Home builders with outstanding construction loans are reporting that they are having to stop work on new housing developments and are losing sales as the result of failed banks and thrift institutions being taken over by the Federal Deposit Insurance Corporation (FDIC).
“Builders with outstanding loans that are placed under FDIC control are frequently unable to contact a decision maker to deal with routine but time-sensitive matters related to loan draws or extensions,” NAHB President and CEO Jerry Howard said in a Nov. 20 letter to FDIC Chairman Sheila Bair.
“Some builders have encountered what seem to be arbitrary criteria on whether or not loans receive continued funding,” Howard added. “Again, these developments are unnecessarily turning good loans into problem assets that will significantly exacerbate the losses that must be absorbed by the FDIC and the building and banking industries.”
Reports of severe financing problems stemming from FDIC bank takeovers have started proliferating among builders in Texas, a part of the country whose housing markets have been performing notably better than the national average.
One builder, for example, complained that he has been unable to receive a draw on his construction loan for more than four weeks and, as a result, has been unable to finish work on homes that have already been sold. He said that there is a possibility that the FDIC will also require another appraisal of his homes, which would cause more delays and further jeopardize the viability of his project.
In his letter, Howard praised the efforts of the FDIC to limit mortgage foreclosures, but noted that housing production loans are now experiencing the same kind of severe stress afflicting the home mortgage credit sector.
“Home builders are having extreme difficulty in obtaining credit for viable projects, and those with outstanding construction and development loans are experiencing intense pressure as the result of requirements for significant additional equity, denials on loan extensions and demands for immediate payment,” he told Bair. “In many cases, performing loans are rendered nonperforming as a result of these actions.”
Howard asked for an opportunity to meet and work with the FDIC to address “this serious and urgent issue.”
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