House Banking Committee Chairman Henry Gonzalez, D-Texas, flexed his muscle to get an amendment of his included in the banking bill that overturns a federal appeals court ruling and reinstates a Texas prohibition on home equity loans. Gonzalez, ever the populist, feared banks would use the district courts ruling to get consumers needlessly and recklessly in deep debt and, as a result lose their homes.
Robert Harris, president of the Texas Bankers Association, chastised Gonzalez for his action. Its a sad day for Texans when a politician in Washington can dictate to people here what they can and cant do with their own assets, Harris said.
If he had just talked to us, we could have assured him of consumer safeguards, he said.
Harris cited a litany of such safeguards that have already been discussed as part of legislation to change the state constitution to allow home equity loans that the association had already intended to push in the Texas Legislature next year.
Gonzalez's amendment ensures a legislative battle will take place. Ironically, at press time an interim study committee of the Texas Legislature was concluding its sixth and final hearing on the issue of changing the constitution to allow equity loans. Were right back where we were on April 28, but our mission is clear, Harris said. Meanwhile, financial institutions are still having to hold their breaths.
We remain strongly opposed to Rep. Gonzalez's amendment and we think that approval of the amendment will deny residents of Texas home equity-based credit, which could have been used for a variety of needs, including education, small business financing, medical expenses and a source of liquidity in times of emergency, said Robert Schmermund, director of public affairs at the Savings & Community Bankers of America in Washington.
Gonzalez's amendment, which became a new subsection of the Home Owners Loan Act to bar federal law from preempting any states homestead statutes, was accepted by House and Senate conferees July 25. It reverses the April 29 decision by a 5th U.S. Circuit Court of Appeals panel in New Orleans, First Gibraltar vs. Dan Morales, attorney general of Texas (93-8170), that overruled a lower courts decision to allow an Office of Thrift Supervision regulation to pre-empt the homestead provisions in the Texas Constitution that prohibit reverse mortgages.
Although its possible, there's little chance Gonzalez's amendment will be excised prior to passage of the banking bill by both houses of Congress.
Upon learning of the appeals courts ruling in early May, thrifts in Texas were enthusiastic about being able to offer new equity product lines, but they were also realistic enough to understand that they ought not begin spending any money on product development until all the legal hurdles were cleared. The attorney general had indicated that he would appeal the appeals courts ruling.
A spot check by Mortgage Marketplace following that ruling found those thrifts aware of the courts decision were not planning to offer equity loans soon, instead preferring to wait to see how the controversy would ultimately shake out.
Texas bankers chimed in by saying they intended to launch a full court press to win parity with thrifts and finance companies in the ability to offer reverse mortgages and home equity loans, since the appeals courts decision effectively applied to thrifts only.
It was this onslaught by the banking industry in Texas that provoked Gonzalez's ire. He feared that banks and mortgage companies would rush out to offer equity loans and lines of credit to people who either didn't need them, or do not understand how they work or what the risks are.