HBA-TYH S.J.R. 12 76(R)BILL ANALYSIS Office of House Bill AnalysisS.J.R. 12 By: Carona Financial Institutions 4/5/1999 Engrossed BACKGROUND AND PURPOSE Currently, the Texas Constitution authorizes a senior citizen to obtain a reverse mortgage. Generally, a reverse mortgage, under current law, allows a senior citizen to receive an extension of credit by mortgaging the credit against the person's homestead without paying the credit until the person dies. However, some of the constitutional provisions conflict with federal law. As a result, the federal Department of Housing and Urban Development (HUD) declines to include Texas loans in its mortgage insurance programs. If a mortgage loan cannot be insured by HUD, the Federal National Mortgage Association (Fannie Mae), which underwrites more than 90 percent of reverse mortgages nationally, will not buy the mortgage on the secondary market. The absence of the underwriter creates a significant discouragement for lenders to offer reverse mortgage loans. Opening up the mortgage market by constitutionally redefining a reverse mortgage would allow HUD to insure reverse mortgages, and, subsequently, permit Fannie Mae to buy Texas mortgages. As proposed, S.J.R. 12 requires the submission to the voters of a constitutional amendment to open the reverse mortgage market in Texas. RULEMAKING AUTHORITY It is the opinion of the Office of House Bill Analysis that this bill does not expressly delegate any additional rulemaking authority to a state officer, department, agency or institution. SECTION BY SECTION ANALYSIS SECTION 1. Amends Subsections (k) and (p), Section 50, Article XVI, Texas Constitution, as follows: (k) Defines "reverse mortgage," among other definitions, as an extension of credit: _that is made to a person who is or whose spouse is 62, rather than 55, years or older; _under which advances are provided to a borrower based on the equity in a borrower's homestead or the value of the borrower's homestead; _that requires no payment of principal or interest until all borrowers have died, the homestead property securing the loan is sold or transferred, all borrowers cease occupying the homestead property for a period of longer than 12 consecutive months, rather than 100 consecutive days; or the borrower commits one of the enumerated violations; and _that provides that if the lender fails to make loan advances as required in the loan documents and if the lender fails to cure the default as required in the loan documents after notice from the borrower, the lender forfeits all principal and interest of the reverse mortgage. (p) Provides that certain advances made on a reverse mortgage loan must be made according to certain terms established by the loan documents, rather than providing that an advance made must be made at regular intervals according to a plan established by the original loan agreement. SECTION 2. Requires this proposed constitutional amendment to be submitted to the voters at an election to be held on November 2, 1999. Sets forth the required language for the ballot.