Texas bankers are celebrating the passage of legislation that could free up $100 billion-plus of home equity lending possibilities.

Backed by some of the nation's largest banking companies, the Texas Legislature passed a joint resolution Thursday that would let banks-for the first time in more than 100 years-offer general-purpose home equity lending products to consumers.

The measure is expected to go before Texas voters in a statewide referendum in November.

Because of a series of restrictions and consumer protection measures added to the bill, some bankers are finding it hard to revel in finally overcoming the century-old ban.

But others are salivating over the lending possibilities. The Texas comptroller estimated last year that the total equity in Texas homes was $123.4 billion. Of that amount, the comptroller estimated that the potential home equity lending market in Texas could total $8.6 billion.

"Not everybody there uses home equity, but a little bit of $123.4 billion is a lot," John De La Garza Jr., a NationsBank Corp. vice president for government relations, said in an interview preceding the vote.

NationsBank, which entered Texas in 1988, is one of a cadre of banks that have long sought the measure; others include BankAmerica Corp., Compass Bancshares and Chase Manhattan Corp.

The home equity lending prohibition in Texas is grounded in statutes dating back to 1839 designed to protect homeowners from losing their properties through foreclosure. The protections have remained part of a Texas homestead law and have effectively blocked banks from taking second liens on property.

Under the Texas Constitution, lenders can only foreclose on a home for nonpayment of a first mortgage, property taxes, or debts incurred to improve the property.

The limits shut the door on the use of equity for the wide range of uses allowed in other states, such as education, business start-ups, medical expenses, debt consolidation, and large purchases.

"You can build a spa, but you can't send your kid to college or pay medical bills or something like that. That is what is so ironic about it," said Debbie Siegfried, senior vice president of public affairs with the Texas banking subsidiary of Chase Manhattan.

To be sure, backers of the legislation that passed Thursday still need voters' approval in November. But the Texas Conference for Homeowners Rights, a group formed in 1992 that represents 60,000 homeowners and several business groups, believes the measure has a strong chance; a statewide poll conducted last fall by an independent research group found 72% of Texans were in favor of loosening home equity restrictions.

Still, many bankers who were optimistic at the start of the legislative session in January are not only battle-worn, but discouraged. The legislation they finally won is so weighed down with restrictions as to make general-purpose home equity lending a rare occurrence, said Ms. Siegfried.

Among the items of concern to bankers is a stipulation that total housing debt can't be more than 80% of the value of home; a prohibition against lines of credit; a requirement that the equity loans be nonrecourse; and a 12-day waiting period between the time an individual fills out an application and the time a loan is closed.

Despite the restrictions, Robert W. Norcross Jr., president of the Texas Conference for Homeowners' Rights, sees the bill's passage as a break in the "psychological barrier" against home equity lending in Texas.

"Maybe six to 10 years down the road after the public struggles with a law that won't let them do what they want to do then they'll go back and change it," he said. "It's got to be an evolutionary process. You can't just turn on the light switch."

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