Wednesday, October 29, 1997

Both Farm Bureau and Farmers Union oppose home equity lending

By J.T. Smith / Abilene Reporter-News

Those in agriculture are well aware that Texas Farm Bureau and Texas Farmers Union often have taken opposing views on matters.

But on the issue of home equity lending, they are both strongly opposed.

"In Texas, bankers have successfully pressured the legislature into offering a proposed constitutional amendment for voters to decide on November fourth," said Wes Sims, a Sweetwater dairy producer and Texas Farmers Union president.

Sims said the ballot language of Proposition 8 is deceptively pleasant: "The amendement to the Texas Constitution expanding the types of liens for home equity loans that a lender, with the homeowner's consent, may place against a homestead."

The TFU leader said that as early as 1837, prior to statehood, Texas protected its people against forced sale of their homes to pay debts.

Foreclosure on homesteads is currently allowed only for money owed for the original purchase, home improvements, taxes -- and more recently -- for debts resulting from partition agreements generally arising in a case of divorce.

But this proposed constitutional amendment would allow Texans to pledge their homes as collateral for loans.

Sims said the amendment is strongly backed by big banks who want to make more loans and thereby, earn more profit from interest paid on loans.

"Those favoring the amendment say that sufficient consumer protection has been written into the enabling legislation which will take effect if the amendment passes," Sims noted. "The Texas Farmers Union is urging Texans to vote against Proposition 8 becasue even though safeguards are included -- we believe this is only a first step by bankers and that they will come back during future legislative sessions to chip away at the safeguards."

Sims said it comes down to a matter of homesteads.

Farm Bureau cites home equity dark side

Meanwhile, the Texas Farm Bureau also is attempting to present the other side of home equity loans.

"Throw enough money at an issue, and you can make even the worst idea sound as American as 'mom and apple pie,' " said Bob Stallman, TFB president, Waco. "In the case of home equity lending, it's disturbing to think that mom might end up losing her house and kitchen because of an idea that lenders say is in the best interest of Texans. The only thing being cooked up here is a recipe for disaster."

Millions of dollars of advertising and message control have tried to paint this as a "property rights issue" for Texans, Stallman laments. These ads point out that Texas is the only state in the nation that does not allow this type of borrowing.

But Stallman said the real issue is this: Texas voters on Nov. 4 will decide whether to turn their back on more than 150 years of Texas heritage and allow expanded home-equity lending in their state.

"Look at the 'bottom line' -- as all lenders do -- and you'll see who's making the push and why," Stallman noted. "A survey by a Houston financial company estimates that if the proposition passes, the home equity loan volume in Texas for the first two years will be $17.9 billion. That's a staggering amount of money and new business for lenders."

Stallman noted that the Wall Street Journal -- in an article in the Aug. 20 issue -- said: "The prospect of homeowners rushing to apply for loans has more lenders licking their chops than running for cover."

The idea that signing such a loan will be strictly voluntary simply isn't true.

"I contend there will be instances when pressure from outside influences will force a person to sign the dotted line and put their home in jeopardy," Stallman said.

When a farmer seeks an operating loan, personal assets like equipment, land and livestock are typically used as collateral. But if a lender says that's not enough, other sources must be found. Perhaps the lender suggests a Certificate of Deposit would qualify the farmer.

If that farmer/rancher happens to live in town and there is more than 20 percent equity available in his home, then there's the solution. Equity in the home could purchase the CD.

The are no stipulations as to how proceeds from a home equity loan can be applied.

Such a scenario does not violate the proposal's prohibition against cross-collaterlization or its exemption prohibiting ag homesteads from being eligible.

"Think about all of the homes that would have been subject to foreclosure in the mid-80s during the oil and real estate crisis if this type of lending had been allowed," Stallman said. "For more than 150 years, the homestead protections built into the Texas Constitution has served the state and its people well. Now is not the time to rewrite Texas tradition and common sense."