Friday, April 02, 2010

In Praise of Texas

Texas got hurt in the real estate collapse, but they didn't get mauled like some other states I could name. The Big Money examines why.

But not in Texas. A borrower there can secure a home-equity line of credit from a bank. And she can refinance her mortgage or take out a home-equity loan. But the total amount of debt on a home cannot exceed 80 percent of its appraised value, and any proceeds cannot be used to pay off other debts.

Wait: stricter regulations on lenders and borrowers? Isn't that teh socialism of liberal power grabbery? No. These are called sensible rules and regulations. Contrast that to proceedures that existed in other states who got addicted to the monopoly money, and where those states are today.


1 comment:

Dante said...

Want to know how it got that way?

In the 80's the oil market in Texas died and the IT war between Dallas and Silicone Valley was decided (Dallas lost). On top of that Reagan changed taxation and deduction rules on real estate income and didn't grandfather anyone in. Suddenly, there were tons of overextended property owners who weren't overextended a year ago and nobody to buy or rent to. My father had about 40 rental houses at the beginning of 1985 and within 6 months 30 of his tenants lost their job. The Texas real estate market crashed... hard.

That's when the bankers did some of the most despicable things you could ever imagine. Lenders found out they could dump property to their friends in 3AM auctions, sue the current owner for the difference, and make up the difference by writing off the loss. Then there was a tax loophole that made it possible for them to not report the income if the original owner did pay up after the loss was written off. My dad has a whole slew of dirty practices they used but that's the only one that sticks out in my mind.

Turns out the state legislature wasn't too fond of how the bankers were handling things. This led to some tough ass restrictions on lending in Texas. The restrictions weren't that big a deal because the property values were so depressed from where they were and continued to be depressed for about 15 years after. There are still some really nice houses in decent neighborhoods maybe 30 minutes from Dallas to be had for under $100,000.

But I'm still not convinced those restrictions had as much to do with Texas not falling into the bubble as the depressed real estate prices there that have persisted since at least 1986 (admitting the two are not mutually exclusive).