Lenders should be aware that Fannie Mae’s classification of mortgage transactions as “cash-out refinance” or “limited cash-out refinance” may differ from the way mortgages are classified under Texas law for purposes of compliance with the Amendment.
Texas law determines whether or not a mortgage is a Texas Section 50(a)(6) mortgage, and Fannie Mae’s policy determines whether the mortgage must be delivered as a cash-out refinance transaction or as a limited cash-out refinance transaction.
The lender is responsible for determining:
the applicability of Section 50(a)(6) of the Texas Constitution, regardless of Fannie Mae’s definitions of cash-out and limited cash-out refinance transactions; and
if the mortgage should be delivered to Fannie Mae as a cash-out refinance (including SFC 003 and payment of all applicable LLPAs) or a limited cash-out refinance transaction (including SFC 007).
All mortgages that constitute Texas Section 50(a)(6) mortgages under Texas law must comply with these provisions, regardless of whether the mortgage loan is classified as a “cash-out refinance” or “rate/term refinance” in the Selling Guide. See B5-4.1-03, Texas Section 50(a)(6) Underwriting and Collateral Considerations.
Accordingly, lenders should not rely on Fannie Mae’s categorization of refinance mortgages for purposes of determining whether compliance with the provisions of Section 50(a)(6) is required. Rather, such lenders should consult with their counsel to determine the applicability of Section 50(a)(6) to a particular loan transaction.
Texas Section 50(a)(6) mortgages must be fully amortizing mortgages with payments due on a monthly basis. The following are eligible as Texas Section 50(a)(6) mortgages:
first liens only;
fixed-rate mortgages; and
certain five-, seven-, and ten-year ARM plans (shown in the table below).
|Eligible ARM Plans|
|Five-year ARMs||Seven-year ARMs||Ten-year ARMs|
|These ARM plans should be structured in the same way that they are for other mortgages, except that the mortgage may not be assumable at any time over its full term. Only the ARM plans listed above are eligible, due to the MBS disclosure impact resulting from the non-assumable nature of these ARMs.|
The following are not eligible as Texas Section 50(a)(6) mortgages:
loans that are not in first-lien position,
ARM plans not listed in the Eligible ARM Plans table above, and
loans with temporary interest rate buydowns.
A Texas Section 50(a)(6) mortgage must be secured by a single-unit principal residence constituting the borrower’s homestead under Texas law. Mortgages secured by two- to four-unit properties, investment properties, or second homes are not eligible. The security property may be
a detached dwelling,
an attached dwelling,
a unit in a PUD project,
a unit in a condo project, or
a manufactured home. (A manufactured home is eligible only if it is classified as real property under Texas law, and satisfies all special Fannie Mae eligibility criteria for manufactured homes.)
The borrower’s property may not exceed the applicable acreage limit as determined by Texas law when the Texas Section 50(a)(6) mortgage is originated.
A borrower that owns adjacent land must submit appropriate evidence, such as a survey, that the mortgaged homestead property is a separate parcel that does not exceed the permissible acreage.
Note: An inter vivos revocable trust that meets Fannie Mae's borrower eligibility criteria (as described in B2-2-05, Inter Vivos Revocable Trusts), may be a borrower under a Texas Section 50(a)(6) mortgage, provided that the trust meets the requirements for a "qualifying trust" under Texas law for purposes of owning residential property that qualifies for the homestead exemption.
The table below provides references to the Announcements that have been issued that are related to this topic.