Texas Register, Volume 40, Number 10, Pages 983-1152, March 6, 2015 Page: 1,073
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gage long enough that the front loaded points are spread enough
to lower the effective interest rate below the standard rate they
could have chosen without points. That break-even point is typi-
cally 6 to 8 years into a 30 year mortgage." However, for a prop-
erty tax loan, where the typical term is five years, the benefit of
a lower interest rate is greatly reduced. In the case of financed
discount points, the property tax lender exaggerates the appar-
ent savings that the borrower is receiving in exchange for pay-
ing for the discount points. It may appear to the borrower that
there will be a substantial savings through an interest rate re-
duction, but this savings is partially offset by the extra principal
that the borrower will have to repay over the life of the loan. Two
commenters argued that discount points can benefit borrowers,
and provided example transaction comparisons showing that fi-
nanced discount points can result in savings fornborrowers, as-
suming that closing costs remain constant, the note rate is de-
creased by approximately 3%, and each discount point is ap-
proximately $350 for a $12,000 loan. Thecommenters argued
that borrowers would be deprived of these benefits if the lenders
were unable to finance discount points. The commission dis-
agrees with these comments. Both commenters could provide
substantially the same savings to borrowers by offering lower in-
terest rates without discount points. This approach would enable
borrowers to more easily compare the cost of credit among dif-
ferent property tax lenders, helping ensure that the marketplace
remains competitive. This approach would also help reduce bor-
rowers' confusion resulting from financed discount points, where
the savings is partially offset by the extra principal that the bor-
rower will have to repay over the life of the loan. One commenter
stated: "The economic benefit of discount points is even greater
for another customer class. That customer who is certain that
they will pay off their loan significantly early can benefit greatly
by negotiating a longer term, buying down the rate for a lower
monthly payment and then paying off the loan early. They bene-
fit in two ways. They free more operating capital for their family
or business in the near term and when they receive the lump
sum to pay off the loan they pay less total interest expenses."
The commission disagrees with this comment. Whether the dis-
count points benefit the borrower in this situation would depend
on the date of prepayment and how much of the discount points
are refundable. Again, it appears that property tax lenders could
provide an equivalent benefit by charging a lower interest rate,
which would be less confusing to borrowers. These disclosure
problems and lack of a clear benefit for borrowers are another
reason that discount points are unreasonable in connection with
property tax loans.
The comments described additional reasons why discount points
should be prohibited for property tax loans. Eight commenters
argued that discount points should be prohibited for property tax
loans. The commenters' primary argument for prohibiting dis-
count points focuses on differences between property tax loans
and standard mortgages. Because of the differences between
property tax loans and standard mortgages, they argue that dis-
count points should be prohibited for property tax loans. For ex-
ample, two commenters stated: "I believe discount points should
be prohibited from Transfer of Tax liens because they are confus-
ing and are a mortgage like product." One commenter included
a table with a list of differences: for standard mortgages, the
lien is created voluntarily, priority is based on time of record-
ing, nonjudicial foreclosure is allowed, there is a larger average
loan amount and number of loans made, credit ratings of borrow-
ers are higher, there is more sophistication in the market, there
is more statistical information available, and there are standard
rates.Along the same lines, several commenters pointed out that
Texas Tax Code, 32.06 does not expressly authorize discount
points. One commenter stated: "Texas mortgage law deals
with the reality of discount points that are offered nationwide
for mortgages, but our law does not address whether all Texas
businesses have a right to offer discount points for any type of
loan--mortgages or otherwise. The statutory scheme governing
transferred property tax liens does not authorize the charging of
discount points, and there is no reason why the OCCC should
create the additional charge that is inappropriate and for which
compliance is unclear and unenforceable." Another stated:
"Because Section 32.06 does not contemplate the imposition of
discount points, [the commenter] would urge that the proposed
rules be amended to prohibit the imposition of discount points."
Some commenters expressed concern that certain property tax
lenders would not comply with requirements for discount points,
or that certain lenders would use discount points as a disguised
method of collecting closing costs. One commenter stated:
"Successfully servicing a property tax loan that incorporates
discount points is very difficult. Interest may not be charged on
the prepaid interest component, refunds of the unamortized por-
tions of the prepaid interest have to be calculated and refunded,
and APR calculations have to correctly incorporate the prepaid
interest. It is our observation that the property tax lenders that
currently offer discount points do not consistently follow these
requirements due to their complexity. I am concerned they may
evolve and continue their business model ofpushing discount
points, and subsequently not properly service the loan. The
result will be additional consumer complaints ."
Several commenters suggested additional disclosures and cal-
culation requirements for discount points, if discount points were
allowed. For the reasons discussed in this preamble, the com-
mission has determined that discount points are an unreason-
able charge in connection with property tax loans. Because the
rule prohibits discount points, additional disclosures and calcu-
lation requirements are unnecessary.
The re-proposed amendment to 89.802(9)(C), which required
unearned discount points to be itemized on payoff statements,
has been withdrawn for this adoption because of the prohibition
on discount points under 89.601(d).
One commenter stated: "[W]e further object to the requirement
in the proposed 7 TAC 89.601(d)(4) requiring that any discount
point be paid by cash, check, or electronic fund transfer before or
at closing of a property tax loan. . . . We believe this rule serves
no purpose and, pursuant to Tex. Gov't Code 2001.031, we
hereby request a concise statement to the principal reasons for
and against its adoption." It appears that this commenter made
a typographical error and intended to request a statement un-
der Texas Government Code, 2001.030, which provides: "On
adoption of a rule, a state agency, if requested to do so by an in-
terested person either before adoption or not later than the 30th
day after the date of adoption, shall issue a concise statement of
the principal reasons for and against its adoption. The agency
shall include in the statement its reasons for overruling the con-
siderations urged against adoption."
The following is a concise statement of reasons for adopting the
prohibition on discount points in 89.601(d). Discount points are
an unreasonable charge in connection with property tax loans
for four reasons. First, the property tax loan industry, unlike the
general mortgage lending industry, has no standard method for
calculating the benefit that a borrower receives in exchange for
discount points. Second, the comments revealed that propertyADOPTED RULES March 6, 2015 40 TexReg 1073
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Texas. Secretary of State. Texas Register, Volume 40, Number 10, Pages 983-1152, March 6, 2015, periodical, March 6, 2015; Austin, Texas. (https://texashistory.unt.edu/ark:/67531/metapth606207/m1/91/?q=32+TexReg+3206: accessed July 16, 2024), University of North Texas Libraries, The Portal to Texas History, https://texashistory.unt.edu; crediting UNT Libraries Government Documents Department.