Some customers have inquired into the meaning of the following audit:

[&TX_FEE_TEST]_________ FEES EXCEED 3% OF PRINCIPAL LOAN AMOUNT

The above audit pertains to Texas, cash-out, non-purchase money loans secured by owner-occupied properties and was implemented in response to customer requests.

Under the Texas Constitution, an equity loan, regardless of lien priority, must not require the borrower or the borrower's spouse to pay, in addition to any interest, fees to any person that are necessary to originate, evaluate, maintain, record, insure, or service the extension of credit that exceed, in the aggregate, three percent (3%) of the original principal amount of the extension of credit.

The following charges are not subject to the three percent (3%) limitation:

• Charges paid by a borrower or borrower's spouse at their sole discretion.
• Charges that are not imposed or required by the lender but that are optional.
• Insurance coverage premiums paid by a borrower or borrower's spouse at their sole discretion. Examples of these charges include credit life and credit accident and health insurance voluntarily purchased by the borrower or borrower's spouse.
• Charges a borrower or borrower's spouse is required to pay that constitute interest under the law, such as per diem interest and points.
• Charges a lender absorbs and does not charge a borrower or a borrower's spouse that the borrower or borrower's spouse might otherwise be required to pay.
• Charges third parties absorb and do not charge a borrower or a borrower's spouse that the borrower or borrower's spouse might otherwise be required to pay.
• Funds tendered by a borrower or borrower's spouse into an escrow account remain the property of the borrower or the borrower's spouse. Examples include funds collected to pay taxes, insurance premiums, maintenance fees, or homeowners association assessments.
• On the date the equity loan is closed a borrower or borrower's spouse may agree to perform certain promises during the term of the equity loan. Failure to perform an obligation of an equity loan may trigger the assessment of costs to the borrower or the borrower's spouse. This assessment of cost is a subsequent event triggered by the failure to perform under the equity loan agreement and is not subject to the three-percent limitation. Examples of subsequent event costs include contractually permitted charges for force-placed homeowner's insurance costs, returned check fees, debt collection costs, late fees and costs associated with foreclosure.
• Premiums required to pay to purchase homeowner's insurance coverage. Examples of property insurance premiums include fire and extended coverage and flood insurance. Failure to maintain this insurance is generally a default provision of the equity loan agreement and not a condition of the extension of credit. The lender may collect escrow premiums for this insurance and include the premium in the periodic payment amount or the principal amount.

Charges included in the three-percent (3%) limitation are:

• Charges the borrower is required to pay that are not interest.
• Charges the borrower is required to pay to originate an equity loan that are not interest.
• Charges a borrower is required to pay to third parties for separate and additional consideration for activities relating to originating the loan. Examples of these charges include attorneys' fees for document preparation and mortgage brokers' fees to the extent authorized by applicable law.
• Charges a borrower is required to pay to evaluate the credit decision for an equity loan that are not interest. Examples of these charges include fees collected to cover the expenses of a credit report, survey, flood zone determination, tax certificate, title report, inspection or appraisal.
• Charges that are not interest that an owner pays at the inception of an equity loan to maintain the equity loan but are deferred for later payment after closing.
• Charges a borrower is required to pay for the purpose of recording equity loan documents in the official public record by public officials.
• Insurance premiums to insure an equity loan, such as title insurance and mortgage insurance protection.
• Charges that are not interest that a borrower pays at the inception of an equity loan to service the equity loan or that are customarily paid at the inception of an equity loan to service the equity loan, but are deferred for later payment after closing. (7 Tex. Admin. Code § 153.5.)

If you have any questions concerning the Texas cash-out audit, please contact Customer Service at (800) 649-1362.

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