On Tuesday, Texas voters will decide whether to approve seven amendments to the state Constitution. One measure, Proposition 2, looks to make it easier for Texas homeowners to borrow against home equity. The proposition lowers fees for tapping into home equity loans and lowers financial limits on borrowers who want to refinance.
The current law setting up strict regulations for borrowing against a home’s value has been on the books since 1997.
Celeste Embrey, assistant general counsel at the Texas Bankers Association in Austin, says that because home equity in Texas is a Constitutional product, it’s by design a difficult product for consumers and lenders alike -- which is why almost no one is really against Prop 2.
“The reason why consumers and Realtors and bankers are all supporting it,” Embrey says, “is because we want a product that works for Texas and works for Texas borrowers.”
Prop 2 would also allow state homeowners to take out secondary or even tertiary home equity loans or lines of credit as rates fluctuate, which the current law is not really designed for.
Prop 2 also would remove restrictions on Texas farmowners, who are not allowed to take out home equity loans on working agricultural properties unless ---- and this is true ---- they are dairy farmers. Back in 1997, the Texas Farm Bureau advocated against allowing farmowners the ability to take out home equity loans.
“At that time, our members were concerned that if you could have agricultural property used for home equity loans that it would be demanded; you would be force to put your farm up if you wanted to do this type of loan,” says Regan Beck director of government affairs at the TFB.
Beck says that scared farmers because a default would have meant losing home and livelihood at the same time. But in the ensuing 20 years, he says, “our members have realized the value of being able to do these loans and that actually having agricultural property is another asset that they can use in any manner that they see fit. And they also want to maintain the agricultural valuation of their properties while they do this.”
While Prop 2 has no serious opponents, it’s worth noting that the measure would lower the cap for fees surrounding loans from 3 to 2 percent, which, theoretically, could cost consumers more. The current 3 percent cap covers third-party fees for services like appraisals and surveys – fees that would move outside the bounds of that 3 percent cap.