HBA-JLV H.B. 3567 77(R)    BILL ANALYSIS


Office of House Bill AnalysisH.B. 3567
By: Marchant
Financial Institutions
4/4/2001
Introduced



BACKGROUND AND PURPOSE 

Currently, the Veterans' Land Board (VLB) is authorized to finance land
purchases for veterans through a "contract for deed" method.  This requires
VLB to purchase a tract designated by a veteran and then resell it to the
veteran on a long-term contract at favorable interest rates.  There is not
a ready market for servicing of these transactions, so VLB is required to
service all of these loan contracts in-house.  All other VLB mortgage
transactions with veterans are serviced by professional mortgage servicers
on contract to VLB.  Furthermore, since title to the land remains in VLB's
name until completion of the contract, the purchaser cannot obtain a
mortgage loan for construction of a home on the land unless they can afford
to purchase outright a portion of the land from VLB through a complex
transaction known as a severance, which divides title to the original tract
between VLB and the purchaser.  This process sometimes results in
undesirable boundaries, access, and frontage problems.   

The "contract for deed"  method may better suit the veteran who plans to
hold title long-term and not build on the land for many years, but it could
be incompatible with the needs of a purchaser who plans to build within 5
years of purchase. If VLB were authorized to finance such tracts through a
mortgage on the land, the potential problems associated with severance
issues could disappear and the underlying mortgage could be merged with a
new mortgage to finance the home construction.  House Bill 3567 authorizes
VLB to make or acquire a land loan from the Veterans' Land Fund secured by
a mortgage on a veteran's land. 

RULEMAKING AUTHORITY

It is the opinion of the Office of House Bill Analysis that rulemaking
authority is expressly delegated to the Veterans' Land Board in SECTION 1
(Sections 161.504, 161.505, and 161.509, Natural Resources Code) of this
bill. 

ANALYSIS

House Bill 3567 amends the Natural Resources Code to authorize the
Veterans' Land Board (VLB) to make or acquire a land loan from the
Veterans' land fund (fund) secured by a mortgage on a veteran's land.  The
bill sets forth additional money and interests included in the fund.  To
qualify for a loan, the bill provides that a person must be a veteran at
the time the persons applies for the loan.  The bill provides that if an
eligible veteran dies after filing an application, the surviving spouse may
complete the transaction.  The bill requires that the final principal
payment on any loan be made not later than 40 years after the date of the
loan.  VLB is required to determine the maximum principal amount of loans
to any veterans that may be outstanding at any time.  The bill sets forth
provisions requiring VLB to obtain insurance covering at least 50 percent
of all losses anticipated in connection with veteran payment defaults on
loans secured by first or second mortgages. 

The bill authorizes VLB to enter into contracts with lending institutions
to assist in processing, originating, servicing, or administering loans.
The bill  provides that any fees and expenses incurred in connection with a
loan may be charged to the veteran and made a part of the veteran's
payments.  The bill authorizes VLB, by rule, to determine the number of
loans that a veteran may receive.  The bill authorizes VLB to permit a
veteran to combine a loan with a home mortgage loan, provided that the loan
is funded from amounts on  deposit in the fund and provided that the home
mortgage loan may not be funded from amounts in the fund. 

The bill sets forth provisions authorizing VLB to set the interest rate and
requires VLB to adopt rules relative to the fees, charges, and interest
rates charged by the lending institutions on the financing of the land with
money other than from the fund and is required to limit, to the maximum
extent practical, such fees, charges, and interest rates. 

The bill provides that no disbursement of funds on a loan shall be made
unless the loan is secured by a mortgage, deed of trust, or other lien on
the land.  The bill provides that a mortgage retained by,  a deed of trust
to the board, or any other lien may be a participation in a lien securing
any other loan for the purchase of the property, including a lien for a
home.  The bill authorizes VLB to require an initial payment on a loan or
require an investment in the land by a veteran in an amount or amounts set
by VLB's rules. 

The bill prohibits land or any interest therein, against which there is a
mortgage, deed of trust, or any other lien securing a loan from being
leased, transferred, sold, or conveyed in whole or in part until the
original veteran purchaser has owned the land for a period of three years.
VLB is authorized to waive this prohibition upon the death, bankruptcy,
financial incapacity, or divorce of the veteran or in the event a veteran
is forced to move due to a change in employment or because his home is
condemned through no fault of the veteran.  If land or any interest therein
is transferred, sold, or conveyed in whole or in part before the original
veteran purchaser has owned the land for a period of three years and if VLB
does not waive the three year requirement, then VLB is authorized in its
rules to increase the rate of interest on the loan or accelerate all
principal and interest on the loan.    
VLB is required to adopt rules providing for the procedures and the rules
for foreclosure and resale of land financed with a loan.  The bill provides
that principal and interest that become delinquent are required to bear
interest at a rate determined by VLB. 

EFFECTIVE DATE

September 1, 2001.