Issue 16 May 31, 2019
IT'S A WRAP (almost)!! Texas Legislature Adjourns
The Texas House and Senate wrapped up their respective business for the 86th Legislative Session on Memorial Day and formally adjourned well before the midnight deadline. Texas Mortgage Bankers Association was able to achieve all of its legislative goals, or so it looks as of the end of the Session. Two or our legislative measures, SB 2128 ("paper out" of electronic documents) and SB 2330 (temporary or transitional authority for loan originators) passed during the last days of the Session and await the Governor's signature before they become law. The Governor has until Sunday, June 16th to veto bills (Happy Father's Day!). While these two measures are still subject to potential veto, we believe that we would have heard from the Governor's office before now if there was an anticipated problem.
So here is a look at where we stand as we head into the Veto period:
SB 614 (Nichols, Lambert). The highest priority for TMBA this Session was preserving the existence of the Department of Savings and Mortgage Lending as an independent agency within the Finance Commission to oversee the mortgage industry and state chartered thrifts. SB 614 did just that by extending the lives of Savings and Mortgage Lending, Department of Banking, and Finance Commission until September 1, 2031. The Office of Consumer Credit Commissioner was extended under a separate bill. The bill did include some minor changes to the licensing provisions of Chapter 157 by eliminating the "good moral character" requirement. Remember that under Texas occupational licensing standards the applicant for a license bears the burden of proof that he or she is qualified as contrasted with the licensing agency having the burden to show the applicant is not qualified. Because "good moral character" is such a subjective concept, the Sunset Commission for several years has recommended this term be eliminated from agency licensing statutes. For mortgage loan originators the "character qualification" remains somewhat more objective: "demonstrates financial responsibility, character, and general fitness so as to command the confidence of the community and to warrant a determination that the individual will operate honestly, fairly, and efficiently as a residential mortgage loan originator within the purposes of this chapter and any other appropriate regulatory law of this state" Finance Code 180.055(a) (3) (3). Each of the agencies' individual statutes were updated to include "standard" language on alternative dispute resolution and directions to review and update consumer complaint procedures. SB 614 was signed by the Governor on May 7th.
HB 1254 (Murphy/Hancock). Home equity lending on agricultural property can now become a reality. When the Constitutional amendments to 50(a) (6) were approved by voters in 2017, the prohibition on home equity loans for agricultural property was eliminated. However, the continued existence of Tax Code 23.42(a-1) has probably restrained extensive use of home equity loans. This provision prohibited an owner from claiming an agricultural use exemption for ad valorem taxes if the property was subject to a home equity loan. HB 1254 repealed this straggler provision.
SB 2128 (Creighton/Parker) "paper out" of electronic documents. TMBA partnered with the Texas Land Title Association and national underwriters Stewart Title and First American Title and representatives of the Texas County Clerks on this bill. Currently only about 62 or so out of 254 Texas counties record electronically. The statutes provide no clear guidance on how to record an electronic document in those counties. SB 2128 cures this by enacting amendments to Chapter 12 of the Property Code to add a new 12.0011(b) (3) and new 12.0013 that permits recording of a paper print out of an electronic document in the real property records if the paper print out has been verified as a true and correct print out of the electronic document; and the electronic document contains an electronic signature and electronic notarial acknowledgement. New 12.0013 contains a Declaration of Authenticity that may be completed by a notary public (or other officer authorized to take acknowledgements or administer oaths). The Declaration is to be attached to the paper print out and recorded. A document recorded in accordance with these new provisions are entitled to the same recognition as a document bearing a wet ink signature and notary. This bill and SB 2330, discussed below, came close to becoming collateral damage in the closing days of the Session. Members of the House attempted to hold up these two bills until they could get assurances from the Senate author that he would accommodate the House on amendments to totally unrelated bills. We don't know what deal was worked out, but we do know that these two bills were passed on the very last train out of town-the very last House and Local Consent Calendar. These bills have been advanced to the Governor's desk.
SB 2330 (Creighton/Parker) temporary authority to originate. In 2018, Congress amended the SAFE Act as part of S.2155, the financial regulatory reform bill that also amended Dodd-Frank. The SAFE amendments grant temporary authority to originate to a registered residential mortgage loan originator moving to a non-depository lender and to an out of state licensed residential mortgage loan originator for a 120 day period pending the granting of a license. SB 2330 conforms the Texas SAFE Act to mirror these changes to the federal act.
SOONERS NOT WELCOME. No offense to my Okie friends (after all my mom was born in a dug out in Hackberry Creek, Oklahoma and raised in Vinson, Oklahoma, and my grandfather homesteaded in what is known as "No Man's Land", that part of the Oklahoma Panhandle that was neither Texas, Kansas or Indian Territory) but I can almost guarantee that sometime in the next 18 months, I am going to get a call from a mortgage banker or an originator who jumped the gun on temporary authority and started originating before they complied with the requirements to qualify for temporary authority. They will have wound up on SML's naughty list because they did not follow the rules. I call these Sooner violations, like the settlers who sneaked across the line before the official day opening Oklahoma to settlement. The 120 day period does not start until the originator has submitted an application for a license and uploaded his/her fingerprints for a criminal background check; submitted personal information as required by Finance Code 180.054. Any originator that starts early will be considered to have engaged in unlicensed activity and any employer will be considered to have aided and abetted unlicensed activity. We have seen this one before, when SML granted a transition period to originators who worked for mortgage bankers were first required to have a license in 2009. A significant number of those originators dillied and dallied and did not meet the timelines. Monetary penalties followed. Also be aware that if an originator did not meet the qualifications, and is denied, all of the origination activity may be considered unlicensed. Mortgage bankers will need to be sure that the originators they onboard under temporary authority do in fact qualify for a license. Proceed with caution. Make sure you know all the requirements. One final note on SB 2330: the effective date is delayed until November 24, 2019. That is the date Congress established for the effective date of the amendments to federal SAFE.
Preserving lien priority; enforcing Deeds of Trust. Going into this legislative session we anticipated another fight to kill bills that threatened mortgage lien priority. Two bills drew our attention this session. HB 2024 (Romero) would have elevated a subcontractor's lien for retainage ahead of a mortgage lien. The bill received a hearing, and some empathy from members, but did not get voted out of House Business and Industry. The second bill HB 4295 (Johnson) did not alter lien priority, but it would have prohibited a lender from enforcing a deed of trust if the borrower had claimed an over 65 tax deferral or disable vet deferral for property taxes even though the mortgage requires taxes to be paid annually. This bill could have significantly restricted the availability of certain loan products particularly any loan insured by a federal agency. The bill received a hearing but died in House Ways and Means.
HB 4390 (Capriglione/Nelson). Data privacy. This bill started out as a comprehensive data privacy bill styled by its author as "California lite." The bill encountered severe resistance from many sectors of the business community. By the time it was scrubbed and passed by the Legislature, the bill had turned into a study bill establishing a working group to study data privacy issues. The bill does contain some extended consumer protections. It amends Business Code 521.053 to strengthen the notification requirements by businesses who have data breaches where a person's sensitive personal information that is stored by computer has been or may reasonably be expected to have been acquired by an unauthorized party. The notification must be made 'without unreasonable delay but in no event later than 60 days" after the breach. If the breach involves more than 250 individuals, the attorney general must be notified as well. The current statute language says the notice must be given "as quickly as possible." If signed by the Governor, the bill becomes effective January 1, 2020.
In the 'what we missed' department:HB 3 and Escrow Accounts. During every Legislative Session, we have concerns that with 5,000 plus bills and resolutions floating around, something will get buried in a bill that impacts financial services and will get missed. In this case it is a Senate amendment that was made to HB 3. The bill caption reads "relating to school finance and public education." But as part of school finance reform, the bill also provides for provisions to reduce school property taxes. Between TMBA, TBA, IBAT, and the lobbyists for Chase, Wells, Quicken, City, and B of A, there are probably at least 10 sets of eyes on this stuff, but this one slipped by. In the Senate, the bill was amended to add the following language: "To the extent that H.B. 3, 86th Legislature, Regular Session, 2019, has the effect of reducing property taxes in this state, a lender, or home loan servicer of a home loan that maintain a property tax escrow account must take into account the effect of that legislation in establishing the borrower's annual property tax payments to be held in that account and immediately adjust the borrower's monthly payments accordingly". It is the "immediately" that has folks scratching their heads. At least one national servicer in conversations this week has commented that experience with other states would indicate there is no way to begin until tax bills are received and that there are questions as to whether RESPA provisions may preempt this. My initial reactions are: 1) We can't know the impact until final tax bills are delivered; 2) the impact may be small for this year and smaller or non- existent for future years; and 3) RESPA conflicts may exist; and 4) servicers will be required to make these adjustments anyway when they do their annual escrow analysis. Stay tuned.
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