Texas cash out refinance laws

[wolfie]

I submitted an app for a refi to Penfed a few weeks ago. In my email discussions with my LO, I told her early on I'm looking at a rate/term refi or a cash out if it makes sense and there's money to be pulled out. So she ordered an appraisal and all that and we kind of figured out how much was there to be pulled out. Then, on Friday she drops a bomb on me: she says that in case you didn't know, in Texas you can't walk away with cash. You can either make a principle payment or buy down your rate but that's about it.

 

I was like what??! I checked with local brokers here and they told me that the only restriction is 80% LTV. So I told my LO this and she says: "I have conferred with our underwriters and it is per Texas Legislature that we are unable to give cash out for any first mortgage loan in Texas. You can obtain cash out through an equity loan but not a first mortgage."

 

When I told her I have talked to local brokers who told me you can take cash out she said well we go through Fannie and maybe they're not. I was like that's not what they told me. Anyways, I'd like to know if this is indeed true. I can't believe that it is because how else do people take equity out of their houses and why would I do this only to pay it back to principle or whatever she was saying? This makes no sense to me. What ticked me off even more is that she pulls this one me now after the appraisal has already been done and I'll get stuck with paying for it if I don't close. I'm saying that this should have been disclosed to me upfront.

[Brian B The Loan Professor]

I agree 80% cash out and they should have disclosed?

Not sure how to proceed from here but I would go over their head to see what they can do?

 

Good Luck

Brian

[wolfie]

Brian, so you agree that in Texas the only requirement is that you can do 80% LTV max and CAN get cash out at closing to use for anything when refinancing a primary mortgage? There is NO Texas law against that, right? So, what does she mean when she says "and it is per Texas Legislature that we are unable to give cash out for any first mortgage loan in Texas." Does she mean that Penfed cannot do it (does Texas law forbid out of state banks/credit unions from doing this?) or it can't be done according to TX law period?

[cedski]

A lot of lenders will not do a cash out refi in TX.....it is legal......however very few CU's outside of TX will do them. The problem with dealing with an LO from a Penfed or Navy Fed.....is that they don't know all the local laws....and or requirements. So if cash out is what you want you will need to go to a different lender....

[wolfie]

cedski, so Texas law does not restrict them from doing cash out per se, right? The lady said according to Texas legislature...So it's either their ignorance or their own choice not to do cash outs in TX. The law in TX does not restrict them just because they are out of state, right? I need to be clear on this because if I don't go through with the loan, they're going to charge me for the appraisal as well as an app fee of $65. What was looking really good a few weeks ago doesn't look so good now. Thanks.

[climbhigh]

Ask her to give you the exact texas code that legislates that. Then you can look up that exact code in lexis nexus.

[centex]

Ask her to give you the exact texas code that legislates that. Then you can look up that exact code in lexis nexus.

 

would not even need Lexis...statutes are online through the Capital webserver.

 

That being said, it may simply be that the CU chooses not to do out-of-state cash-outs. And in such a case, look elsewhere. I would think that the appraisal ought to be something a new broker could still use since it SHOULD be current...

[wolfie]

centex, the LO keeps telling me that it is TX law, as if they are being restricted by the law and not their own policy. I wanted to be clear on this myself and then get them to accept that. If it is their policy, then they should have told me right at the beginning when I applied. As far as the appraisal goes, I asked a local broker and he said he can only use the appraisal if penfed assigns it to him which most banks don't. I said hey I'm paying for it but he was like it doesn't matter. The one who orders it has legal right over it and owns it.

[cedski]

centex, the LO keeps telling me that it is TX law, The laws in question are known as the A6 laws......will give you a summary below..... as if they are being restricted by the law and not their own policy. It is their policy...a lot of lenders do not like messing with the laws here because of the additional due diligence that is required....ie 12 day rule and a few others.I wanted to be clear on this myself and then get them to accept that. If it is their policy, then they should have told me right at the beginning when I applied. As far as the appraisal goes, I asked a local broker and he said he can only use the appraisal if penfed assigns it to him which most banks don't. Your broker is wrong....the appraisal can't be assigned unless it is an FHA loan...and you can't do a FHA cash out refi in TX....so you will need a new appraisal. I said hey I'm paying for it but he was like it doesn't matter. The one who orders it has legal right over it and owns it. He is correct....you are entitled to a copy....but another lender is unable to use it.

 

The state constitution details what can and cannot be done with our primary residence or "homestead". In the Homestead Act, Article A, Section 6 (thus the A...6) is where the changes were made back in 1996/97 that enabled Texans to do a cash-out refinance loan.

 

There are many unique requirements, some of which make very little sense to people. These requirements only apply IF you are:

 

1) financing on your primary residence.

2) you are refinancing an existing note additional money for debt consolidation or simply cash to you

3) OR you are taking out a new loan for debt consolidation or cash out to you

4) the refinance of a loan which was created as a Texas A6 home equity loan. Once a home equity loan....always a home equity loan.

 

A Texas A6 home equity loan is NOT one of the following:

 

1) a refinance loan to change the interest rate or terms of an existing loan that was used to purchase the home

2) a refinance to combine a 1st lien and 2nd lien that were used to purchase the home

3) a refinance plus cash out to pay an ex-spouse's portion of the equity

4) a refinance plus cash out where the cash out is to ONLY pay back state, local or federal taxes

5) a refinance plus cash out where the cash out is done as a bona fide home improvement loan where funds go directly to the contractor.

 

Unique features of the Texas A6 home equity loan are:

 

1) borrower must be given a notice of their rights and the loan cannot close earlier than 12 calendar days from when this notice is received.

2) a home cannot have more than one Texas A6 loan on it at a time

3) a Texas A6 loan cannot be refinanced within the first 12 months

4) a Texas A6 loan cannot be done if the total mortgage financing will be greater than 80% of the home's value.

 

There are more little nuances but this should get you started. If you have more questions, post them here and we'll get the answers for you.

[wolfie]

Thanks, cedski, that's good info. I just got a call from the manager at penfed. She basically told me that it's penfed's policy and they don't do cash outs in TX. In one 30 minute call we clarified stuff I hadn't been able to do in 30 emails with the LO. So I said ok, what's the best rate you have on a 30 yr fixed and she said 5.75% with no pts today. So I've locked that in. Their closing costs are low and if I do a cash out with a local broker, the closing costs really put a dent in whatever little money I can pull out now. So, it's probably not worth it.

[wolfie]

So this is deja vu all over again! I was googling Texas A6 laws and found my own thread on CB. I've had such a horrible experience with Penfed that I just had to write. After finally managing to refi 2 loans into 1 (both used to purchase my home) with Penfed last year, I am trying to do the exact same thing for my current home, and I'm having exactly the same problem with them!

 

To recap, they had told me that, according to "Texas law" they could not refi both my loans into 1 because it was considered a cash out, even though I wasn't getting any money out, and they couldn't do it. After long conversations with supervisors, they finally agreed they could and I got it done. Well, 2 weeks ago I called them again to ask if I could do it for my new house just because of my previous experience. The guy put me on hold a couple of times and then told me he had confirmed that it wouldn't be a problem. Ok, so a few days later I submit an online app with all the info including the fact that there were 2 loans and both were used for purchasing the home. 10 days pass by and nobody contacts me after I get an auto email saying I should hear from an LO within a week. So I call them today and a lady calls me back and tells me that they can't refi both loans because it's a cash out and TX law says they can't! I'm like WHATTT???? I explained the whole situation to her and tell her that I submitted an app ONLY AFTER confirming they could do it AND I already have an existing loan with them with the same situation. She puts me on hold a few times and then comes back and tells me that she has asked 2 supervisors who told her they can't. I couldn't believe my ears, I was so pissed.

 

I asked her ok, so I'd like to know how you did it the first time. She put me on hold again, comes back and says that it was probably a mistake and it should not have been approved! So I was like oh ok, so you mean you guys violated "Texas law" then. She said they would contact someone in TX and get back to me tomorrow after someone higher up in management reviews it. This is totally unbelievable. I mean they have decent rates but nothing is worth this. And this is 2 weeks after a lady at Citi tells me that I have to wait atleast 12 months before I can refi according to TX law and she's been doing loans in TX for 10 years. This was after I told her that I'm only interested in a rate and term refi not cash out. Both cited the A6 laws. Anyone in TX done what I'm trying to do with Penfed?

[Brian B The Loan Professor]

Not with penfed............

[wolfie]

So I'm still trying to figure out why they're doing this. According to what cedski's posted below, an A6 loan is NOT "a refinance to combine a 1st lien and 2nd lien that were used to purchase the home." So why is Penfed saying that refinancing my loans into 1 is considered a cash out in TX? They're saying that paying the 2nd is the same as a cash out, according to TX law.

[Brian B The Loan Professor]

Not sure

Did one recently that is similar except it was an older purchase and the LTV was at 80%

Big company probably has a tough time keeping up with the exact laws of all states especially the quirky ones of TX

 

B

[DallasLoanGuy]

So I'm still trying to figure out why they're doing this. According to what cedski's posted below, an A6 loan is NOT "a refinance to combine a 1st lien and 2nd lien that were used to purchase the home." So why is Penfed saying that refinancing my loans into 1 is considered a cash out in TX? They're saying that paying the 2nd is the same as a cash out, according to TX law.

 

 

They have no business lending in Texas.....

[wolfie]

Got a call from a manager on Friday. She said their upper management is looking into it with their legal dept. and people they work with in TX to figure out what they can do. She will contact me as soon as she finds out. I told her I wasn't happy about the fact that they took my app, ran my credit, didn't contact me for 2 weeks and when I called them said they couldn't do it, especially when they've done a refi for me with exactly the same situation just last year! If they tell me no, the least I'm going to do is write a nasty letter to their President/CEO. On the other hand, I do have the highest credit card limits with them that they offer so I don't know. But this is ridiculous!