Currently Texas is the only state which does not permit reverse mortgages to be used for home purchases. Scott Norman, treasurer of Texans for Proposition 5, said one of the reasons behind this is the state’s constitution and its homestead provision.
That provision had to be amended to allow reverse mortgage lending in the first place. The first reverse mortgage in Texas was made back in 2000.
In an interview done in 2010, Norman−then the president of the Texas Mortgage Bankers Association−said he was working on bringing the issue before the state legislature, but it would be a long process and that amending the state’s constitution should not be taken lightly.
The amendment was placed on the ballot though the passage of Senate Joint Resolution 18. That bill passed the state’s Senate 31-0 and House by 119-1.
Consumer groups, including AARP, also support the measure. Norman noted that at the two public hearings on the measure, there were no speakers in opposition.
The Federal Housing Administration also apparently supports the move, and the agency’s Karin Hill was at Texans for Proposition 5’s kickoff rally on Sept. 10 in Austin, Norman said. He added he has spoken with the agency regarding the purchase issue and one of its concerns is how the state’s constitution currently limits the ability to do the HECM for Purchase product.
Norman said the amendment is needed because the constitution only allows for loans to be made on equity in a property. He called that an “odd chicken or the egg scenario, in which you have to own your to get a reverse mortgage but you can’t buy a home with it.”
SJR 18 includes a provision that calls for payment of principal or interest if the reverse mortgage is used to purchase a home and the borrower fails to occupy the property as the principal residence within a specified period called for in the lien agreement.
Norman added that the amendment also calls for an enhanced “uniquely Texas consumer disclosure” to reverse mortgage borrowers. It spells out what the borrower’s obligations are when they get a reverse mortgage, such as the payment of taxes and insurance; borrowers failing to make those payments are the leading cause of foreclosures. It is spelling out of these specific tasks in the disclosure that amendment supporters take a lot of pride in, he said.
Reverse mortgage lenders in state have a good track record in recent years. Norman requested information from the Texas Department of Savings & Mortgage Lending regarding enforcement actions against reverse mortgage lenders in the past six years.
The regulator replied that a search of its records did not find any enforcement actions against reverse mortgage lenders during that time frame and there are no open complaints against any reverse mortgage lenders at the time of the request.
In the last two years, $1.24 billion of reverse mortgage proceeds have been accessed by homeowners in the state, according to information provided by Texans for Proposition 5. There have been 53,000 Home Equity Conversion Mortgage cases endorsed in Texas, 41,300 of which are still active.
Texas is the second largest state for HECM production behind California and ahead of Florida, New York and New Jersey.
Norman said the amendment is not just for current state residents but for those who are seeking to move to the state as well and want to use a HECM to acquire a property.
If Texas voters approve the amendment, it would become law on Jan. 1, he pointed out.