Texas High Cost Home Loan Law

The Texas high-cost home loan law (the "HCHLL") can be found in Texas Finance Code Sections 343.201 through 343.206, inclusive.

Coverage: The loans covered by and excluded under the HCHLL are exactly the same as under Section 32, with the following exceptions:

• unlike Section 32, purchase money (Loan Purpose = P or PMJ) and construction and construction to perm loans (Loan Type = CON or CONTP) are also covered by the HCHLL as long as the property is owner-occupied and the loan amount equals or exceeds $20,000; and
• the principal loan amount must be equal to or less than one-half of the maximum conventional loan amount for first mortgages as established and adjusted by Fannie Mae.  Fannie Mae has differing maximum loan amounts depending on the number of dwelling units (either 1, 2, 3 or 4) located on the property.
  • For 2006, the Fannie Mae maximum conventional loan amount for first mortgages for a single dwelling unit is $417,000.  Accordingly, if the Property Type in DocMagic = SFR (Single Family), C (Condominium), P (Planned Unit Development), or MH (Manufactured Housing), the principal loan amount must be equal to or less than one-half of $417,000, or $208,500.
  • For 2006, the Fannie Mae maximum conventional loan amount for a 4-dwelling unit is $691,600 (because DSI does not currently distinguish between 2, 3 and 4 dwelling units, we will default to the 4-dwelling unit because it is the largest loan amount and therefore will capture the greatest number of loans).  Accordingly, if the Property Type in DocMagic = 1 (1-4 Family (1-4 units)), we will assume that the property type is for a 4-unit dwelling and the principal loan amount must be equal to or less than one-half of $801,950, or $400,975.

Note that regardless of the property type, the property must be the principal dwelling of the borrower, and thus "owner-occupied" must equal "Yes" for the HCHLL test to run.  Note further that the Fannie Mae maximum convention loan amounts for first mortgages change annually usually in late November.

Thresholds: The thresholds are exactly the same as under Section 32:

• APR Test: The loan's APR at consummation will exceed by more than either 8% (for first liens) or 10% (for subordinate liens), over the yield on Treasury securities having comparable periods of maturity on the 15th day of the month immediately preceding the month in which the application is received by the creditor); or
• Points and Fees Test: The total points and fees payable by the consumer at or before loan closing will exceed the greater of eight percent (8%) of the total loan amount, or a specified dollar amount that is subject to change annually.  The points and fees and total loan amount are calculated exactly the same as under Section 32.

Prohibitions and Limitations:

• No balloon loans with terms of less than 5 years (excluding bridge loans in connection with the purchase or construction of the borrower's principal dwelling)
• No negative amortization except as a consequence of a temporary forbearance, bridge loan, or restructure sought by the borrower
• No prepayment penalty permitted
• No engaging in pattern or practice of extending credit based on the consumer's collateral without regard to the obligor's repayment ability, including the obligor's current and expected income, current obligations, employment status, and other financial resources, other than the obligor's equity in the dwelling securing repayment of the loan ("obligor" includes borrowers, cosigners and guarantors)
• Lender may not charge an amount for a service or product if the borrower does not receive the service or product.