AUSTIN, Texas -- A 19th Century fear of carpetbaggers, banks and big business still has a grip on the family purse strings in Texas -- the only state in the nation whose residents cannot borrow on the equity in their homes. A growing property rights movement tried to rescind the state constitution's 120-year-old ban on home equity loans in the last legislative session, but the effort failed. Both sides are already gearing up for another battle in 1997. According to a study by the Unversity of Texas graduate school of business, Texans have a combined $116 billion built up in home equity. But under the state constitution, that equity cannot be used as collateral for personal loans or second mortgages. Those who want to change the law argue that Texans should be free to use the equity in their homes to start a small business, send their children to college or in any way they see fit. Public interest groups say the law is an important consumer protection against unscrupulous lenders. The homestead exemption was written into the Texas Constitution in the 1870s, thanks in large part to the Grange Movement spurred by rural Texans wary of banks, big business and Northern carpetbaggers who came South after the Civil War. A growing number of private citizens and lawmakers have now joined banks, mortgage lenders and other institutions that say the law is outdated and should be repealed. 'It's no longer a lender's issue. It's become a property rights issue,' said Mark Huckabee, president of the Western National Bank in Lubbock and chairman of the Texas Conference for Homeowners' Rights.
'Homeowners are saying, 'it's my equity and I want to control it as I see fit.' But Tom Smith, executive director of Public Citizen Texas -- a consumer rights advocacy group -- said current law is necessary to protect homeowners from lenders. 'The loan companies will begin to require homes as collateral on notes that used to be based simply on the credit history of the applicant,' Smith said. 'Folks will find they are unable to get business and personal loans only if they put their home up. What will occur (is) Texans will end up posting their homes for kinds of credit that they would not have otherwise gotten.' Smith said the bill that failed in the Legislature would have allowed pawn shops and other lenders that make loans under $10,000 to take private homes for collateral. He said another fear, particularly among advocacy groups for the elderly, is that people will put up their homes to get money for living expenses, then find that they cannot make the payments and lose the home. Huckabee said such claims are emotional and irrational. He said lending institutions are not interested in taking peoples' homes, and that homeowners in other states have a good record in repaying second loans. 'I make mortgage loans every day. The very last thing I want to do is take someone's home through a foreclosure,' he said. 'If I thought it was going to lead to more foreclosures, I'd be against it. But the facts simply don't back up those kind of emotional arugments.' State Sen. Jerry Patterson, R-Houston, who sponsored the equity loan bill, said people have a right to the equity in their homes and should be free to fail or succeed with the decisions they make. 'This is the single most important property rights issue before the Legislature in 20 years,' he said. 'People should be able to do as they see fit. Is lending money a way to rip people off? That's the basic premise here. If that's true, we should have a prohibition on any kind of loan.' Patterson said he will make the issue a top priority in the 18-month interim before the next legislative session. 'It will pass (next time). It is my interim crusade,' he said. 'I'm going on the chicken dinner circuit. It's a crusade. We will win.' Smith said the outcome will depend on what happens in the 1996 elections. 'Hopefully the Legislature will continue to be careful about stripping away this important consumer protection law,' he said.