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Sunday, May 25, 1997

Senate tentatively approves home equity lending

By SARAH HORNADAY / Associated Press Writer

AUSTIN (AP) - The Senate tentatively approved on Saturday a proposed constitutional amendment that would allow Texans to join the rest of the country in their ability to borrow against the equity in their home.

Sen. Jerry Patterson, R-Pasadena, made changes to a House-approved version, but felt comfortable all changes would be approved and the measure would go to the voters.

"The House authors have agreed to sell it and agree that they can," Patterson said after a 21-8 Senate vote. Patterson had the two-thirds majority needed for final passage, but must wait until the next time the Senate meets to officially approve the measure.

Texas is the only state that does not allow its citizens to borrow against the equity in their main home except for such limited instances as taxes and home improvements.

Upon two-thirds agreement in the House and Senate on a proposed constitutional amendment to allow such borrowing, Texans would have an opportunity to decide the issue in an election.

Sen. Steve Ogden, R-Bryan, said he didn't like that so many restrictions are being placed into a constitutional amendment, rather than in statutory law, which doesn't need a vote of the people to change.

"It offends me that we're writing statute and sticking it in the constitution," Ogden said.

Joining Ogden in voting against the measure were Republican senators Teel Bivins of Amarillo, Robert Duncan of Lubbock and David Sibley of Waco and Democratic senators Ken Armbrister of Victoria, Gregory Luna and Frank Madla of San Antonio and Carlos Truan of Corpus Christi.

Sen. Troy Fraser, R-Horseshoe Bay, was present, but did not vote.

"(There) were concerns before that this was too long ...," Patterson said. "We got here because of the concerns of the consumer groups who precisely wanted these things in the constitution."

The Senate approved a less-restrictive version earlier in the session, and Rep. Steve Wolens, D-Dallas, said he's pleased with the changes made. The revision could be before the House as soon as Monday.

"It just makes you love this place," Wolens said. "I expected changes, but I didn't expect it to get better. I think it was always good, but it's getting better all the time."

A homeowner's total debt - including original and second mortgages - couldn't be more than 80 percent of the home's value. First mortgages could continue to be as high as lenders are willing to put up.

The percentage is 5 percent higher than the House-approved version.

Another substantive change is that dairy farm operators could have home-equity loans. No other home with an agricultural tax exemption would fall under the plan.

Sen. Gonzalo Barrientos, D-Austin, added a change that would give the same cooling off period to home-equity loans for home improvements as for second mortgages.

The borrower has 12 days between the time of application for a loan and the three days after closure to terminate the loan without penalty or charge.

Under Barrientes' amendment, all home improvement loans, where the home is used as equity, will have to go through judicial foreclosure.

Under a "non-recourse" protection, only the home could be taken, not other assets, such as a car.

Tom "Smitty" Smith, director of the consumer watchdog group Public Citizen, called Barrientes' amendment one of the more important consumer victories of the session.

"There are other consumer protections that will apply for the first time on home improvement loans, where the house is pledged as collateral," Smith said.

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The House bill is HB1188. The House constitutional amendment is HJR31. Send a Letter to the Editor about This Story | Start or Join A Discussion about This Story
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