Wednesday, December 31, 1997

Great deal of interest shown in historic opportunity

By BRIAN BETHEL Staff Writer

For the first time in history, Texans will be able to take out home equity loans beginning New Year's Day.

Local bankers generally say that consumers have exhibited a great deal of interest in the loans, which will allow Texans to use up to 80 percent of their home's market value for a variety of projects.

"I think they're going to be immensely popular," said John Clark, president of the local Bank One. "Texas is finally getting in line with the rest of the nation."

Clark called home equity loans the "number one consumer borrowing (choice) behind credit cards, saying that the loans, interestingly enough, also had the lowest delinquency rate.

"We've had people asking about these loans since the day they became law," he said. "We are still seeing inquiries on a daily basis. This is, in my opinion, one of the best types of lending available."

Voters approved home equity loans in November's election after more than 150 years of not having the option.

A home's equity is equal to its market value, minus any debt against it.

Uses of home equity loans are varied, and may include everything from financing a child's education to a form of debt consolidation.

Texas' home equity rules are the most restrictive in the nation, with provisions such as a 12-day "cooling off" period and the inability to obtain lines of credit with such a loan.

Although individual bankers disagree as to exactly how popular the loans will be, all said there has been interest from consumers.

"I don't think it will be as popular as some might think," said Jim Fitzhugh, president of First State Bank. "I think a lot of people are curious about it, but we haven't had anyone fill out an application yet."

In a few instances, home equity loans fit nicely, such as in the case of a consumer consolidating all debts into one before retirement or a business person buying out a partnership with personal funds, Fitzhugh said.

"In some instances, it's an excellent option," he said. "In others, there are probably better ways to go."

Sue Ball, vice president of mortgage lending at Security State Bank, said that to say people were interested in the loans "was a real understatement."

"I think there's a lot of pent-up demand out there," she said. "This has been an issue in the state of Texas for some time. Now that you can cash out your equity, the interest has been unbelievable."

Baby boomers and older Americans stand to benefit the most from the new law, since their homes usually have much less - or in some cases, no debt - against them, she said.

"There are also some real tax advantages to consider," she said. "Rates are also extremely competitive."

Interest rates for home equity loans seem to range between 7.6-9.5 percent, Ball said.

There are several protections built into the law for homeowners.

For example, lenders cannot foreclose on a home equity loan without first obtaining a court order, and lenders cannot charge penalties for early payment.

As in any loan, despite those safeguards, it still makes sense to keep close tabs on your investment, Ball said.

"It's vitally important, as in any loan, to shop around and get the best deal," she said. "Read the fine, print, too. This isn't something you want to jump into lightly, but it can be a great help for many people."