Commentary

At a time when Texas is a target of national ridicule for a governor flirting with talk of secession, a state board of education demoting Thomas Jefferson, and a congressman shouting on the floor, “It's a baby killer” as a strong opponent of abortion spoke at the podium, it is refreshing to read in a national report this sentence about the economic disaster caused by a real estate bubble:

“If there's one single thing that Congress can do now to help protect borrowers from the worst lending excesses that fueled the mortgage and financial crises, it's to follow the Lone Star State's lead.”

Of course Alyssa Katz, a real estate expert who wrote those words for Slate Magazine, had to begin her piece with a bit of attitude: “It's one of the great mysteries of the mortgage crisis: Why did Texas — Texas, of all places! — escape the real estate bust? Only a dozen states have lower mortgage foreclosure and default rates, and all of them are rural places like Montana and South Dakota, where they couldn't have a real estate boom if they tried.”

Some political leaders happily take credit for Texas, which led the nation in the savings and loan debacle of the late 1980s but these days looks like it primly declined an invitation to an orgy.

I know you don't believe the politicians, and you're right. The credit for our virtue belongs to a dedicated group of — are you ready for this? — lobbyists.

Let me set the scene.

It was 1997, nearly the beginning of the 21st century, and a lot of Texans felt that it was about time we joined the 20th century when it came to allowing people to borrow against the value of their houses. Scarred by unscrupulous bankers in the 19th century, the framers of our state constitution had banned the practice as a way to keep innocent residents from losing their homes. Texas was, by 1997, the last state in the union to bar home equity loans.

There were good arguments for joining the rest of the country. Philosophically, it was an issue of property rights. You should be able to take advantage of the unpledged value of your house.

Financially, it was a no-brainer. The interest on second mortgages was a lot lower than that on credit cards or other unsecured loans. What's more, the interest was tax deductible.

The Realtors' role

Helping the legislators appreciate these arguments was the powerful lobby for the state's big banks, nearly all of which were national banks that were acutely aware of how much profit they were losing.

But on the other side was an even more powerful lobby — powerful because it was generous to legislators, but also because the legislators “see them in the grocery stores, at the Lions' Club, at church or synagogue. We don't recognize the bankers anymore.”

The speaker was Steve Wolens, the former Democratic representative from Dallas who carried a bill for the Realtors' lobby.

The lobby had always opposed any bills allowing home equity loans.

So did the Farm Bureau, but the Realtors realized they couldn't keep the door completely shut.

Their concern: If people borrow too much against their houses, when the economy goes south foreclosures soar, prices sink and a lot of people are into misery.

Also, Realtors make a lot less money.

So they pressed for and won safeguards. The most important was that homeowners can only borrow against 80 percent of the appraised value of their homes.

In California and some other states, they can borrow more than their homes' values.

The bankers hated these restrictions, but their bill lost to Wolens' bill, which was brought to him by the Realtor lobby.

Written into Constitution

In the Senate, Republican Jerry Patterson of Pasadena (now land commissioner) was one of the key backers. He wanted the bill to be more liberal but went with Wolens' bill — and had to add even another consumer protection element to get the final vote he needed, from then-Sen. Gonzalo Barrientos of Austin.

What's more, all the protections were written into the state Constitution, making it hard for legislators and lobbyists to quietly sabotage them.

The result is that Texas didn't join the disastrous, equity-loan abetted, bubble-blowing frenzy of much of the rest of the nation.

rick.casey@chron.com
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