Texans Push to Lift State Ban on Using Home as Collateral for Loan

FERN ROGERS would not be going to a nursing home if she lived in any state but Texas. The 86-year-old widow would be able to take out a home equity loan (HEL) for living expenses and in-home care.

But since 1876, the Texas constitution has outlawed encumbering ``homesteads'' with any debt except a first mortgage, a home improvement lien, or a tax lien. Although intended to protect homeowners, the constitutional provision is having the opposite effect on Mrs. Rogers. She must sell the Fort Worth house she has occupied her whole married life in order to unlock thousands of dollars in equity she now needs. ``It's not a pretty picture,'' says Judy Haskell, Rogers's daughter.

The picture will change for all Texans if an alliance of lending institutions has its way. The Texas Conference for Homeowners' Rights wants the constitution amended to permit loans against Texans' home equity of more than $100 billion. ``It's a good loan,'' says Robert Harris, president of the Texas Bankers Association. A pro-HEL report by the Federal Reserve Bank in Dallas found that those loans have a far lower delinquency rate than any other kind, even in depressed areas like California.

But HELs will not be available in Texas any time soon. The bienniel Legislature convenes again next January. Any amendment it passes will have to be subsequently ratified by voters. A previous attempt failed during the 1993 session. State Sen. Jerry Patterson (R), who carried the HEL bill, says he had the votes necessary to move it out of committee. But the chairman never let the members vote on it. ``Basically, [the chairman] had a bone to pick with bankers,'' Senator Patterson explains.

Patterson says he will again sponsor legislation to legalize HELs. This time he will not face opposition from the committee chairman, who did not run for re-election. But he can expect plenty of anti-HEL lobbying.

Charles Betts, a spokesman for the Texas Association of Realtors, says his group opposes giving lenders the ability to require borrowers to put up their homes as collateral.

SUSANNAH GOODMAN, a legislative advocate in Washington for the Ralph Nader group Public Citizen, says homeowners outside Texas have been scammed into taking on too much debt and many have lost their homes. Public Citizen helped to design the ``Home Equity Protection Act,'' which attacks abusive lending practices but leaves HELs legal. The bill has cleared the United States Senate and is being carried in the House by Rep. Joseph Kennedy (D) of Massachusetts.

With 1.9 million members, the Texas chapter of the American Association of Retired Persons (AARP) is potentially the most influential player. The national organization favors HELs, but Texas AARP spokesman Tim Simmons says the state chapter is likely to ``take a no-stand'' next session because state membership is divided on the issue.

Marilyn Black, a retired airline employee, says seniors mistakenly believe that changing the law will also end the protection in the state constitution against a tax increase on their homes during their lifetimes.

HELs bear a lower interest rate than other forms of consumer credit. Mortgages, including HELs, are the only consumer debts whose interest is tax deductible. That means HELs could save Texas homeowners an average of $443 to $544 a year, or $1.7 billion to $2.1 billion combined, according to a 1992 study sponsored by the pro-HEL savings and loan industry.

If HELs were available in Texas, a followup study says, 456,000 Texans would borrow $8 billion. One-half would be used to consolidate debt, and the remaining $4 billion would go to consumer spending in a one-time economic stimulus. An economic ripple effect would multiply the spending to almost $14 billion, creating 200,000 jobs. The state and local governments would collect $205 million in taxes.

Texans would also use HELs as funds for business ventures that might create jobs. Economist Ray Perryman says HELs are the No. 1 source of capital for starting businesses nationwide.

Mr. Harris of the Texas Bankers Association says the proposed HEL legislation would still be the most restrictive in the country.

Homeowners would only be allowed to borrow 60 percent of their equity, compared with 100 percent elsewhere. They would have 18 days in which to change their minds about taking out the loan. They would be allowed just one HEL at a time.

Lenders would not be allowed to call in the loan just because the market value of a home declined. And lenders would not be allowed to demand that potential borrowers pledge their homes as additional collateral in unrelated transactions.