Texas: The Housing Boom and Bust

Texas is one of the major states in the US apparently spared by the housing mortgage crisis which resulted into several housing foreclosures and borrower payment defaults. The Mortgage Bankers Association  states that among the 3 million plus mortgage borrowers in Texas, only a little less than 6% are facing foreclosures, relatively lower than the 10%  facing the same problem on the national average.  Places similar to that of Texas like Arizona and Nevada are facing foreclosures at 13% and 19% respectively. Perchance, Texas is also  host to the nation’s major home builders Centrex and D.R. Horton, both  of which contributed to the housing bubble crisis in the mid to late 2000. .

Furthermore, the sub-prime borrowers in Texas have better/lower foreclosure rate percentages than any of the other states save that of Alaska. This feat was brought about by the absence of  sudden surges in the prices of homes in Texas which unfortunately occurred  in many other states. Whereas resale prices  rose almost 100% among the 20 major US cities as indicated  in the Case-Shiller Home Pricwe Index, there  was only a meager 25% increase in Dallas.

But the mortgage phenomenon in Texas is essentially  based on sound lending policies initiated  by the Texans themselves. Basically , Texas never allowed exorbitant amounts of  “cash outs” to those who availed themselves of refinancing  and home-equity lending, a practice believed to have been  the cause of  the mid 2000 mortgage and financial crisis. In this regard, the Texan experience can even aid  lawmakers  in finding  ways and means to provide the necessary and safety loan  parameters for  borrowers.

In Texas, a borrower applying for  home refinancing  cannot be given a cash-out loan of more than 80% of ones existing home appraised value. Upon application, the borrower is given a 12-day period for loan reconsideration. And when the loan is approved , the borrower cannot pull out even a single cent . That’s as strict as they can get today even  as the practice began way back in 1845 when the Texas Constitution placed a definitive ban on home loans.

In  other states however, cash outs in refinancing can be taken at a  much higher rates than the appraised existing values of  home properties. To make matters worst, even borrowers with bad credit histories  are allowed to avail themselves of  high home equity loans  in a fashion similar to that of using their ATM  cards with ease,  during a mortgage boom when prices for Texas housing properties seemed to have risen too much for its own good.

Thus, according to  Scott Norman of the Texas Mortgage Bankers Association, the payment defaults and foreclosures are lower in Texas because of the 80% loan-to-value limit. And even the findings made by the Federal Reserve Bank of Dallas shed light on Norman’s claim. Another factor being considered is  the unemployment rate of Texas pegged at only 8.6%. But notwithstanding this factor and others which mitigate, the bottom line is that not much money was given out to Texans in loans as  compared with  the other states.  As a result, Texas got too little for too long  and  survived. The other  states got too much too soon and got busted  sooner than expected.

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