Home on the range - should Texans be able to borrow on it?
There may be no place like home, but Texans are wondering if some other things in life - like a college education, or a new business venture - might not be worth just as much sacrifice. The topic arises as the state considers proposals to modify a 110-year-old constitutional provision that was designed to protect a homeowner from losing that sweetest of all places to creditors, except in the case of unpaid loans or property taxes.Skip to next paragraph
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The act, called the homestead protection law, is credited with saving the homes of thousands of ranchers, oil workers, and others in what traditionally has been a boom-bust-boom - and currently, some would say, back to bust - economy.
Yet the provision has always had its critics, primarily because it effectively makes Texas the only state in the union where second mortgages (similar to home equity loans) are prohibited.
Today, home equity is the single greatest asset for many families across the country. With interest rates on mortgage loans lower than those for consumer loans, many families are tapping the equity in their homes to make business investments, finance college educations, or pay health-care costs. Cutting off the public's access to that accumulated wealth, many argue, is putting an unnecessary lid on the Texas economy.
A recent study by Texas A&M University pegged Texans' equity in their homes at $260 billion, and suggested that opening homeowners' access to that money would result in at least $4.5 billion recirculating through the economy. The report said this could mean creation of 34,000 new jobs, and a $1.5 billion increase in personal income.
The protection afforded by the homestead law may be difficult for Texans to give up. But Grant Jones, chairman of the state Senate's finance committee, says the law could be amended next year if certain safeguards now being proposed are retained.
Under one proposal, he notes, homeowners 65 or older still could not lose their homes until they no longer occupied the property. ``I would want to see that included,'' says Senator Jones, who has opposed earlier attempts to amend the law. ``It's my understanding that the older people especially have been subject to abuse [involving home-equity loans] in some other states.''
One plan calls for a requirement that first mortgages and home-improvement loans be paid off before the money from a second mortgage could be used for other purposes. Proponents of a change in the homestead law say the new federal tax law provides another good reason for some modification. Beginning next year interest on consumer loans will no longer be deductible, while interest on first and second mortgages secured by residences will be.
Any amendment to the homestead law would have to be approved by two-thirds of the state Legislature, before appearing on a statewide ballot.
Part of the new impetus for modification of the law may be newcomers to Texas who are accustomed to having access to their home equity, says Jim Lederer, senior vice-president for the Texas Bankers Association. ``Nobody likes to see a family lose their home, so the protection serves its purpose,'' says Mr. Lederer. ``But I think there's a growing feeling that people ought to be allowed to make their own decisions about access to their value.''