This is, you’ll note, essentially a limit on leverage. In this case, though, it’s not a limit on bank leverage, but on individual homeowner leverage. It’s a good example of how leverage is shot through our entire financial system, and how reining it in at one level can have a big impact on every other level as well.
But there’s more to Texas than just their regulation of HELOCs. State law also prohibits mortgage loans with prepayment penalties. And it prohibits negative amortization loans, where the principal you owe goes up over time because you’re not required to make full interest payments. There are also limits on balloon payments and requirements that mortgage lenders take into account the borrower’s ability to repay a loan. (Shocking, I know.)