Texas Equity Lending Legalization Celebrating Its 10th Anniversary

Texas was a latecomer to the reverse mortgage game, with the product’s presence in the state now celebrating its 10th anniversary of the first loan being originated.
And while there has been widespread acceptance of reverse mortgages, there are still not the same options that are available to residents of other states. But product advocates are trying to change that.
Much of this disparity has to do with the state’s constitution and particularly its homestead provision.
Still, according to figures from Reverse Mortgage Insight, through July, 3,336 units were endorsed by the Department of Housing and Urban Development in the state year-to-date, making it the third largest. And while volume is off nationwide, the 25% decline in endorsements is the lowest among the top 10 states for Home Equity Conversion Mortgages.
“It has been an interesting trek for sure,” Scott Norman, president of the Texas Mortgage Bankers Association, commented on how the situation has gotten to where it is now.
It was in 1997 when the State Legislature first approved reverse mortgage and traditional home equity lending. But state law did not coincide with federal law, so while technically legal, there was no one willing to insure reverse mortgages, he said. The first loans were not originated until 2000.
So product supporters went back to the State Legislature in 1999, 2003 and 2005 for adjustments that would put reverse mortgage lending on the same playing field as other states. It is now going back again because a constitutional amendment is needed to allow the HECM for Purchase product.
Still, with that one exception, Norman notes a senior citizen living in Houston has access to the same reverse mortgage options as a senior in San Diego.
Since the 2005 changes, there has been significant growth in reverse mortgage lending in Texas. One of the reasons, he said, is the acceptance of any form of home equity lending in the state. The 2005 revision also allowed for the line of credit feature for reverse mortgage loans (instead of the lump sum payment). And there was growing consumer awareness of the product.
Another thing that is benefiting reverse mortgage lending in Texas today is that home values did not materially decline there until late 2007-early 2008 and by then reverse mortgages “almost became a staple” in the state, Norman said.
Since then, the market has come back in a significant way, he added.
The reason HECM for Purchase is not permitted in Texas is because the law treats reverse mortgages as a refinancing, Norman explained.
TMBA is working with the State Legislature to file a bill for the January 2011 session to change the constitution to allow reverse mortgages to be used as a purchase loan.
So far, the bill has seen early support for the bill. Besides TMBA, the Independent Bankers Association of Texas has come out in favor, and Norman says the bill is being shown to various industry and consumer groups.
It is still a long process and Norman states, “Amending the constitution should not be taken likely.” It will take approval by two-thirds of each house of the Texas Legislature before it goes on the ballot for approval.
Most of the people in Texas who are seeking reverse mortgages are using the proceeds to help pay for health care issues or for home improvements. There have been instances where the product is being used for foreclosure rescue.
Texas is an extremely young state right now. But over the next 20 to 30 years, Norman said major cities like Houston, Dallas, Austin and San Antonio are likely to double in size. This means Texas will become “a much grayer” state, he continued. The demographics mean it is likely to become the largest state, not only in terms of forward mortgages but reverse mortgages as well.
“Anybody who is in the reverse mortgage industry who is not looking at Texas as a very viable option is probably missing the point. The Texas industry will continue to outpace the rest of the country,” Norman declared, adding the catalyst being the growth of and aging of the state’s population.