING AGENCIES NEAR ME?
Yes. To find a housing counseling agency near you, look at the list of HUD-approved
housing counseling agencies your lender gave you. For additional copies
call HUD: 888-466-3487 or www.hud.gov, or the Texas Finance Commission: 866-303-4636 or
www.fc.state.tx.us.
ARE ALL HOME LOANS AND LENDERS THE SAME?
No. It is important to shop around. Be sure to obtain all cost information. Compare
these costs to other lenders' costs. A nearby housing counseling agency can help you.
WHERE CAN I GET MORE INFORMATION OR FILE A COMPLAINT?
If you have questions or complaints, call or email the Texas Finance Commission Home
Loan Hotline: 866-303-4636 or homeloaninfo@fc.state.tx.us. Other resources include:
Texas Department of Banking- www.banking.state.tx.us Fannie Mae: www.homepath.com
Texas Office of Consumer Credit Commissioner: Federal Reserve
www.federalreserve.gov/consumers.htm
www.occc.state.Tx.us
Texas Savings & Loan Department: www.tsld..state.tx.us
U.S. Consumer Gateway: www.consumer.gov
HUD: www.hud.gov
OFFICIAL STATE OF TEXAS NOTICE
REGARDING HIGH COST HOME LOANS
The loan you have applied for may be a "high-cost home loan" as defined
by state and federal law. Look at everything
you earn and everything you owe and then ask yourself if you can afford to make the
payments when due.
If you can't afford this loan, you may lose your home.
AVISO IMPORTANTE PARA PERSONAS CON PRSETAMOS
RESPALDADOS POR SU RESIDENCIA
LEA ESTE AVISO PARA INFORMACION
IMPORTANTE QUE LE AYUDARA, LE PROTEGERA Y QUIZAS RASTA LE AHORRE
DINERO.
PORQUE ME DAN ESTE AVISO?
Las leyes de Texas requieren que su prestamista le proporcione este
Aviso si usted solicita un prestamo sobre su hogar con interes del 12% o mas.
DE VERDAD PUEDO BENEFICIARME SI CONSIGO ALGUIEN QUE ME ACONSEJE SOBRE ASUNTOS DE MI
HOGAR?
Si.
Si procura a un
asesor especialista en viviendas antes de finalizar sus tramites del prestamo, le podria
ahorrar cientos o miles de dolares. El proceso de pedir presta usando su
residencia como prenda es complicado. Los asesores o consejeros con experiencia en asuntos
de viviendas conocen los procesos, y documentos necesarios. No firme ningun documento sin
leerlo o entenderlo. Tiene usted derecho de que su abogado repase cualquier documento
antes de finalizar el prestamo.
HAY AGENCIAS CERCANAS QUE ME ACONSEJEN SOBRE PRESTAMOS DE VIVIENDA?
Si.
Para conseguir
agencias ubicadas cerca de usted que aconsejan sobre las viviendas, vea la lista de
agencias aprobadas por HUD que su prestamista le ha proporcionado, que se dedican a
aconsejar a clientes en asuntos de la vivienda. Puede conseguir copias extra, llamando a
HUD: 888-466-3487 o en el internet, www.hud.gov, o en la Comisi6n de Finanzas de Texas,
(Texas Finance Commission), 866-303-4636 o por el internet: www.fc.state.tx.us.
QUE NO SON IGUALES TODOS LOS PRESTAMOS DE RESIDENCIAS, Y TODOS LOS
PRESTAMISTAS?
No.
Es importante
consultar a varios. Asegure de tener toda informaci6n sobre lo que cobran. Luego compare
los precios de todos los prestamistas. No olvide que su agencia mfis
cercana de consulta sobre la vivienda le puede ayudar.
EN DONDE PUEDO CONSEGUIR MAS INFORMACION, O REGISTRAR QUEJAS?
Para cualquier pregunta o queja, puede Hamar o comunicarse por correo
electr6nico (e-mail) con la Linea Urgente de la Comision de Texas para Financiamiento
de Residencias (Texas Finance Commission Home Loan Hotline)
al 866-303-4636 o por e-mail a: homeloaninfo@fc.state.tx.us. Otros rccursos son:
Texas Department ofBanking: www.banking.state.tx.us
Texas Offlce of Consumer Credit Commissioner: www.occe.state.tx.us
Texas Savings & Loan Department www.tsld..state.tx.us
US Consumer Gateway: www.consumer.gov
HUD: www.hud.gov
Fannie Mae: www.homepath.com
Federal Rewerve: www.federalreserve.gov/consumers.htm
AVISO OFICIAL del GOBIERNO de TEXAS
TOCANTE PRESTAMOS RESIDENCIALES DEMASIADO COSTOSOS
Es posible que el prestamos que usted ha solicitado sea de los prestamos
residenciales "demasiado caros" de acuerdo con la ley estatal
y federal.
Fijese en sus ingresos y en sus cuentas/deudas, y luego considere si
tiene lo
suficiente para hacer los pagos debidos.
Si no puede pagar este prestamo, puede perder su hogar