1. (a) Definitions. For the purposes of this section, the following words and terms shall have the following meanings, unless the context clearly indicates otherwise.

   1. (1) First lien means any mortgage that takes priority over any other lien or encumbrance on the same property and that must be satisfied before other liens or encumbrances may share in proceeds from the property's sale.

   2. (2) Home loan means a loan that is:

      1. (A) made to one or more individuals for personal, family, or household purposes; and

      2. (B) secured in whole or part by:

         1. (i) a manufactured home, as defined by Finance Code §347.002, used or to be used as the borrower's principal residence; or
         2. (ii) real property improved by a dwelling designed for occupancy by four or fewer families and used or to be used as the borrower's principal residence.
   3. (3) Other acceptable collateral means any collateral in which the credit union has a perfected security interest, that has a quantifiable value, and is accepted by the credit union in accordance with safe and sound lending practices.
   4. (4) Owner-occupied means that the owner of the underlying real property occupies a dwelling unit of the real property as a principal residence.
   5. (5) Readily marketable collateral means insured deposits, financial instruments, and bullion in which the credit union has a perfected interest. Financial instruments and bullion must be saleable under ordinary circumstances with reasonable promptness at a fair market value determined by quotations based on actual transactions, on an auction or similarly available daily bid and ask price market.

2. (b) Written Policies. Before engaging in any real estate lending, a credit union shall adopt and maintain written policies that establish appropriate limits and standards for extensions of credit that are secured by liens on or interests in real estate, or that are made for the purpose of financing permanent improvements to real estate. The policies shall, in addition to the general requirements of §91.701(c) of this title (relating to Lending Powers), address the following, as applicable:

   1. (1) Title insurance;
   2. (2) Escrow administration;
   3. (3) Loan payoffs;
   4. (4) Collection and foreclosure; and
   5. (5) Servicing and participation agreements.

3. (c) Loan to Value Limitations.

   1. (1) The board of directors shall establish their own internal loan-to-value limits for real estate loans based on type of loan. These internal limits, however, shall not exceed the following regulatory limits:

      1. (A) Unimproved land held for investment/speculation--Loan to value limit 60%
      2. (B) Construction and Development: commercial, multifamily, and other nonresidential--Loan to value limit 75%
      3. (C) Interim Construction: owner-occupied residential real estate--Loan to value limit 90%
      4. (D) Owner occupied residential real estate (other than home equity)--Loan to value limit 95%
      5. (E) Other residential real estate such as a second or vacation home--Loan to value limit 90%
      6. (F) Home equity--Loan to value limit 80%
      7. (G) All Other--Loan to value limit 80%
   2. (2) The regulatory loan-to-value limits should be applied to the underlying property that collateralizes the loan. In determining the loan to-value ratio, a credit union shall include the aggregate amount of all sums borrowed including the outstanding balances plus any unfunded commitment or line of credit from all sources on an item of collateral divided by the market value of the collateral used to secure the loan.

4. (d) Maximum Maturities. Notwithstanding the general 15-year maturity limit on lending transactions to members, the board of directors shall establish in written policy internal maximum maturities for real estate lending transactions. These maturities should not exceed the following regulatory limits:

   1. (1) Improved residential real estate loans (owner-occupied, first lien)--40 years
   2. (2) Improved residential real estate loans (not owner-occupied, first lien)--30 years
   3. (3) Interim construction loans--18 months
   4. (4) Manufactured home (first lien)--20 years
   5. (5) Home equity loans--20 years (second lien)--30 years (first lien)
   6. (6) Home improvement loans--20 years
   7. (7) All other loans--15 years
5. (e) Mortgage Fraud Notice. A credit union must provide to each applicant for a home loan a written notice at closing. The notice must be provided on a separate document, be in at least 14-point type, and have the following or substantially similar language: "Warning: Intentionally or knowingly making a materially false or misleading written statement to obtain property or credit, including a mortgage loan, is a violation of §32.32, Texas Penal Code, and, depending on the amount of the loan or value of the property, is punishable by imprisonment for a term of 2 years to 99 years and a fine not to exceed $10,000. "I/we, the undersigned home loan applicant(s), represent that I/we have received, read, and understand this notice of penalties for making a materially false or misleading written statement to obtain a home loan. "I/we represent that all statements and representations contained in my/our written home loan application, including statements or representations regarding my/our identity, employment, annual income, and intent to occupy the residential real property secured by the home loan, are true and correct as of the date of loan closing." On receipt of the notice, the applicant shall verify the information and execute the notice. A credit union must keep the signed notice on file with the records required under §91.702.

6. (f) Excluded Transactions. It is recognized that there are a number of lending situations in which other factors significantly outweigh the need to apply the regulatory loan-to-value limits. These include:

   1. (1) Loans that are covered through appropriate credit enhancements in the form of readily marketable collateral or other acceptable collateral.
   2. (2) Loans guaranteed or insured by the U.S. government or its agencies, provided that the amount of the guaranty or insurance is at least equal to the portion of the loan that exceeds the regulatory loan-to-value limit.
   3. (3) Loans guaranteed, insured or otherwise backed by the full faith and credit of the state, a municipality, a county government, or an agency thereof, provided that the amount of the guaranty, insurance, or assurance is at least equal to the portion of the loan that exceeds the regulatory loan-to-value limit.
   4. (4) Loans that are to be sold promptly after origination, without recourse, to a financially responsible third party.
   5. (5) Loans that are renewed, refinanced, or restructured without the advancement of new funds or an increase in the line of credit (except for reasonable closing costs) where consistent with safe and sound credit union practices and part of a clearly defined and well-documented program to achieve orderly liquidation of the debt, reduce risk of loss, or maximize recovery on the loan.
   6. (6) Loans that facilitate the sale of real estate acquired by the credit union in the ordinary course of collecting a debt previously contracted in good faith.
7. (g) Loans to 100% of Value. A credit union may make a loan in an amount up to 100% of the value of real property security if that part of the loan that exceeds the regulatory loan-to-value limit is guaranteed or insured by a private corporation, organization or other entity. The board of directors must ensure that the credit union exercises appropriate due diligence to ensure that any such guarantor or insurer has the financial capacity and willingness to perform under the terms of the guaranty or insurance agreement.

Source Note:The provisions of this §91.704 adopted to be effective August 9, 1999, 24 TexReg 6023; amended to be effective August 10, 2003, 28 TexReg 6267; amended to be effective November 9, 2006, 31 TexReg 9018; amended to be effective March 2, 2008, 33 TexReg 1515; amended to be effective March 4, 2009, 34 TexReg 1399.