The real estate drama on the Texan stage is worth noting for here the bust was much less severe. The houses were used by many across the country as ATMs during the housing boom years. Alyssa Katz, of New York University focusing on housing problems, feels that anyone thinking about how to prevent such drama in the future should find out in details what the residential house owners did in Texas rather than finding out what they failed to do.
In the Lone Star State less than 6% of the borrowers of house mortgages are in foreclosure although the national figure is 10%. The Case-Shiller index has indicated that in 20 metro regions the price of houses reached a peak in 2006 by doubling from what it was in 2000. In Dallas however it went up by 25% and since then there has hardly been any noticeable decline.
Katz opines there are many factors behind the buoyancy of the economy in Texas. Unemployment has been low – this being one of the reasons. But the secret is the constitution of the state that has placed limits on borrowing on home equity and refinancing by taking cash outs. In the latter a mortgage is taken for a higher balance than the existing one. There can be no doubt that this practice was largely responsible for the housing boom. It led to the delirious sub-prime mortgage holders with tainted credit and dubitable income levels sucking out their equity in order to go on a spending spree. It became a national malaise. Texas did not see much of this.
Katz said, “It’s the only state I know of that has loan-to-value restrictions” entwined in its constitution. Here borrowers can take loans up to 80% of the appraised value of the property. The state permits a potential borrower 12 days to reverse his or her decision after applying for refinancing.
In other states this question about refinancing has not been given a thought. However it has increased worries in lending circles as values of homes have plummeted and this has unplugged the game of using houses as an ATM. The mentality has switched from cash-out to cash-in. Freddie Mac observes that a third of all those who refinance during the last quarter of 2009 got new loans that would bring down their debts by reduction of the principal.

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