This topic contains information on Texas Section 50(a)(6) loan underwriting, collateral, and closing considerations, including:
Per Texas law, the maximum allowable LTV and combined LTV for any Texas Section 50(a)(6) loan is 80%, notwithstanding any conflicting provisions of this Guide or any specific DU recommendation or finding. HELOC subordinate financing is not permitted, hence a maximum HCLTV ratio is not applicable.
Texas Section 50(a)(6) loans are eligible for the reduced documentation requirements recommended by DU, provided that all other terms and conditions described herein for Texas Section 50(a)(6) loans shall apply.
For a Texas Section 50(a)(6) loan that represents the refinance of a prior Texas Section 50(a)(6) loan, the borrower must requalify even if the lender is currently servicing the existing loan that is being refinanced.
Manually underwritten Texas Section 50(a)(6) loans are subject to minimum credit score requirements per the Selling Guide, based on the transaction as either a cash-out refinance or a limited cash-out refinance, as applicable.
Lenders must obtain a new full appraisal, including both interior and exterior inspections, to determine current value on either Uniform Residential Appraisal Report (Form 1004), Manufactured Home Appraisal Report (Form 1004C) or Individual Condominium Unit Appraisal Report (Form 1073), even if DU recommends a different property valuation method or an appraisal waiver. The appraisal must be attached to the written acknowledgment of fair value.
The appraisal for the property and the acknowledgment of fair market value must not include any property other than the homestead.
The survey (or other acceptable evidence) must demonstrate that:
the homestead property and any adjacent land are separate parcels, and
the homestead property is a separately platted and subdivided lot for which full ingress and egress is available.
The lender selling the loan to Fannie Mae must not have any interest (such as an option to purchase, a security interest, or an easement) in any parcel adjacent to the homestead property that is owned by the borrower, if such interest could constitute additional security for the Texas Section 50(a)(6) loan.
There is a special security instrument, notes, and riders that must be used in connection with Texas Section 50(a)(6) loans and a special affidavit that must be prepared and recorded in connection with each Texas Section 50(a)(6) loan transaction. Lenders must use the following documents:
Texas Home Equity Security Instrument (First Lien) (Form 3044.1)
the specific Texas Section 50(a)(6) loan notes and riders, and
Texas Home Equity Affidavit and Agreement (First Lien) (Form 3185)
Because of the complexities involved in closing Texas Section 50(a)(6) loans, lenders must provide the title company with a detailed closing instruction letter and require an acknowledgment of its receipt.
The closing instructions must require the title company to conduct its closings properly to ensure compliance with Texas Constitution Section 50(a)(6). To assist in this endeavor, the Texas Home Equity Affidavit and Agreement First Lien (Form 3185) must be prepared and recorded in connection with each Texas Section 50(a)(6) loan transaction.
Fannie Mae suggests that a lender also require each borrower to sign a closing receipt that itemizes the documents that he or she received at closing.
For additional Texas Section 50(a)(6) loan documentation (also called “Texas Home Equity” documentation) refer to Standard Texas Home Equity Notes (under Standard Instruments) and Texas Home Equity Security Instrument (under Negotiated Instruments).
For all Texas Section 50(a)(6) loans, a title insurance policy written on Texas Land Title Association forms (standard or short form), supplemented by an Equity Loan Mortgage Endorsement (Form T-42) and a Supplemental Coverage Equity Loan Mortgage Endorsement (Form T-42.1), is required.
The title insurance policy cannot include language that:
excludes coverage for a title defect that arises because financed origination expenses are held not to be “reasonable costs necessary to refinance”, or
defines the “reasonable costs necessary to refinance” requirement as a “consumer credit protection” law since the standard title policy excludes coverage when lien validity is questioned due to a failure to comply with consumer credit protection laws.