Selling Guide

Published September 4, 2018

B5-4.1-01: Texas Section 50(a)(6) Loans (12/19/2017)

This topic contains information on Texas Section 50(a)(6) loans, including:

Overview

A Texas Section 50(a)(6) loan is a loan originated in accordance with and secured by a lien permitted under the provisions of Article XVI, Section 50(a)(6), of the Texas Constitution, which allow a borrower to take equity out of a homestead property under certain conditions.

Lender Eligibility

Unless otherwise notified in writing, all lenders are eligible to sell and/or service Texas Section 50(a)(6) loans as long as the lender meets the eligibility criteria specified in Texas Constitution Section 50(a)(6). A lender that intends to sell Texas Section 50(a)(6) loans originated by a third-party originator is also responsible for ensuring that the originating lender qualifies as an “authorized lender” under Texas Constitution Section 50(a)(6).

Loan Origination and Compliance

In addition to Fannie Mae's other origination and compliance requirements for Texas Section 50(a)(6) loans in this chapter, lender agrees to the following:

Requirement
The borrower’s first payment must be due no later than two months after closing.
For purposes of the compliance with the acknowledgment of the “fair market” value of the homestead property requirement, the “fair market value” must be based on an appraisal and the appraisal must be attached to the written acknowledgment. See B5-4.1-03, Texas Section 50(a)(6) Underwriting, Collateral, and Closing Considerations for Fannie Mae's appraisal requirements.
The proceeds from a Texas Section 50(a)(6) loan must not be used to acquire or improve the homestead if a loan for that purpose could have been made under a different provision of the Texas Constitution.

Fannie Mae has no other restrictions on the use of the loan proceeds.

If the new loan is a Texas Section 50(a)(6) loan refinance transaction originated to cure a failure in the original loan to comply with Texas Constitution Section 50(a)(6), then the new loan is eligible for sale to Fannie Mae provided that it complies in all respects with Fannie Mae’s requirements. However, unless a refinance transaction has been completed to cure a failure in the original loan transaction to comply with Texas Constitution Section 50(a)(6), a Texas Section 50(a)(6) loan is ineligible for sale to Fannie Mae if the lender has either identified or been notified by the borrower of a failure to comply, whether or not there has already been a cure or an attempt to cure the failure to comply.
DU does not contain the specific eligibility rules needed to determine eligibility of Texas Section 50(a)(6) loans under Texas Constitution Section 50(a)(6) or the Selling Guide.

Lenders must determine whether refinance loans secured by properties in Texas are eligible for sale to Fannie Mae, and should be aware that even though a loan may receive an “Eligible” recommendation, the loan may not comply with Texas Constitution Section 50(a)(6) or be eligible for delivery according to Texas Constitution Section 50(a)(6) or the Selling Guide.

Lender Certification

By sale of a Texas Section 50(a)(6) loan to Fannie Mae, the lender represents, warrants, and certifies that with respect to all of the Texas Section 50(a)(6) loans delivered to Fannie Mae, whether or not originated by the lender:

  • All Texas Section 50(a)(6) loans were originated pursuant to written processes and procedures that comply with the provisions of the Texas Constitution applicable to mortgage loans.

  • The lender has in place a specific process for the receipt, handling, and monitoring of notices from borrowers that lender (or the mortgage originator, if lender is the servicer but not the originator) failed to comply with the provisions of the law applicable to Texas Section 50(a)(6) loans. Such process must be adequate to ensure that the lender will correct the failure to comply by one of the authorized means no later than the 60th day after the date the lender is notified of the failure to comply by the borrower.

  • An attorney familiar with the provisions of Texas Constitution Section 50(a)(6) was consulted in connection with the development and implementation of the processes and procedures used for the origination of the Texas Section 50(a)(6) loans.

  • To ensure ongoing compliance with the law applicable to loans authorized by Texas Constitution Section 50(a)(6), the processes and procedures used for the origination of the Texas Section 50(a)(6) loans will be reviewed by the lender regularly and will be updated and revised, as appropriate pursuant to clarifications of the law, on a regular and continual basis.

Lender’s and Servicer’s Obligations to Maintain Procedures for Curing Violations

Lenders and servicers must have specific processes in place to cure any failure to comply with Texas Constitution Section 50(a)(6) identified with respect to a loan sold to or serviced on behalf of Fannie Mae by one of the authorized means, as required by the “Lender Certification” requirements described above. A lender’s or servicer’s failure to cure within 60 days after being notified of a failure to comply may, under Texas law, result in the forfeiture of all principal and interest due under the Texas Section 50(a)(6) loan. However, any action taken, or not taken, in connection with a failure to comply with Texas Constitution Section 50(a)(6), even if such action is a result of the lender’s or servicer’s effort to cure a failure to comply, that results in any of the following constitutes a breach of the lender’s selling representations and warranties and/or servicing obligations and requirements:

  • a forfeiture of any principal or interest due under the mortgage loan;

  • invalidation of the mortgage as a first lien;

  • abatement of accrual of interest and the borrower’s obligations under the mortgage loan;

  • reduction in the principal amount of the mortgage loan; or

  • any modification of the amount, interest rate, term, or other provision of the mortgage loan.

Such action, taken or not taken, shall be deemed a failure to correct a significant defect and/or a servicing defect that permits Fannie Mae to exercise any of the remedies provided in the Lender Contract, including the right to require repurchase of the loan.

If the lender or servicer receives notice from a borrower that a lender (or the mortgage originator, if the lender or the servicer is not the originator) failed to comply with Texas Constitution Section 50(a)(6), the lender or servicer must immediately, but no later than seven business days after receipt, take the following actions:

  • inform Fannie Mae’s Legal department by submitting a Non-Routine Litigation (Form 20) and include the borrower notice in its submission; and,

  • collaborate with Fannie Mae on the appropriate response, including any cure that may be necessary, within the 60-day-time frame provided by the requirements of Texas Constitution Section 50(a)(6).

Related Announcements

The table below provides references to the Announcements that have been issued that are related to this topic.

Announcements Issue Date
Announcement SEL-2017-10 December 19, 2017
Announcement SEL-2016–03 March 29, 2016
Announcement SEL-2010–04 March 29, 2010