Should Home Equity Borrower's Protections Be Stripped So Banks Profit?

Update 2/15/18: Unfortunately, this proposition passed. Read here about how Home Equity Borrowing in Texas has Forever Changed.

Texas was the last state to allow homeowners to borrow the equity in their home. When the law passed in 1997 allowing home equity loans, it included strong protections for consumers. As compared to other states, Texas has some of the strongest protections for home equity borrowers.

Now, Proposition 2 seeks to amend the Texas Constitution and strip many of those protections that Texans have enjoyed for the last 20 years – protections that helped Texas from suffering as much as other states during the recent housing crises.

State of Texas, Proposition 2

The constitutional amendment to establish a lower amount for expenses that can be charged to a borrower and removing certain financing expense limitations for a home equity loan, establishing certain authorized lenders to make a home equity loan, changing certain options for the refinancing of home equity loans, changing the threshold for an advance of a home equity line of credit, and allowing home equity loans on agricultural homesteads.

Pitfalls:

1. Fees to the Bank to Increase, not Decrease

Dropping the fee schedule to 2% also seems like a great idea, except the supporting institutions don't want to tell you the major fees associated with closing loans on home equity may (will) be moved outside of the 2% cap. This results in TOTAL fees up to even 5% of the loan – way more than the 3% cap currently in place. It's a way for the banks to make it seem like they are doing borrowers a favor, but in reality they are charging them even more.

2. No More Judicial Oversight

Access to lower interest rates seems beneficial, but it comes at a price to borrowers. Enabling borrowers to convert home equity loans to traditional rate-and-term refinance loans after 1 year strips them of the legal protections they now enjoy with a home equity loan. The process of foreclosing on a home equity loan is much stricter, and the borrowers assets are better protected. Non-home equity mortgages allow banks pursuing a foreclosure or default to foreclose without a judicial process. They also allow lenders to place liens against any/all of your property until your original loan is satisfied, with minimal restraints.

3. Family Farms and Ranches Put at Risk

Finally, allowing home equity loans on agricultural homesteads removes the current protections and puts family farms at much higher risk of foreclosure.

Summary

Proposition 2 gives lending institutions more power and freedom to take advantage of homeowners, without telling them all of the facts about the changes they suggest.  It will allow for higher overall fees and fewer protections for homeowners.

VOTE “NO” ON PROPOSITION 2:  MAINTAIN YOUR PROTECTION AS A TEXAS HOMEOWNER, RESTRICT THE BANKS FROM EASY FORECLOSURES, AND PROTECT YOURSELF FROM HIGHER FEES!

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