Proposed Texas constitutional amendment on home equity loans is “wolf in sheep’s clothing”

Texas dodged the worst of the foreclosure crisis that tanked much of the national economy a decade ago, thanks in large part to the state’s restrictions on home equity loans. So why do state legislators want Texas voters to remove those restrictions?

As Texas Housers fair housing planner Charlie Duncan told the Houston Chronicle, the proposed constitutional amendment legislators put on this November’s ballot is just a “wolf in sheep’s clothing” to bring more money to lenders and more risk to borrowers.

“Make no mistake, more families will lose their homes because of the irresponsible lending this amendment will allow,” Charlie said.

The Texas Home Equity Loan Amendment purports to lower costs for borrowers and simplify the longest section of the state’s constitution. But the language of the amendment actually shifts costs to homeowners in the form of up-front fees outside of a nominal lending fee cap. The amendment was approved nearly unanimously by the Texas Legislature earlier this year.

Attorney Robert Doggett, who led the 2013 case at the Texas Supreme Court which disallowed additional expenses beyond home equity lending caps, said the amendment would increase the risky loans that lead families toward foreclosure.

“Up-front fees are very dangerous because they incentivize bad loans, they give loan officers and bad originators a reason to make up stuff so the loan is approved,” Doggett said.

Home equity loan protections helped Texas avoid much of the Great Recession. But state legislators are now setting the state up to make the same mistakes that led to the downturn in the first place.

Read the full article by Chronicle reporter Lydia DePillis here.