Texas only allows 1 equity mortgage on a property. I am curious about the current impact and will be interested to see the future impact on investment and vacation real estate.

I did a cash out refinance a number of years ago when rates were low. I was looking to set up a HELOC to potentially help with second home down payment.

My current home equity is now essentially locked up as it would take a first lein refinance to drop the equity label, and the rate differential makes that impractical.

Hopefully good news if looking for prices to drop more on these types of homes.

Just went down the same path as you. Rates would need to come down quite a bit for it to make sense. I don't think that's going to happen.

bigtoneag said:

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Just went down the same path as you. Rates would need to come down quite a bit for it to make sense. I don't think that's going to happen.

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I mean.. it won't be a good thing for the economy, financial conditions, or future inflation, but the FED is backed into a corner. If we see another event with serious CRE / banking failures, the FED will first try to slash rates. If that doesn't work they will print. So technically, it absolutely can happen. But you would be borrowing from your future (home equity which would appreciate) to pay for your hyperinflating lifestyle.

Growing wealth, cash flow, and success is rewarded by many things, including the luxury of inflating my lifestyle. It's unfortunate when a state law arbitrarily eliminates the least productive asset I have as a source of funding. So now, if I want to buy a second home, I have to liquidate other, significantly better performing assets to redeploy into another asset.

The laws are intended to protect home owners from losing their home.. in reality, the people at risk of that are the most harmed as rates have risen and they find out it takes an
administrative first lein refinance at likely significantly higher rates to be able to do that. So the law doesn't stop it, it just ironically makes it extremely punitive in this environment to do so. Mortgage companies for 2+ decades have made a ton of money churning clients by selling access to equity by refinancing the entire loan every time they needed money. So it doesn't protect homeowners when rates are in decline, and it hamstrings them once rates rise.

It's a law that needs to be revisited. Lower the LTV threshold if you want to protect owners. This is just a poorly thought out regulation.

In my situation, I'm not talking about paying off credit cards, but there are plenty of people who need to do just that.

I did email my state rep... Maybe they'll think about it?

cjsag94 said:

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Growing wealth, cash flow, and success is rewarded by many things, including the luxury of inflating my lifestyle. It's unfortunate when a state law arbitrarily eliminates the least productive asset I have as a source of funding. So now, if I want to buy a second home, I have to liquidate other, significantly better performing assets to redeploy into another asset.

The laws are intended to protect home owners from losing their home.. in reality, the people at risk of that are the most harmed as rates have risen and they find out it takes an
administrative first lein refinance at likely significantly higher rates to be able to do that. So the law doesn't stop it, it just ironically makes it extremely punitive in this environment to do so. Mortgage companies for 2+ decades have made a ton of money churning clients by selling access to equity by refinancing the entire loan every time they needed money. So it doesn't protect homeowners when rates are in decline, and it hamstrings them once rates rise.

It's a law that needs to be revisited. Lower the LTV threshold if you want to protect owners. This is just a poorly thought out regulation.

In my situation, I'm not talking about paying off credit cards, but there are plenty of people who need to do just that.

I did email my state rep... Maybe they'll think about it?

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I mean I think it's silly but see the reason behind it. I do believe there should be a time frame around the limitation. I also agree that LTV thresholds should limit the need for the limitation, despite the fact that your last refi may have been a cash out refi.

But not sure about what I bolded above as being a valid argument.....HELOC isn't really a solid solution if you are at risk of losing your home, IMO at least....Not sure that taking an extra loan out at a 9% rate is the best path for someone who can't afford their current mortgage....

Also, can be easy to get annoyed about arbitrary laws but not acknowledge the entire reason rates are as low as they are (even today) is because of government backing of loans....

Godspeed! Love to have the silly law changed. Believe it or not it used to be worse in that it it used to be once a cash out always a cash out up until maybe 5 years ago. Of course the ability to access equity with a second mortgage was not legal in Texas until about 2001 if I recall.

Jay@AgsReward.com said:

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Godspeed! Love to have the silly law changed. Believe it or not it used to be worse in that it it used to be once a cash out always a cash out up until maybe 5 years ago. Of course the ability to access equity with a second mortgage was not legal in Texas until about 2001 if I recall.

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It seems to be it's been somewhat irrelevant since the early 80s because rates kept going down and refinancing the entire mortgage was theoretically advantageous.

The irony, in trying to protect homeowners, you had people refinancing back to 30 years every at the current 80% LTV every time they needed to access equity, and it created behavior that did more harm than good for the average borrower.

If you want to protect home owners, adjust LTV ratios, limit extending loan term with a refinance, something along those lines.. current rules don't seem to protect anyone.

If you are diligent and pay your house down to 50% LTV let's say they limit you to 80% when accessing equity but if you're marginal and can only pay 3% down bring it all day.

You can do a 2nd Lien HELOC even if your 1st Lien is a cash out.

Not in Texas. Only have one cash out at a time. Other states, yes, but not Texas.

This.

"But not sure about what I bolded above as being a valid argument.....HELOC isn't really a solid solution if you are at risk of losing your home, IMO at least....Not sure that taking an extra loan out at a 9% rate is the best path for someone who can't afford their current mortgage...."

I agree.. but the law allows you to do this, just requires a full refinance of the entire first lien to get the cash. So a desperate person who needs to access some equity to avoid losing what they have are forced to refinance the entire loan plus equity to 7%+ instead of just the equity portion via LOC or other cash out vehicle at a slightly higher rate, which could then be paid off on a quicker timeframe.

I have a meeting with Texas Representative for my district set for May 6th... If anyone has any more anecdotal tales from the past to share, send them my way!

I would guess our hypothetical homeowner who is at risk of default would be screwed either way, as they wouldn't clear the DTI requirements for a HELOC or refi.

Diggity said:

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I would guess our hypothetical homeowner who is at risk of default would be screwed either way, as they wouldn't clear the DTI requirements for a HELOC or refi.

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It's certainly irrelevant to the worst cases.. but there is a wide margin of people who need out of a temporary bind by accessing equity that would be blocked (or in my case, opportunistically accessing home equity versus other higher performing assets). Guess that's the point, DTI and LTV should be all the restrictions that are needed, but regulators think they did something helpful by blocking any and all borrowing scenarios based on any already existing loan ever involved cash out.

It applies only to Texas.

I refinanced when rates were down a few years ago and we had a pretty small home equity loan still outstanding. We did a cash out refiance and I did not fully understand what that was or the ramifications of not being able to do another equity loan on the property. It wasn't explained to me very well but it is ultimately my dumb move, hence the user name.

It is a little frustrating knowing I have a lot of equity in the house that I won't be able to tap into because we have a once in a lifetime rate.

High Functioning Moron said:

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I refinanced when rates were down a few years ago and we had a pretty small home equity loan still outstanding. We did a cash out refiance and I did not fully understand what that was or the ramifications of not being able to do another equity loan on the property. It wasn't explained to me very well but it is ultimately my dumb move, hence the user name.

It is a little frustrating knowing I have a lot of equity in the house that I won't be able to tap into because we have a once in a lifetime rate.

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Im in the exact situation as you.

Refied when rates went low to pay off the pool loan... not knowing I could never get a HELOC.