NAHB Case Studies Show Impact of Credit Crisis

Washington, DC, May 13, 2009--Working with regulators, lawmakers and banks to try to end the stranglehold on acquisition, development and construction (AD&C) loans that has emerged as a major impediment to a housing recovery, the National Association of Home Builders has compiled more than 100 case studies from builders across the country to show policymakers how the credit crisis is undermining efforts to restore the health of the nation's economy.

"The studies confirm what we've been hearing from builders in the field," said NAHB Chairman Joe Robson.

"Builders and developers are reporting excessive credit restrictions, where lenders are cutting off loans for viable new housing projects and producing unnecessary foreclosures and losses on AD&C loans. We cannot get the economy back on track until we restore the flow of credit that is vital for the production of housing."

NAHB's latest builder survey of AD&C financing conditions found that credit for these loans has tightened significantly over the past year. The situation remains critical, and banks increasingly are asking for additional equity based on low appraisals that underestimate the economic value of housing projects.

In addition, there are increasing reports of tightening terms or conditions on outstanding loans in which lenders are requiring partial pay-downs based on re-appraisals, seeking increased collateral on existing loans or refusing to allow additional draws on lender-funded interest reserves.

Further, heightened regulatory scrutiny suggests that bank examiners in the field are adopting a significantly more aggressive posture and some institutions appear to be overhauling and downsizing portfolios independent of pressure from regulators and examiners.

Overly conservative appraisals are also limiting sales and refinance opportunities, putting yet more pressure on outstanding mortgage and housing production loans.

The rising number of bank and thrift failures is also compounding the problem. Builders with outstanding loans placed under Federal Deposit Insurance Corporation (FDIC) control are frequently unable to contact a decision-maker to deal with routine, but time-sensitive issues related to loan draws and extensions.

The case studies received by NAHB include examples of how the AD&C credit crunch is jeopardizing even builders in relatively stable markets.

"Rather than calling loans or taking other damaging actions, these examples show that banks would be acting in their own best interest by modifying or extending loans for borrowers who are not in default and have projects worthy of completion," said Robson.

"This would allow borrowers to develop alternative repayment plans, adjust their finances or find other funding sources until they are able to complete and sell the homes."

NAHB will continue to meet with federal regulators and members of Congress and share the results of its case studies where appropriate.