Court Opinion

ID: 4070043
Source: CourtListenerOpinion
Date Created: 2016-09-30 00:58:49.010476+00
Date Added: 2024-06-11T14:33:02.822002
License: Public Domain

ACCEPTED
                                                                          03-15-00329-CV
                                                                                  6045320
                                                               THIRD COURT OF APPEALS
                                                                          AUSTIN, TEXAS
                                                                     7/13/2015 4:29:26 PM
                                                                        JEFFREY D. KYLE
                    No. 03-15-00329-CV                                             CLERK

                                      FILED IN
 In The Court of Appeals For the    Third
                               3rd COURT   OF APPEALS
                                   AUSTIN, TEXAS
      District of Texas at Austin
                               7/13/2015 4:29:26 PM
                                                    JEFFREY D. KYLE
                                                         Clerk

GREGORY G. GRAZE AND CYNTHIA A. CRIDDLE, on behalf of
      themselves and all others similarly situated,
                                             Appellants,
                              v.
             NATIONSTAR MORTGAGE, LLC,
                                               Appellee.

   On Appeal from the 261st District, Travis County, Texas
         MDL Pretrial Court No. D-1-GN-14-005248
      Dallas County Originating Case No. DC-13-05406
                     MDL No. 13-0427

              REPLY BRIEF OF APPELLANTS

      J. Patrick Sutton                 Jeffrey W. Hurt, Esq.
  Texas Bar No. 24058143              Texas Bar No. 10317055
    1706 W. 10th Street            10670 N. Central Expy Ste 450
    Austin Texas 78703                   Dallas, Texas 75231
     Tel. (512) 417-5903                 Tel: (214) 382-5656
    Fax. (512) 355-4155                  Fax: (214) 382-5657
       jpatricksutton@                 jwhurt@hurtberry.com
   jpatricksuttonlaw.com

                    Counsel for Appellants

                                                      July 13, 2015
                                 TABLE OF CONTENTS

INDEX OF AUTHORITIES ...................................................................... iii

INTRODUCTION ....................................................................................... 1

ADDITIONAL FACTS IN REPLY ............................................................. 2

ARGUMENT IN REPLY ............................................................................ 3

  I. Sims briefly recapitulated .................................................................. 4

  II. Sims addresses solely capitalization events, not changes to the
  terms of the original loan. ....................................................................... 5

  III. New extensions of credit must satisfy all of Section 50(a)(6), but
  a mere modification may, separately, violate any or all of the
  particular requirements of Section 50(a)(6) ......................................... 11

  IV. Nationstar miscalculates the balloon ............................................. 13

  V. Nationstar's purported cures are the violations of Section
  50(a)(6)(L) .............................................................................................. 15

  VI. The independent requirement that payments pay all interest
  coming due doesn't doesn't provide a safe-harbor for payments
  composed solely of interest.................................................................... 17

  VII. “Temporary” = Volatile = Bad ....................................................... 18

CONCLUSION ......................................................................................... 21

CERTIFICATE OF SERVICE ................................................................. 23

CERTIFICATE OF COMPLIANCE ........................................................ 23

                                                      ii
                                INDEX OF AUTHORITIES

  Cases

Hawkins v. JP Morgan Chase Bank, N.A., No. 13-50086, 2015 WL
3505353 (5th Cir. June 4, 2015), reh'g and reh'g en banc denied
 (June 30, 2015) .............................................................................. 2, 3, 9

Sims v. Carrington Mortgage Servs., L.L.C., 440 S.W.3d 10 (Tex.
 2014, reh'g denied) ...................................................................... passim

Starkey et al. v. Bank of America, N.A., No. 4:12-cv-02084 (S.D.
 Tex. 2012) ............................................................................................... 3

  Statutes and Rules

7 Tex. Admin. Code § 151.1(1) .......................................................... 8, 14

7 Tex. Admin. Code § 153.14 ................................................................ 10

7 Tex. Admin. Code § 153.14(2)(B) ...................................................... 10

7 Tex. Admin. Code § 153.14(2)(C) ...................................................... 10

7 Tex. Admin. Code § 153.16 ................................................................ 20

  Other Authorities

Ann Graham, Where Agencies, the Courts, and the Legislature
 Collide: Ten Years of Interpreting the Texas Constitutional
 Provisions for Home Equity Lending, 9 Tex. Tech Admin. L.J.
 69, 84 (2007) ......................................................................................... 18

  Constitutional Provisions

Section 50(a)(6)(L) .......................................................................... passim

Section 50(a)(6)(Q)(x)(c) ........................................................................ 15

Section 50(a)(6)(Q)(x)(f) ......................................................................... 16

                                                     iii
                           INTRODUCTION

     Is Section 50's requirement of "substantially equal" payments

a one-time requirement applicable only at closing, and thus

waivable at any time thereafter? Section 50(a)(6)(L). Nationstar

and now the Fifth Circuit U.S. Court of Appeals say it is. That

conclusion     requires         indiscriminately     lumping      together

capitalization events that do not alter the loan terms (a Sims

"restructuring" of the loan principal) with true modification

agreements that do change the original loan's terms. But by that

logic -- in which all post-closing agreements that do not extend

new credit are permissible -- other flatly-prohibited terms will also

become legal at any time after closing, such as personal recourse

and nonjudicial foreclosure. Section 50(a)(6) loans will effectively

cease to be Section 50(a)(6) loans after closing, since any

substantive term will become subject to amendment. The profound

issue for this Court -- an issue of first impression in the Texas

appellate    courts   --   is    whether   the     cornerstone   perpetual

requirements of home equity loans, such as substantial payment

equality, will survive.

                                      1
                  ADDITIONAL FACTS IN REPLY

        The Fifth Circuit U.S. Court of Appeals recently held, in an

unpublished per curiam decision, that a Texas $190,000 home

equity loan that began life with a schedule of substantially-equal

payments can be modified to schedule a $146,000 balloon due at

maturity. Hawkins v. JP Morgan Chase Bank, N.A., No. 13-

50086, 2015 WL 3505353, at *2 (5th Cir. June 4, 2015), reh'g and

reh'g     en   banc   denied   (June   30,   2015)   (remanded   for

determination whether new money was in fact added to Ms.

Brooks's loan to potentially explain such a large balloon). The

Fifth Circuit also held that Texas home equity loans can be

modified to schedule five years of interest-only payments followed

by a large payment spike. Id. (dismissing Mr. Hawkins’ claim

with prejudice). The Fifth Circuit based its decision on an

erroneous interpretation of Sims v. Carrington Mortgage Servs.,

L.L.C., 440 S.W.3d 10 (Tex. 2014, reh'g denied), which legalized

"restructurings" that capitalize past-due sums into the note.

According to the Fifth Circuit, a modification of a home equity

loan can include terms that otherwise violate Section 50(a)(6) so

long as the modification agreement does not extend new credit to

the borrower.

                                   2
     Also pending in federal court, an identical case against

Bank of America alleges a $414,500 home equity loan that was

modified to include a $280,000 balloon, and another loan that

was modified to schedule interest-only for five years. See Starkey

et al. v. Bank of America, N.A., No. 4:12-cv-02084, Doc. 58 (S.D.

Tex. Nov. 3, 2014) (3d A. Complaint) (stayed pending finality in

Hawkins, cited above).

                        ARGUMENT IN REPLY

     The trial court's decision in this case and the Fifth Circuit's

decision in Hawkins would legalize both balloons and other terms

that are anathema to Section 50(a)(6) loans, like personal recourse

and nonjudicial foreclosure. Appellants argued in their opening

brief that some of the requirements of Section 50(a)(6) are facially

perpetual for the life of a home equity loan and cannot be

bargained away after closing. Brief of Appellants at 18. This reply

brief offers additional points in response to Nationstar's brief and

the recent Fifth Circuit decision in Hawkins, which Appellants

believe was wrongly decided. 1

 1Hawkins is not controlling on this Court, and, as an unpublished per curiam
 opinion, is not even controlling in other federal cases. See Hayes v. Bank of
 Am., N.A., No. 4:13-CV-760-A, 2014 WL 308129, at *6 n. 2 (N.D. Tex. 2014)

                                       3
                    I. Sims briefly recapitulated
     Appellants' opening brief discusses Sims at length. Brief of

Appellants at 14-16. Summarized to frame the arguments in this

Reply, Sims legalizes the capitalization of past-due sums into a

home equity note without the parties having to go through all the

hoops of originating a new home equity loan. Sims holds that

adding principal already due under the loan documents does not,

in and of itself, represent new money or a change in loan terms,

but is instead a mere "restructuring" of existing obligations. 440

S.W.3d. at 16.

     However, the Texas Supreme Court stressed that the loan at

issue in Sims continued, upon modification, to have substantially

equal, regular payments as originally agreed when the loan was

made: "Section 50(a)(6) does not forbid a revision of the initial

repayment schedule that merely adjusts the regular installment

amount." Id. No issue was presented in Sims of balloons, payment

spikes,   or   other   volatile   payment      schedules,     which    would

constitute modifications of substantive loan repayment terms.

Indeed, the Simses' restructuring actually lowered their regular

monthly payment, and did so for the entire remainder of their

 (acknowledging non-controlling nature of unpublished per curiam decisions of
 the 5th Circuit).

                                      4
loan's term. Id. at *13 (table of figures shows that original

payment was permanently lowered from $611 to $492 in successive

rate-step increments over 2 years). The lesson: any amount of

past-due sums authorized by the loan documents can be added

back into the note without having to originate a new loan, but

there must still be a "regular installment amount" as contemplated

by the original note. Nothing in Sims impliedly or expressly allows

the parties to substitute a new, volatile payment schedule for the

substantially-equal payment schedule in the original note.

      II. Sims addresses solely capitalization events, not
            changes to the terms of the original loan.
     Sims is a narrow holding on specific facts concerning the

amount   of   money   included   in   a   loan's   principal,   and   the

terminology it employs to limit its holding to such situations is

critical to understanding why it has nothing to do with this case.

     The facts in Sims deal solely with a "restructuring" event

that capitalizes past-due sums into the note and adjusts the

"regular installment amount" accordingly. 440 S.W.3d at 16. The

Simses had past-due sums capitalized into their existing note,

their interest rate lowered by several percent in stages, and their

monthly installment of principal and interest permanently lowered

                                  5
by $120 until maturity. 440 S.W.3d at 12. Their original loan's

substantially-equal payment scheme was not altered; nor were any

other substantive changes made to the loan terms. The sole issue

for decision was whether the capitalization event constituted a

new extension of credit (that is, a new home equity loan). The

Texas Supreme Court said No, the existing loan merely continues

rolling on with the increased, reamortized principal allocated to

slightly lower regular payments.

     The Sims decision takes pains to refer to the narrow type of

agreement at issue there as either a "restructuring" or else a

"capitalization," avoiding use of the term "modification" since no

changes were made to the terms of the loan:
    The applicability . . . of Section 50(a)(6), which governs
    home equity loans, depends not on whether the
    transaction is a modification or a refinance but on
    whether it is an “extension of credit”. If the
    restructuring of a home equity loan does not involve a
    new extension of credit, the requirements of Section
    50(a)(6) do not apply. Thus, we restate the first certified
    question as follows:
         1. After an initial extension of credit, if a
         home equity lender enters into a new
         agreement with the borrower that capitalizes
         past-due interest, fees, property taxes, or
         insurance premiums into the principal of the
         loan but neither satisfies nor replaces the
         original note, is the transaction a new
         extension of credit for purposes of section 50 of
         Article XVI of the Texas Constitution?

                                   6
440 S.W.3d at 15; see id. at 17 (using "restructuring"). The Sims

Court in fact expressly rejected use of the term "modification" to

describe capitalization-type agreements because, in the Supreme

Court's view, the capitalization event does not modify the terms of

the loan. 440 S.W.3d at 15-16.

     At the risk of repetition but to bring the point home, the

narrow holding of Sims is that if an agreement (by whatever

name) does no more than add ("capitalize") sums already due

under the existing terms of the loan back into to the principal of

the note, then that specific agreement or event is not a "new

extension of credit." Accordingly, the post-closing restructuring

agreement does not have to comply anew with all the myriad

requirements of Section 50(a)(6), as a new extension of credit

would.

     By contrast with the Sims facts, it is emphatically true that

the post-closing agreements at issue in this case contain two

distinct components, a Sims-type capitalization/restructuring that

is not a modification at all, and also a modification of the original

notes'   substantially-equal   payment   schedules.   Despite    this

seemingly irrefutable fact, Nationstar consistently conflates the

restructuring aspect (authorized by Sims) with the separate and

                                  7
distinct change to the payment scheme (not authorized by Sims).

Brief of Appellees at 21. Nationstar further confuses matters with

a digression into a three-part test whether a "modification" is an

"extension of credit." But the issue whether the restructuring

aspect of Appellants' modification agreements constitute an

extension of credit is irrelevant --Appellants acknowledge that the

capitalization portion of their loan modification agreements is

permissible. It is the separate and distinct implementation of new,

volatile payment schedules that is at issue here.

     A restructuring and an actual modification of a loan term can

exist either side-by-side in one agreement, or else separately in

unrelated agreements. In this case, Nationstar both restructured

the loan to capitalize past-due payments and also rescheduled that

restructured principal to include a teaser-period of interest-only

payments followed by a payment spike meeting the definition of a

balloon. See 7 Tex. Admin. Code § 151.1(1) (2015). However, a

given post-closing agreement could do nothing more than amend

the payment schedule to lower the monthly payments and schedule

a large balloon to recapture the deferred amounts, or else create a

multi-year period of interest-only payments followed by a payment

spike. Neither is permissible at closing; the issue here is whether

                                 8
such practices are permissible afterward, whether combined with a

restructuring or not.

     What Nationstar does, by misconstruing Sims to cover all

post-closing transactions and not only capitalizations, is construct

an argument that any post-closing agreement short of a new

extension of credit is permissible no matter what it provides -- in

other words, that any event that does not include new money is

allowed to violate any provision in Section 50(a)(6): "Because the

modifications were not new extensions of credit, none of the

requirements in Section 50(a)(6)—including those in Section

50(a)(6)(L)—apply to them." Brief of Appellees at 21. The Fifth

Circuit similarly conflates restructurings and substantive changes

to the loan terms and makes the same mistake:
     The Hawkins and Cusick transactions each involved
     capitalization of past-due amounts under the loan
     without satisfying or replacing the original note,
     advancing new funds, or increasing the obligations
     created by the original note. Thus, the restructurings of
     these loans were modifications, which do not require
     compliance with Section 50(a)(6).
Hawkins, 2015 WL 3505353, at *2 (emphasis added). The upshot of

misapplying Sims to cover all post-closing agreements is that all

modifications become exempt from Section 50, since by definition a

mere modification does not extend new credit. See Sims; see also 7

                                 9
Tex. Admin. Code § 153.14(2)(B) (2008) (the advance of additional

funds is not permitted by a modification).

       This confused commingling of capitalizations that don't alter

the loan and modifications that do is disastrous. No authority

(except the new Hawkins decision in the Fifth Circuit) supports a

broad rule allowing literally anything except new money to be

included in a modification. The narrow holding in Sims, validating

capitalizations, does not reject or even conflict with how the

official regulations treat "modifications" that actually alter the

terms of the loan. See 7 Tex. Admin. Code § 153.14. The

regulations say, among other things, that a modification cannot

implement "new terms" that would have been prohibited "at the

date of closing." 7 Tex. Admin. Code § 153.14(2)(C) (emphasis

added). Would a balloon note have been prohibited at closing?

Plainly Yes, which is why it isn't allowed at any point later and is

an impermissible "modification" of loan terms. The same holds

true    for   modifications   that   permit   personal   recourse   and

nonjudicial foreclosure. Since such "new terms" were not at issue

in Sims, Sims had no need to fashion a general rule concerning

true modifications.

       In summary, Sims does legalize capitalization agreements,

                                     10
which do not modify the terms of the loan; but it does not legalize

(or even address) agreements that do modify the terms of the loan.

No conclusion can be drawn from Sims concerning post-closing

events other than the capitalization of past-due sums, and that is

true whether such events accompany a capitalization (as occurred

in this case) or are the subject of a separate agreement. That said,

it is supremely troublesome when a borrower facing foreclosure

gives up important borrower protections of Section 50(a)(6), such

as substantially-equal payments, as the price for having the lender

capitalize past-due payments to bring the loan current and prevent

foreclosure. There is no reason why Nationstar could not have

stopped at mere capitalization, adjusting the interest rate and

potentially   the      maturity   date   to   achieve   low   payments

permanently, rather than resorting to a new schedule of payments

with profound payment volatility.

        III. New extensions of credit must satisfy all of
         Section 50(a)(6), but a mere modification may,
         separately, violate any or all of the particular
                requirements of Section 50(a)(6)
     Another way Nationstar incorrectly characterizes Sims stems

from how Sims permits capitalization restructurings to avoid "all"

of Section 50(a)(6):
     The applicability . . . of Section 50(a)(6), which governs

                                    11
     home equity loans, depends not on whether the
     transaction is a modification or a refinance but on
     whether it is an “extension of credit”. If the
     restructuring of a home equity loan does not involve a
     new extension of credit, the requirements of Section
     50(a)(6) do not apply.
440 S.W.3d at 15 (emphasis added). Sims only addresses whether

an all-new loan must be originated -- from scratch, at a stroke,

with a new closing and all the bells and whistles -- in order for

past-due sums to be added to loan principal. Id. at 11-12 ("the

restructuring . . . need not meet the constitutional requirements

for a new loan").

     Sims had no occasion to address whether a separate,

substantive modification of a loan term violated one (and only one)

specific provision of Section 50(a)(6). The Supreme Court did

discuss specific subsections of Section 50, but solely in the context

of the core issue whether all of Section 50(a)(6)(A)-(Q) is triggered.

The Supreme Court discussed Section 50(a)(6)(B), the 80% loan-to-

value ratio requirement, but merely to point out that it only

applies "on the date the extension of credit is made." 440 S.W.3d at

17 (emphasis in original). Since the Simses' later capitalization

restructuring was not an extension of new credit, it did not trigger

the one-time 80% test again. That leaves open the obvious question

whether requirements that apply for the life of the loan, like

                                  12
Section 50(a)(6)(L), can be waived after closing. All the Supreme

Court   said     about     that   subsection      was    that   the    Simses'

capitalization    didn't    implicate      it   since   payments      remained

substantially equal after the capitalization. In summary, the

whole basis for the Sims suit was the Simses' claim that they

received new loans that should have triggered all the required

formalities; they made no claim that, apart from the capitalization

restructuring, the agreements at issue changed substantive terms

of the original loan. Id. at 11-12.

     Here, by contrast, Appellants acknowledge that, since no new

extension of credit occurred, no new loan was required to be

originated triggering all of Section 50(a)(6) again. They challenge

solely the modification of the original loan's repayment scheme, a

modification that abandoned substantial payment equality in

order to implement a new, volatile payment scheme. That is

analytically distinct and separate from the Sims issue and does

not invoke all of Section 50(a)(6), but only the clause the

modification runs afoul of, Section 50(a)(6)(L).

            IV. Nationstar miscalculates the balloon
     Nationstar argues there were no payment shocks or balloons,

avoiding any mention of the 400%-500% payment spikes and the

                                      13
necessity creating a new schedule of payments once principal was

increased. Brief of Appellee at 29-30.

     Section 50(a)(6)(L)'s regulations define a balloon as any

payment more than twice the average of all prior "scheduled"

payments. 7 Tex. Admin. Code § 151.1(1). Nationstar averages all

payments back to loan origination, but that cannot be correct. As

Nationstar's own evidence shows, the loans were restructured to

capitalize past-due sums into the notes and re-amortize the

payments according the new principal sums and interest rates.

CR206-207 (¶¶ 10-11, 17-18). It makes no sense to refer to the

payments scheduled under the original amortization schedule

because those payments were based on superseded loan figures.

The relevant "scheduled" payments for Graze and Criddle can only

be those set out in the post-origination modifications since those

schedules contain the new, increased principal sums upon which

the new payment schedules are based. Nationstar is comparing

apples to oranges in order to minimize the harm it did to

Appellants and avoid the regulations' technical definition of a

"balloon."

     In any event, whether or not the post-modification payment

spikes constitute "balloons" according to the regulations, the fact

                                 14
that the borrowers' payments went up by factors of over 400% in

each case defeats any contention that the borrowers' payments

were    "substantially   equal"   within   the   meaning   of   Section

50(a)(6)(L).

               V. Nationstar's purported cures are the
                   violations of Section 50(a)(6)(L)
       Nationstar argues that certain letters it sent to the borrowers

in 2012, a year before the borrowers notified Nationstar of

violations, were in fact cures. Brief of Appellee at 31 (citing

CR266, 321). But those weren't cures -- they are the violations

complained of.

       Section 50's cure process requires a borrower to notify the

lender, at which time the lender has 60 days to cure the illegality.

Section 50(a)(6)(Q)(x). A Section 50 cure requires that the lender
       [send] the owner a written notice modifying any other
       amount, percentage, term, or other provision prohibited
       by this section to a permitted amount, percentage, term,
       or other provision and adjusting the account of the
       borrower to ensure that the borrower is not required to
       pay more than an amount permitted by this section and
       is not subject to any other term or provision prohibited
       by this section.
Section 50(a)(6)(Q)(x)(c). In the alternative, if a cure isn't possible

under subsection (c) above, the lender must credit the borrower

$1,000 and

                                   15
     [offer] the owner the right to refinance the extension of
     credit with the lender or holder for the remaining term
     of the loan at no cost to the owner on the same terms,
     including interest, as the original extension of credit
     with any modifications necessary to comply with this
     section or on terms on which the owner and the lender
     or holder otherwise agree that comply with this section.
Section 50(a)(6)(Q)(x)(f). Failure to cure according to this process

results in forfeiture. Id.

     Graze's evidence shows that he notified Nationstar of

illegality on February 19, 2013. CR347. Any cure was due April 19,

2013. Nationstar took no action to cure thereafter. CR340.

Criddle's evidence establishes that she sent notices of illegality on

January 28, 2013, and April 23, 2013. CR356, 358. Nationstar

never responded. CR354, 360. Nationstar in fact believed that the

modifications violated Section 50 in the ways the borrowers

identified, and told Graze and other borrowers as much; yet

Nationstar still refused to cure and began foreclosure proceedings.

CR349, 351, 363-366 (admissions); CR 343, 349, 372 (foreclosure

notices).

      Inspection of the letters to Graze and Criddle reveals that

they are not cures contemplated by the process set out in Section

50, but instead ordinary lender notifications to Graze and Criddle

that the borrowers are about to get hit with balloon payments

                                 16
owing to the conclusion of the interest-only payment periods. As a

matter of law, these do not constitute cures. They do not comply

the cure process contemplated by Section 50 and evidence no

agreement or implementation of any cures. And they do not, in

fact, cure the illegality of the modifications -- they affirmatively

implement it. These letters, far from showing any cure, constitute

the proof that Plaintiffs' loans violate the "substantially equal"

requirement.

   VI. The independent requirement that payments pay all
     interest coming due doesn't doesn't provide a safe-
       harbor for payments composed solely of interest
     Nationstar    argues   that    since   Appellants'    interest-only

payments paid all interest coming due every period, the altered

payment schedules fully comply with Section 50(a)(6)(L). Brief of

Appellee at 25-26. But paying all interest due each period is not

the sole criterion for legality under Section 50(a)(6)(L). If that

were the case, then balloons composed of principal deferred for 30

years would be legal. Meeting the independent requirement that

payments pay all current interest cannot exempt an otherwise

volatile payment schedule from the other requirements.

     As   argued   in   Appellants'     opening   brief,   interest-only

payments do not meet the first discrete requirement of Section

                                   17
50(a)(6)(L), that the loan be "repaid." Brief of Appellants at 23.

Payments without a principal component do not, by definition,

"repay" the original loan amount. In addition, interest-only

schedules   generate     substantial   inequality   and   balloons,   as

demonstrated with the Graze and Criddle modifications, where

payments went up by four-fold and five-fold at the end of the

interest-only periods.

     What the requirement that all interest coming due must be

paid with each installment addresses is a specific problem not

implicated in this case: negative amortization. That occurs when

accrued but unpaid interest builds up. As explained in the Graham

article:
     Interest that has accrued but has not been paid is added
     to the original amount owed, with the result being the
     borrower owes more principal each month, despite
     making payments. Negative amortization is expressly
     prohibited for Texas home equity loans.
Ann Graham, Where Agencies, the Courts, and the Legislature

Collide: Ten Years of Interpreting the Texas Constitutional

Provisions for Home Equity Lending, 9 Tex. Tech Admin. L.J. 69,

84-85 (2007).
                VII. “Temporary” = Volatile = Bad
     Nationstar repeatedly characterizes the interest-only period

of Appellants’ loan modifications as “temporary,” as though that

                                  18
were a good thing. By that test, “temporary” interest-only periods

at the outset of a loan would be good too, since a 2% teaser rate

would permit borrowers who could not otherwise afford a home

equity loan to get one – at least initially. But teaser periods are

Constitutionally bad. They create surprise payment obligations

later. And they are as bad at the middle of the loan as they are at

the beginning or the end. What the requirement of “substantially

equal” prohibits is, precisely, payment volatility. “Temporary” 2-

year periods where the bottom drops out entirely, as illustrated in

Nationstar’s graphs (Brief of Appellee at 12-13) do not help the

borrower because they exemplify the volatility that Section

50(a)(6)(L) seeks to prevent.

     While payments that pay no interest are an independent

violation of Section 50(a)(6)(L) as argued in Appellants’ opening

brief, the volatility metric looks only at dollar amount variability.

That metric is not dependent on whether principal is included with

every payment, but instead on the delta in the payment amount

from month to month, or year to year. That is why, in the case of

variable-rate home equity loans, the regulations permit only

gradual   interest-rate   steps   so   that   payments   will   remain

“substantially equal between each interest rate adjustment.” 7

                                  19
Tex. Admin. Code § 153.16. Preventing huge interest-rate swings

is one important reason Section 50(a)(6)(L) exists.

     The bottom fell out of Appellants’ monthly payments for two

years in this case, which was good only while it lasted. The

interest rate was slashed to 2%, a fraction of the notes’ respective

rates, but after two years it would abruptly jump back up to the

original rate, multiples higher. That is textbook substantial

inequality, since there are no tiers or baby-steps as a variable-rate

loan -- which in essence is what these loans became -- would

require. These huge swings would be as bad month to month as

they would be year to year because they whipsaw the borrower in

either case, belying Nationstar’s assertion that Section 50(a)(6)(L)

favors “temporary” volatility as a foreclosure prevention tool.

     Finally, nothing in Section 50(a)(6) defines “temporary” for

purposes of allowing a holiday from substantially-equal payment

schedules. This Court would have to legislate that. While

Appellants’ fractional-payment periods were two years, other cases

in the MDL were both shorter and longer. In the recent Hawkins

case in the Fifth Circuit, the period was five years. 2013 WL
3505353, at *1. It is difficult to see how to settle on any given

allowable period, since short periods done sporadically can

                                 20
generate volatility just as one long period followed by a balloon

can. The test for volatility is not the duration of the payment

steps, but their magnitude. Had Nationstar scheduled Appellants’

payments to rise in 1% increments annually following the rate

plummet to 2%, that would have avoided creating the brick wall

following the “temporary” period of reduced payments.

                             CONCLUSION

       The most important thing for the Court to take from Sims is

that it does not address modifications of the original loan's terms.

In     fact,   Sims   took    pains    to     distinguish        capitalizations

(restructurings) from all other kinds of post-closing agreements.

And the facts of Sims gave the Supreme Court no occasion to

address changes to the original loan's terms. The Simses, unlike

Appellants here, continued to have substantially equal payments

after their modifications because their agreements did not change

the repayment terms of their original loan but merely adjusted it

slightly downward permanently. Nationstar and the Fifth Circuit

U.S.    Court    of   Appeals   both       miss   that   point.     While   the

capitalization    events     within    Appellants'       "loan     modification

agreements" were valid and did not trigger anew a Section 50(a)(6)

lending moment (with all the bells and whistles), the separate and

                                      21
distinct change to the repayment scheme implicated Section

50(a)(6)(L) because it affirmatively abandoned "substantially

equal" payments. Section 50(a)(6)(L) abhors volatile repayment

schemes throughout the life of the loan. Otherwise, it would be an

all-but   meaningless   one-time    requirement   at   closing,   easily

abandoned by modification the day after.

                          Respectfully submitted,
                          /s/ JPS
                          J. Patrick Sutton
                          Texas Bar No. 24058143
                          1706 W. 10th Street
                          Austin Texas 78703
                          Tel. (512) 417-5903/Fax. (512) 355-4155
                          jpatricksutton@ jpatricksuttonlaw.com

                          Jeffrey W. Hurt, Esq.
                          Texas Bar No. 10317055
                          10670 N. Central Expy Ste 450
                          Dallas, Texas 75231
                          Tel: (214) 382-5656/Fax: (214) 382-5657
                          jwhurt@hurtberry.com

                          Attorneys for Appellants

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                  CERTIFICATE OF SERVICE

     I certify that on July 13, 2015, per T.R.A.P. 6.3(b), a true and
correct copy of this brief was served by efiling and email on:

Thomas G. Yoxall
Daron Janis                           B. David L. Foster
Locke Lord LLP                        Locke Lord LLP
2200 Ross Avenue Suite 2200           600 Congress Avenue, Suite
Dallas TX 75201                       2200
tyoxall@lockelord.com                 Austin, Texas 78701
djanis@lockelord.com                  dfoster@lockelord.com

                               /s/ J. Patrick Sutton
                               Attorney for Plaintiffs-Appellants

               CERTIFICATE OF COMPLIANCE

This document complies with the typeface requirements of Tex. R.
App. P. 9.4(e) because it has been prepared in Century Schoolbook
14-point for text and 12-point for footnotes. Spacing is expanded
by .6 point for clarity. This document also complies with the word-
count limitations of Tex. R. App. P. 9.4(i)(2) because it contains
4317 words, excluding any parts exempted by Tex. R. App. P.
9.4(i)(1), and Appellants' briefs do not in the aggregate exceed
27,000 words.

                               /s/ J. Patrick Sutton
                               Attorney for Appellants

                                 23