But there is a broader secret to Texas’s success, and Washington reformers ought to be paying very close attention. If there’s one thing that Congress can do to help protect borrowers from the worst lending excesses that fueled the mortgage and financial crises, it’s to follow the Lone Star State’s lead and put the brakes on “cash-out” refinancing and home-equity lending.
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A cash-out refinance is a mortgage taken out for a higher balance than the one on an existing loan, net of fees. Across the nation, cash-outs became ubiquitous during the mortgage boom, as skyrocketing house prices made it possible for homeowners, even those with bad credit, to use their home equity like an ATM. But not in Texas. There, cash-outs and home-equity loans cannot total more than 80 percent of a home’s appraised value. There’s a 12-day cooling-off period after an application, during which the borrower can pull out. And when a borrower refinances a mortgage, it’s illegal to get even a dollar back. Texas really means it: All these protections, and more, are in the state constitution. The Texas restrictions on mortgage borrowing date from the first days of statehood in 1845, when the constitution banned home loans.
“Delinquency and foreclosure rates are significantly lower in Texas,” says Scott Norman of the Texas Mortgage Bankers Association. “The 80 percent loan-to-value limit — that’s the catalyst for a lot of this.”
I tend to thing you should be able to do want you want with your own property (assuming someone is willing to lend of course)but I do not think there is any doubt that the 80% loan to value limit kept borrowers out of trouble in Texas. Of course, Texas never had the extreme run up in value of Arizona, California, Nevada etc but there would have been plenty of borrowers who would have taken up 90%/95% of the paper value out of their homes. To make the matter worse, these loans would have been lousy subprime loans that would currently be in foreclosure here in Texas.
Regulation of home equity lending help Texas avoid brunt of real estate crisis?
I tend to thing you should be able to do want you want with your own property (assuming someone is willing to lend of course)but I do not think there is any doubt that the 80% loan to value limit kept borrowers out of trouble in Texas. Of course, Texas never had the extreme run up in value of Arizona, California, Nevada etc but there would have been plenty of borrowers who would have taken up 90%/95% of the paper value out of their homes. To make the matter worse, these loans would have been lousy subprime loans that would currently be in foreclosure here in Texas.
http://www.washingtonpost.com/wp-dyn/content/article/2010/04/03/AR2010040304983.html