Putting to a vote to let Texans decide whether the state Constitution should be changed to allow homeowners to borrow against the equity in their homes was unanimously recommended July 29 by a three-member interim Senate Committee on Home Equity Lending.

The panel voted to recommend to the full Senate "that it pursue legislation that would create a ballot proposition to allow the people of Texas to vote to amend the Texas Constitution in a manner that would preserve the homestead protection but would allow Texans by their voluntary action to encumber their home with a second mortgage."

The committee is circulating draft legislation for comment.

The decision of the panel came just days after House Banking Committee Chairman Henry Gonzalez, D-Texas, battled to include a Texas ban on home equity loans in the House interstate branching bill that passed Aug. 4, and which remained in place when the Senate passed the bill Sept. 13.

Gonzalez's maneuvering had reversed the April 29 decision by a 5th U.S. Circuit Court of Appeals panel in New Orleans that overturned a lower court's decision to allow an Office of Thrift Supervision regulation to pre-empt the homestead provisions in the Texas Constitution that prohibit reverse mortgages.

Gonzalez clearly was aware that his action would force the debate into the state arena. "I am not trying to close the door on this debate," he said. "I believe the legislature will certainly take up the matter again next year."

The following are provisions in the draft legislation that is fully expected to be taken up by the 1995 Texas legislature:

* Only one home equity loan per homestead could be outstanding at a time;

* The principal amount may not exceed 70% of the net equity on the home when the loan is made;

* The debt-to-market ratio may not exceed Solo of the fair market value of the home when the loan is made;

* Prohibition on the use of any property other than homestead property as collateral;

* A lender could not accept or re quire homestead property as collateral on any debt which is not for purchase money on the homestead, home improvement, taxes, or a equity loan;

* Lenders would be required to provide specifically worded notices to the borrower when the loan is requested;

* A cooling-off period of 15 calendar days between the time the borrower applied for the loan and the time the loan may be closed;

* The loan could not be closed in the borrower's home;

* Lenders prohibited from accepting an assignment of wages as security; and,

* Homesteads would continue to be protected from foreclosure by non-real estate creditors who get a legal judgment against the debtor.

"This is the most significant positive move on this issue since the first introduction of a home equity lending bill 15 years ago" said Mark Huckabee, chairman of the Texas Conference for Homeowners, Rights and president and CEO of Western National Bank in Lubbock.

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