Abstract: This study analyzes the performance of Texas commercial banks specializing in mortgage lending during the late 1980s and early 1990s to investigate how representative was their experience as compared with that of banks across the country concentrating in real estate lending. The results show that Texas real estate banks (REBs) performed very poorly during the 1980s and early 1990s, but this was because the Texas REBs were clearly different from the majority of the banks classified as REBs in the rest of the country. Texas REBs invested more heavily in commercial mortgages than did other banks. In a poor real estate market, these loans performed very poorly. The analysis indicates that the Texas experience is not a basis for rejecting the view that the commercial banking industry can safely replace the declining thrift industry as a major source of residential mortgage financing.

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