Selling Guide

Published August 29, 2017

B5-4.1-01: Texas Section 50(a)(6) Mortgage Loans (03/29/2016)

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

Overview

A Texas Section 50(a)(6) mortgage loan is a mortgage originated 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) mortgage loans. However, lenders must meet the eligibility criteria specified in the Texas Constitution. A lender that intends to sell Texas Section 50(a)(6) mortgage loans originated by a third-party originator is also responsible for ensuring that the originating lender qualifies as an “authorized lender” under the Texas Constitution.

Loan Origination and Compliance

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

Requirement
By sale of a Texas Section 50(a)(6) mortgage to Fannie Mae, lenders represent and warrant that the mortgage loan complies with the Article XVI, Section 50(a)(6), of the Texas Constitution and all applicable requirements of the Selling Guide.
The borrower’s first payment must be due no later than two months after closing.
The lender must provide the title company with a detailed closing instruction letter, and require an acknowledgment of its receipt.

The closing instructions must require the title company to conduct the closing in a way that ensures compliance with all applicable provisions of Section 50(a)(6) of the Texas Constitution.

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 or an evaluation that is prepared “in accordance with a state or federal requirement applicable to the extension of credit” and the appraisal must be attached to the written acknowledgment. See B5-4.1-03, Texas Section 50(a)(6) Underwriting and Collateral Considerations for Fannie Mae's appraisal requirements.
The proceeds from a Texas Section 50(a)(6) mortgage must not be used to acquire or improve the homestead if a mortgage 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 mortgage is a Texas Section 50(a)(6) refinance transaction originated in order to cure a failure in the original mortgage to comply with Section 50(a)(6), then the Texas law requirement that at least 12 months have passed since any previous Section 50(a)(6) mortgage secured by the homestead property was closed does not apply and the mortgage 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 mortgage transaction to comply with Section 50(a)(6), a Texas Section 50(a)(6) mortgage 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 in accordance with Article XVI, Section 50(a)(6) of the Texas Constitution or the Selling Guide.

Lenders must determine whether refinance mortgages securing 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 be eligible for delivery according to Section 50(a)(6) of the Texas Constitution or the Selling Guide.

Lender Certification

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

  • All Texas Section 50(a)(6) mortgages were (or will be) originated pursuant to written processes and procedures that comply with the provisions of the Texas Constitution applicable to mortgage loans authorized by Section 50(a)(6), Article XVI of the Texas Constitution, as amended from time to time.

  • 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) mortgages. 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 Section 50(a)(6), Article XVI of the Texas Constitution was consulted (or will be consulted prior to origination of the Texas Section 50(a)(6) mortgages) in connection with the development and implementation of the processes and procedures used for the origination of the Texas Section 50(a)(6) mortgages.

  • To ensure ongoing compliance with the law applicable to mortgage loans authorized by Section 50(a)(6), Article XVI of the Texas Constitution, the processes and procedures used for the origination of the Texas Section 50(a)(6) mortgages 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.

  • The matters certified herein are representations and warranties of the lender given to Fannie Mae in connection with each Texas Section 50(a)(6) mortgage.

Servicer’s Obligations to Maintain Procedures for Curing Violations

In addition to having processes and procedures to ensure compliance with Texas Section 50(a)(6), lenders and servicers must have specific processes in place to cure any failure to comply with Section 50(a)(6) identified with respect to a mortgage loan 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) mortgage loan. However, any action taken, or not taken, in connection with a failure to comply with Texas 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; 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 mortgage loan.

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-2016–03 March 29, 2016
Announcement SEL-2010–04 March 29, 2010