Alyssa Katz writes in Slate "How Texas avoided the worst of the real estate meltdown."

A cash-out refinance is a mortgage taken out for a higher balance than the one on an existing loan, net of fees. Across the nation, cash-outs became ubiquitous during the mortgage boom, as skyrocketing house prices made it possible for homeowners, even those with bad credit, to use their home equity like an ATM. But not in Texas. There, cash-outs and home-equity loans can't total more than 80 percent of a home's appraised value. There's a 12-day cooling-off period after an application, during which the borrower can pull out. And when a borrower refinances a mortgage, it's illegal to get even $1 back. Texas really means it: All these protections, and more, are in the state constitution. The Texas restrictions on mortgage borrowing date back to the first days of statehood in 1845, when the constitution banned home loans entirely.

...the fact that fewer Texans took cash out of their home equity than did borrowers in any other state -- and took out less when they did. The more prevalent cash-out refinances are in a state, the more likely it is that mortgage borrowers there will run into trouble. For every 1 percentage point increase in its share of subprime mortgages that are cash-out refinances, the likelihood of foreclosure in that state goes up by one-third of a percent.

Until 1998, Texans couldn't take out home-equity loans at all. The roots of this fierce resistance to debt's temptations go deep in Texas history. Seven years before the republic joined the union in 1845, a bank panic and resulting foreclosures lost many homesteaders their property.

I cherry-picked these three paragraphs*, but you should go read the whole thing. I'm no expert on the subject, but Katz made a pretty good case.

*Generally speaking, I think too many bloggers abuse the fair use exception to copyright. From the beginning, I've generally tried to keep my excerpting low.

Posted by Evan @ 03/31/10 06:47 PM

 
 

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