Low Delinquencies and Foreclosure Rates Helped Texas Stay On Top
Texas is and always will be protected from a mortgage crisis, a crisis spurred by excessive lending on bad credit financing. It’s even stated in the state constitution that there will be no excess lending:
"The homestead of a family, or of a single adult person, shall be, and is hereby protected from forced sale, for the payment of all debts except for an extension of credit that is of a principal amount that when added to the aggregate total of the outstanding principal balances of all other indebtedness secured by valid encumbrances of record against the homestead does not exceed 80 percent of the fair market value of the homestead on the date the extension of credit is made."
In other words, cash-outs and home equity loans cannot total more than 80 percent of a home’s appraisal. Cash-outs are mortgages taken out for a higher balance than the existing loan amount. The 2008-2009 mortgage and financial crisis was fueled by cash-outs and lending excesses. But in Texas, cash-out refinancing and home-equity lending are by law illegal as written in the state constitution. By saying no to cash-out refinancing and home-equity lending, Texas escaped the 2008-2009 housing crisis. For that reason alone, Texas still has one of the nation’s lowest default rates and mortgage foreclosure rates. Other states with lower foreclosure rates are rural areas with smaller cities and without a real estate boom, so it’s easy to see that Texas is doing something right.
Texas faired well, just look at these stats:
- Only 6% of Texas’ 3.1 million borrowers are in or near foreclosure, while the national average is 10%.
- From 2000-2006, a study done on 20 metros showed an average home price double while Dallas (one of the 20 metros in the study) only increased 25% — indicating Texas cities don’t have a real estate bubble around their home values; it’s a slow and steady price change that gradually increases and barely decreases.
- No cash-out refinancing and home equity lending
- State constitution protects buyers/borrowers with longer pull-out and option periods to deliminate forced sales.
As seen from the stats, it’s evident that Congress can learn a lot from Texas.
Read more about how Texas survived the housing crisis here.