SUPPLEMENTAL OPINION FROM TEXAS SUPREME COURT IN
FINANCE COMMISION OF TEXAS V. NORWOOD
This morning, the Texas Supreme Court issued a supplemental opinion in Finance Commission of Texas v. Norwood. The Court clarified that “legitimate” discount points and per diem interest are not subject to the 3% fee cap on a home equity loan under Texas Constitution, Article 16, Section 50(a)(6)(E). The opinion also reiterated that any power of attorney used to close a home equity loan must be executed “only at the office of the lender, an attorney at law, or a title company.”
Today’s opinion clears up uncertainty created by the original opinion in Norwood that led much of the industry to include bona fide discount points and per diem interest in the Texas home equity 3% cap. Following issuance of the original opinion on June 21, 2013, a motion for rehearing was filed that, among other things: (1) sought clarification from the Court on whether discount points and per diem interest are included in the 3% fee cap; and (2) sought reconsideration from the court regarding where a power of attorney used in a home equity closing may be executed.
With regard to discount points and per diem interest, the Court stated in today’s opinion:
“We agree with TBA, the amici, and the Homeowners that per diem interest is still interest, though prepaid; it is calculated by applying a rate to principal over a period of time. Legitimate discount points to lower the loan interest rate, in effect, substitute for interest. We also agree with the Homeowners that true discount points are not fees ‘necessary to originate, evaluate, maintain, record, insure, or service’ but are an option available to the borrower and thus not subject to the 3% cap.”
In addition, the Court reiterated that a power of attorney used to close a home equity loan must be executed at the office of the lender, an attorney at law, or a title company. Although the Court clarified that the power of attorney may be executed “before the borrower applied for the loan”, the power of attorney must still be executed in one of the designated places for a home equity closing under Texas Constitution, Article 16, Section 50(a)(6)(N).
Accordingly, today’s opinion clarifies two important issues regarding home equity lending in Texas:
1. Per diem interest and legitimate discount points are not subject to the 3% cap on fees “necessary to originate, evaluate, maintain, record, insure, or service the extension of credit” under Texas Constitution, Article 16, Section 50(a)(6)(E). Per diem interest and legitimate discount points may therefore be excluded from the 3% cap.
1. The execution of a power of attorney used to close a home equity loan is part of the “closing” of the loan. A power of attorney used to close a home equity loan must therefore be executed at the office of the lender, an attorney at law, or a title company.
Matt Filpi
Attorney
Peirson Patterson LLP
2310 West Interstate 20, Suite 100
Arlington, Texas 76017
Tel 817.461.5500
Fax 817.856.6090
matt@ppdocs.com
www.ppdocs.com
