How regulation saved Texas economy

[peejay 327]

How regulation saved Texas economy

By LOREN STEFFY, HOUSTON CHRONICLE

Updated 11:35 p.m., Thursday, August 25, 2011

Gov. Rick Perry's presidential bid hinges largely on the strength of the Texas economy, which, while far from miraculous in recent years, certainly shines against most other states.

Perry has told voters that as president he hopes to make government inconsequential, so he probably won't mention one of the key reasons that the Texas economy has held up so well: intrusive government.

Heavy-handed restrictions on the amount Texans can borrow against their homes were instrumental in shielding the state from the severity of the mortgage meltdown.

"There is no question that the home equity restrictions in Texas played a role during the boom years of mortgage finance," said David Frase, president of the Texas Mortgage Bankers Association.

In 1997, the Legislature decided to undo a 160-year-old prohibition on home equity lending, writing a constitutional amendment, which voters later approved, that contained unique restrictions to protect homeowners from getting overextended.

Loans were capped at 80 percent of a home's value. If the property has a mortgage, the combined debt couldn't exceed the 80 percent threshold.

Perry, who was then agriculture commissioner, supported the law, saying homeowners should be able to do what they want with their property. At the same time, he touted the lending cap as a consumer protection against the rise in foreclosures that critics predicted would come.

In other words, we eliminated a longstanding government regulation, yet we still adopted the most stringent restrictions in the country in allowing people access to their homes' equity.

"We can take credit for being wise and farsighted or we can count our stars for being lucky," said Jim Gaines, a research economist with the Real Estate Center at Texas A&M University. "It does seem to have mitigated some of the housing issues that have plagued other parts of the country."

Little incentive in Texas

As home prices began rising across the country in the early 2000s, eager borrowers sought to tap rising equity values. That triggered a rash of home equity borrowing and "cash out" financing, in which borrowers swapped their existing mortgages for those with higher balances, pocketing the difference. Many refinanced their fixed-rate mortgages for variable-rate notes at the worst possible time - as home values soared.

In Texas, though, with the 80 percent limit, there was little incentive to swap out of our existing fixed-rate notes.

"Where people in Southern California treated their homes like an ATM, the restrictions on home equity loans here prevented that boom from materializing in Texas," Frase said. "That had a role in keeping things sane."

As home values declined, borrowers in other states who'd added debt through equity loans and cash-outs suddenly found their homes were worth less than they owed on their notes, and to make matters worse, their variable rates were increasing, driving them further underwater.

In Texas, borrowers who had home equity loans still had a mandatory 20 percent equity cushion against falling values. Some homes, of course, lost more than 20 percent of the their value, leaving borrowers underwater.

"Texas is not immune from having homeowners upside down on their mortgages," Gaines said.

Far below U.S. average

But we have fewer of them than other populous states. About 10 percent of Texas mortgages had negative equity as of March, according to CoreLogic, a market research firm. That's well below the national average of 23 percent, and far better than states such as California, with 31 percent, and Florida, with 46 percent.

In other words, far from being inconsequential, the law worked. Perry will no doubt focus on other factors in Texas' economic success - low taxes, weak regulation, job growth.

Those all helped, but without the government's intrusive restrictions on home equity lending, the Texas economy would look a lot less miraculous.

http://www.chron.com/business/steffy/article/How-regulation-saved-Texas-economy-2141745.php

[Mr. Big Dog 10,747]

Communist Propaganda! Everyone knows that regulations are always bad. Always. That is why our economy and our economic outlook is so much better now after much regulation has been repealed over the past couple of decades. Same goes for taxes. Cut them, cut them again and then cut them some more and you'll have more jobs than you'd ever need. We've done that for well over a decade now and see how rosy our employment picture is.

[Ironman140 45]

Regulations have been cut over the last decade ???

What country you talking about China ???

Because you can't mean the USA.

From Oil to light bulbs the regulation death grip continues to tighten.

GE can build jets in china , but Boeing can't build is SC

Communist Propaganda! Everyone knows that regulations are always bad. Always. That is why our economy and our economic outlook is so much better now after much regulation has been repealed over the past couple of decades. Same goes for taxes. Cut them, cut them again and then cut them some more and you'll have more jobs than you'd ever need. We've done that for well over a decade now and see how rosy our employment picture is.

[Obama 2012 1,714]

of course the lefties will ignore the fact that this 'regulation' was approved by the people of the state of Texas. It was not imposed by Government.

[Mr. Big Dog 10,747]

Regulations have been cut over the last decade ???

What country you talking about China ???

Because you can't mean the USA.

From Oil to light bulbs the regulation death grip continues to tighten.

GE can build jets in china , but Boeing can't build is SC

Of course I mean the USA. Where have you been?

Wall Street crisis is culmination of 28 years of deregulation

Many banks at the time were badly wounded by their personal and financial ties to securities trading. The 1933 Glass-Steagall Act, and later the 1956 Bank Holding Company Act, mandated the separation of banks, insurance companies and securities firms.

Those and many other federal laws stabilized the banking and securities markets, but by the 1970s, a stumbling U.S. economy led to a change in America's political-economic values. Ronald Reagan led a movement that came to power in 1980 proclaiming faith in free markets and mistrust of government. That conservative philosophy has dominated America for the past 28 years.

Even after taxpayers had to rescue deregulated savings and loans, or S&Ls, with a $200 billion bailout in the late 1980s, the push to loosen regulation paused only briefly.

In 1999, President Clinton signed the Financial Services Modernization Act, which tore down Glass-Steagall's reforms by removing the walls separating banks, securities firms and insurers.

Light bulbs? Who gives a **? Light bulbs haven't and won't ever ruin the economy. Financial deregulation did. Big time. Light bulbs. Pfft.

[Ironman140 45]

Of course I mean the USA. Where have you been?

In the land of regulations and Taxs Illinois of course

Light bulbs may not, but the mercury in the new floruscent ones scare me into a dizzy. Just ask the EPA

Light bulbs? Who gives a **? Light bulbs haven't and won't ever ruin the economy. Financial deregulation did. Big time. Light bulbs. Pfft.

Edited August 26, 2011 by Ironman140

[Obama 2012 1,714]

Light bulbs? Who gives a **? Light bulbs haven't and won't ever ruin the economy. Financial deregulation did. Big time. Light bulbs. Pfft.

Yup, glad someone else is pointing out it's the fault of Clinton and not B00000000000SH.

[Mr. Big Dog 10,747]

Yup, glad someone else is pointing out it's the fault of Clinton and not B00000000000SH.

Absolutely. The repeal of Glass-Steagall was a huge mistake and arguably the last nail in the coffin.

[mawilson 2,133]

Blame Steven Seagal.

[Mr. Big Dog 10,747]

Blame Steven Seagal.

[one...two...tree 2,762]

Light bulbs may not, but the mercury in the new floruscent ones scare me into a dizzy. Just ask the EPA

Right. You're more worried about the mercury in flourescent lighting, which for the record, has been around for more than 40 years, but you're quite content with GW Bush removing the the regulations on industrial mercury levels. Oh the irony.

[Ironman140 45]

Right. You're more worried about the mercury in flourescent lighting, which for the record, has been around for more than 40 years, but you're quite content with GW Bush removing the the regulations on industrial mercury levels. Oh the irony.

Worried? I love it making me nothing but $$$$

Waste and hazmat is my line of work. The more regs the more work for me. ;-)

[one...two...tree 2,762]

Worried? I love it making me nothing but $$

Waste and hazmat is my line of work. The more regs the more work for me. ;-)

I know you're trying your best to be sarcastic, but really, you've just validated the economic benefits of regulations. While some may feel a pinch economically from regulations, obviously you are someone who benefits. So why bite the hand that feeds you? Is this like saying, "Guvmint keep your dirty hands off my Medicare?"

[Ironman140 45]

Tell that to all the mom and pop businesses that are swallowed up or have disappeared because of Goverment regulations. Or big ones like caterpillar who quit making engines because they can't meet the mandates

I know you're trying your best to be sarcastic, but really, you've just validated the economic benefits of regulations. While some may feel a pinch economically from regulations, obviously you are someone who benefits. So why bite the hand that feeds you? Is this like saying, "Guvmint keep your dirty hands off my Medicare?"

[one...two...tree 2,762]

Tell that to all the mom and pop businesses that are swallowed up or have disappeared because of Goverment regulations. Or big ones like caterpillar who quit making engines because they can't meet the mandates

So you become a bleeding heart when it's these so-called mom and pop business hurt by regulations, but turn a blind eye when it's corporations that run mom and pop businesses out of town. Keep up with the irony, it's giving me a good laugh.