Austin Real Estate (Unnamed Copywriting) 7 of 10

Nationwide, the average home price has decreased by more than 20%. So, why is it that Austin and Central Texas Real Estate values have not only performed better than that, but are actually on the rise? To find out, we need to look a little closer into the whole situation.

Our current national mortgage crisis can be blamed on quite a few different factors. Loss of jobs has played a large role, causing homeowners to fail to be able to afford their mortgage payments. Another large contributing factor were large Wall Street firms selling mortgage backed securities to everyone that they could. But, one of the biggest problems was the sub-prime lending epidemic.

The history is pretty easy to look at, and from certain angles, a lot of the actions that brought us here made a lot of sense at the time. Prior to sub-prime lending, there were really only two major types of loans: Conventional loans and government backed loans.

The way these loans worked was that in both cases there was a large central organization that dictated the lending guidelines. Then smaller banks across the nation could offer direct to consumer loans, and as long as they were within the guidelines of the main organizations, these larger organizations, like Freddie Mac, Fannie Mae, and the Department of Housing and Urban Development, would then insure the loans, basically backing the performance of the loans.

Because of this insurance, these became incredibly safe instruments for investment. They had proven track records of performance, and whenever changes needed to be made to the guidelines, they were made on a national level. Because of this, lenders would group large chunks of mortgages together and sell them on the secondary market as secured bonds. This is the way it was for years and years, and in fact, still is.

But, this was too tempting for other lenders, which is where sub-prime lending came from. Basically, sub-prime loans acted in the exact same manner. Large banks grouped together large numbers of mortgages and sold them on the secondary market, but as asset based securities, instead of bonds. They sited the success of FHA loans and Freddie and Fannie loans as proof that these were good investments as well. But, the problem was that there was no centralized governing body that was in place to create guidelines to ensure good performance. Every small bank made up their own approval guidelines and then turned around and sold the loans. The results were disastrous, as these mortgage backed securities failed at record pace.

So how was Texas spared? From day one of the sub-prime fiasco, Texas was one of the few states that imposed its own very strict lending guidelines on a state level. It seemed as though the rules that the banks themselves were not willing to impose were imposed by the state itself. It limited prepayment penalties, limited the amount of fees that were allowed to be charged, and for the most part, barred outside lenders from operating within the state. At the time these were radical ideas, but are now quickly becoming the norm across the nation.

The result of these decisions has been a boon to Austin, and Texas as a whole. Unlike the rest of the nation, our home values have held with minimal loss. There are much fewer homeowners in Texas stuck in predatory loans and facing foreclosure. Texas remains a wonderful place to own real estate.