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Texas Home Equity Restrictions Helped Housing Market Stay Afloat During Great Recession, Says Dallas Fed's Southwest Economy

For immediate release: August 29, 2013

DALLAS—The third-quarter issue of the Federal Reserve Bank of Dallas’ Southwest Economy includes articles on Texas’ home equity lending restrictions, the Hispanic wage gap along the Texas-Mexico border, Mexico’s fuel subsidies, and the impact of the Affordable Care Act on Texas businesses.

In “Did Home Equity Restrictions Help Keep Texas Mortgages from Going Underwater?” senior research economist and advisor Anil Kumar and business economist Edward C. Skelton say Texas’ unique law limiting home equity borrowing may have helped keep underwater mortgages and default rates from rising as much as they did in the rest of the nation during the Great Recession.

“By extension, lower default rates and fewer underwater homeowners might have also helped Texas avoid the subsequent sharp drop in home prices other states experienced,” the authors write.

The proportion of nonprime borrowers underwater in the other 49 states reached a high of 54 percent in 2011, while in Texas it peaked at 10 percent, the authors find. Mortgage debt among Texas underwater homeowners exceeded home value by an average 14 percent in 2008 compared with 32 percent for the rest of the country.

In “For Hispanics, Border Wage Gap Reflects Education, English Divide,” research analyst Christina English says improved English fluency and educational attainment could help narrow the wage gap between Hispanics and non-Hispanics on the Texas side of the Mexico border.

A hypothetical statistical analysis shows a typical, full-time Hispanic worker on the border with some college experience could realize up to a 38 percent gain in annual earnings to $46,000 from $33,000 by completing college, English finds.

Similarly, a full-time Hispanic worker on the border without a high school credential could see as much as a 72 percent earnings bump to $28,000 from $16,700 by completing high school, English states.

In “Getting Prices Right: Addressing Mexico’s History of Fuel Subsidies,” research economist Michael Plante and research analyst Amy Jordan find Mexico’s government fuel subsidies, intended to protect the poor from high fuel prices, have mainly benefited higher income groups.

Of the $15.9 billion Mexico spent on subsidies in 2011, about $15.4 billion went to higher income groups, the authors find, a steep cost to provide $500 million in aid to Mexico’s poorest.

A great majority of respondents who answered special questions about health care reform in the Dallas Fed’s Texas Business Outlook Surveys—77 percent—said they anticipate increased labor costs as a result of the Affordable Care Act, according to this issue’s “Spotlight” article.

In addition, 54 percent of respondents indicated they would adjust compensation structures to counteract new cost pressures associate with the act.

More than 260 Texas businesses in manufacturing, services and retail responded to the special questions in the outlook surveys.


Media contact:
Alexander Johnson
Phone: (214) 922-5288