The pending legalization of home equity lending in Texas could be the biggest thing to happen to the mortgage industry since credit scoring, experts say.

Untapped home equity loan demand in the Lone Star state could be as great as $200 billion, according to some industry estimates.

"Homeowners there are just dripping in equity," said Mark Stabile, vice president of lending at First Finance, a Bloomfield Hills, Mich., company that specializes in refinancing packages, offered through the mail, that allow the borrower to borrow more than the value of the loan. "We're just going to turn on the television advertising" there and watch the loans roll in, he said.

But lenders will have to wait until November to get out of the gate. That's when voters are expected to approve a referendum placed on the ballot by the state Legislature that would make home equity loans legal for the first time in Texas.

If the measure passes as expected, "mortgage brokers are going to swarm in" to the state, said Katrina Blecher, an analyst at Gruntal & Co., New York. Some finance companies, like Associates First Capital Corp. are already well positioned to make home equity loans in Texas, she noted; Associates has 64 retail branches in the state.

First Finance's Mr. Stabile plans to concentrate on rural areas, he said. With many lenders expected to flood the Dallas and Houston markets, "the more rural, the better for us," he said. "We're looking for less competition."

News about legalization in Texas comes as activity in the home equity industry reaches a feverish pitch. During the past two years, companies that specialize in second mortgages and debt consolidation loans for customers with poor credit have gone public at a breakneck speed-boosted by credit scoring, which helps them identify potentially profitable customers among people with less than sterling credit.

Originations at these companies have skyrocketed, while banks have shuffled back and forth between buying in and bailing out of the high- yield, high-risk market.

Those who are in the industry full-time swear by it.

"I don't think you can be a successful large bank and not be in the home equity business in some way," said James E. Maynor, acting president of First Union Home Equity Bank.

The concept of borrowing on the equity in your home has become more popular in recent years as consumers learned more about it, Mr. Maynor explained. And they are realizing that replacing credit card debt with a lower-interest, tax-deductible home equity debt is a "smart financial decision," he said.

But some observers warn that the business has been growing a little too fast.

"The fact that the initial public offering window has closed will be the saving grace of this industry," Ms. Blecher said. "Slowing growth and consolidation will be very healthy."

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