Posted by HisHughness on 1/7/06 1:47pm
Msg #86873

The convolutions that are Texas home equity loans

Up until 1997, home equity loans were not permitted in Texas. In that year, the state Constitution was amended to provide for HEs; there are some strange provisions (which is expected, since the Texas Constitution has about 7,000 amendments, some of which run longer than the original Constitution itself). Among those provisions is one that requires a home equity loan to be closed in the office the lender, or in an attorney or title company office. There are exceptions: If the loan is for an addition to the home, it can be closed anywhere; in other words, if you need to borrow against your home to obtain a life-saving operation, you can't. On the other hand, if you want to put in a swimming pool, the law says it's okay. Another exception is for reverse mortgages, which can be closed in any venue.

There is a destination in all this, if you will just bear with me.

I last practiced law back when the word "computer" had not been devised; they were called electronic brains, or something that, and small ones would fill up a two-car garage. If you needed to know something, you went to your law library, and begain poring over Corpus Juris Secundum or American Jurisprudence. I have virtually no idea of how to research a legal question on the Internet. Topics of general knowledge I find quite easily, but legal points always leave me frustrated and wishing I was back in my law library.

So, having said all that, here is my question: On occasion, when I have closed a home equity loan, I am puzzled why borrowers are taking out a home equity loan, which carry higher interest rates, when all they want to do is refinance for a lower interest rate. When, in the course of conversations with lenders about other matters, I have questioned why this is done, I have been told that once a homeowner takes out a home equity loan on property, any future financing must be a home equity loan, rather than refinancing with a straight conventional loan. Does anybody have any idea whether this is, indeed, the case? Is it true in other jurisdictions?

And, no, I am not going to set about learning how to research legal questions on the Internet. I'll be 69 Wednesday, and life is too short; I prefer to spend my time chasing skirts. Besides, that's why God gave us people like PAW.

Reply by Charles_Ca on 1/7/06 1:56pm
Msg #86878

Wow, 7000 amendments. I wonder what Sam Houston would say about that. I sometimes like to think about what our founding fathers would think of the state of affairs today as opposed to they way they left the country!

Happy New Year Hugh, may it be healthy and properous for you!

Reply by PAW_Fl on 1/7/06 2:13pm
Msg #86883

Maybe in Tejas, but not here and in most other jurisdictions that I am aware of (which isn't all that many!).

If a homeowner has a mortgage (1st only) and refinances, they may want more money than an 80% value would give them. If they stayed with a 1st only, and had an LTV of more than 80%, then PMI would kick in. However, if the homeowner took out a 1st and 2nd, where the 1st was a 80% LTV and the 2nd based on 10% (or half of the remaining equity), then PMI would not be necessary and the payments on the 2nd may be less than the PMI payment.

Now, if the 2nd is an open-end credit line (HELOC), then as the borrower paid back the principal, the available credit would be restored. Albeit, the HELOC is usually an adjustable rate, and may be substantially higher than a fixed rate closed-end loan.

As for loan consolidations, I've done quite a few refi's consolidating a 1st and 2nd when the 2nd is a HELOC. There are usually forms in the package that the borrowers have to sign to (1) state that there were not additional draws from the line since the application for the consolidation and (2) authorization to close the account. The payoffs would then show the payoff for both the 1st and 2nd.

Reply by MAnderson on 1/7/06 2:55pm
Msg #86887

I told you PAW, it's never a short answer.

Reply by celeste/ca on 1/7/06 3:23pm
Msg #86895

Here in Ca, in my case, we opened a home equity line of credit, had it for two years, and refinanced again. We wanted to keep our HELOC while we refinanced, and we had to sign a subordination agreement to keep it open. It had a 0 balance, but wanted it for emergency. We also cashed out a little when we refinanced. So in California, you can have both a Heloc and refinance at the same time.

Reply by celeste/ca on 1/7/06 3:25pm
Msg #86896

I forgot to say that we refinanced with a 30 fixed rate, so yes you can have a conventional refi.

Reply by HisHughness on 1/7/06 3:32pm
Msg #86898

Second go round

I think you may have misunderstood me, Paul. If I refinanced my home with a HELOC this year to build on a two-bedroom addition, I would never be able to refinance with a conventional loan thereafter. Even if all I wanted to do was lower my interest rate, and took no cash out, I still have to do it with a HELOC -- and the resultant higher interest rate than a conventional loan would require. Maybe I wasn't paying attention, but I don't think anybody answered whether that is true elsewhere.

Reply by JD_inMD on 1/7/06 7:16pm
Msg #86920

Re: Second go round

Wow Hugh, glad I dont live in Texas. If I could never re-fi with a conventional loan because I had done a HELOC I never would have got 1. I cannot believe that is a requirement in Texas. Unbelieveable. Never heard of such a thing in Maryland. i have done several re-fi's where an equity is paid off and as PAW said there would be in the package doc's such as authorization to close account and certification that no draws have been taken.

Reply by PAW_Fl on 1/7/06 9:17pm
Msg #86928

Re: Second go round

Okay, let me try it this way. Current situation:

1st = Conventional
2nd = HELOC

A few other options that I can think of exist:

Refinance, combining 1st and 2nd into one fixed rate conventional loan, closing the HELOC.
Refinance the 2nd only (HELOC) into a conventional.
Refinance the 1st only (conventional) keeping the HELOC in tact.

So, are you saying that none of three options above could be done in Texas? Because a HELOC currently exists? Whoa! If that's the case, it doesn't seem kosher.

Reply by PAW_Fl on 1/7/06 9:24pm
Msg #86929

Re: Second go round

Oh yeah, I forgot to mention that all three of those options are available here. One simply can close their open-end credit agreement anytime they wish. (With some companies, there are no closing costs associated with the line, unless you close the line before a certain time. Citibank, for example, has a no closing cost option, but if you close the line before three years, then you have to pay the costs.)

Reply by HisHughness on 1/7/06 10:09pm
Msg #86931

Re: Second go round

I am dealing here with what started as a conventional loan. Owners refinance entire loan to get cash for a two-room addition. Two years later the interest rates are well below the 7.5 percent they're paying on their home equity loan, so they want to refinance; not to get cash out but to get a lower interest rate. They supposedly are locked in to taking out another home equity loan; a simple refi is not available. Where there is a conventional first and a home equity second is a different matter that we are not addressing right now.

Reply by PAW_Fl on 1/7/06 10:40pm
Msg #86933

Re: Second go round

Okay, I think I got it now ...

ONLY loan is an open-ended line of credit based on the equity in the home. The classic definition of a HELOC.

So, what you're saying is that the homeowner/borrower cannot close that HELOC (and get a satisfaction of mortgage) and then take out a new 1st mortgage that is a conventional? Or are you saying that the existing HELOC cannot be refinanced and converted into a conventional? While I agree that an existing HELOC cannot be converted, I don't see how even Texas could not allow the homeowner the option to close the HELOC and take out a conventional, which is the effect of the refinancing: paying off and closing the existing mortgage and establishing a new mortgage. If a homeowner is barred from ever getting anything but a HELOC once a HELOC was obtained, to me that sounds like it may be crossing the unconstitutional boundary of ones rights: discrimination possibly? That would be similar to saying because I once owned a Ford, I could not trade it in for any thing other than another Ford.

Reply by HisHughness on 1/7/06 11:53pm
Msg #86939

Re: Second go round

Now you've got it. The borrower has to drive a Ford thereafter; or at least that is what a couple of loan officers have told me.

Another issue: I closed a loan on an investment property Friday. The warranty deed recited the amount of the loan against the property. The purchaser objected; he made the point that if he wanted to flip the property, the prospective purchaser would have access to how much the loan was against it. The title company refused; said that because the place was 100 percent financed, the amount of the loan had to be included in the warranty deed.

I think I want to move to Louisiana, where all I have to deal with are hurricanes and the vagaries of the Napoleonic Code.

Reply by BrendaTx on 1/8/06 3:10am
Msg #86943

Re: Second go round--Late getting into this one but

I don't think I believe it. Buried in there is some shred of truth that this loan officer is using to keep the notary from stopping his racket. Notice I said "think." I have no sourcel...just using logic and what I hear out in the field..

I have heard a lot of buzz over the past two months that sub-prime lenders are being over-used for bwrs who could qualify for a prime...I have not read the articles but have heard the headlines...maybe this is somehow related.

Reply by BrendaTx on 1/29/06 7:47am
Msg #92187

Setting my record straight...Tx Helocs

In this thread Hugh states that an LO told him that one a property is financed with a HELOC has to be refinanced with a heloc.

In my reading on rev morts I ran into a statement that says this is true except for rev morts...a qualified person can take out a rev mort rather than a HELOC.

The law was flexed to allow rev morts on properties previously having a heloc. I have not found anything that states contrary to what Hugh said...so it is probably correct now, or it was at one time. I wish a clever person would tell me why...I just wish I knew why...I am sure it makes perfect sense...that's the way of our law and legislature in Texas.

========My earlier response: Pure Hogwash =============

Re: Second go round--Late getting into this one but
Posted by BrendaTx on 1/8/06 3:10am

I don't think I believe it. Buried in there is some shred of truth that this loan officer is using to keep the notary from stopping his racket. Notice I said "think." I have no sourcel...just using logic and what I hear out in the field..

I have heard a lot of buzz over the past two months that sub-prime lenders are being over-used for bwrs who could qualify for a prime...I have not read the articles but have heard the headlines...maybe this is somehow related.