NAHB Says Credit Crunch Will Prolong Downturn

Washington, DC, May 1, 2008 - The mortgage credit crunch has spilled over into the housing production loan market, threatening to prolong the current housing downturn, the National Association of Home Builders (NAHB) told Congress Wednesday.
 
“The mortgage credit crunch will continue to be the most significant factor impacting the home building industry into the foreseeable future,” Scott Eckstein, a home builder from Naperville, Ill. and president of the Illinois Home Builders Association, told the House Small Business Subcommittee on Finance and Tax.

“There is deep concern that the dislocations in the financing markets will increase the depth and length of the housing downturn.”
 
Despite concerted efforts of central banks here and abroad, Eckstein said that the credit crunch appears to be actually worsening. “Tighter mortgage lending terms have made it difficult for home buyers to obtain financing to purchase new homes. Likewise, builders are reporting an adverse shift in terms and availability on loans for land acquisition, land development and home construction (AD&C).”
 
Residential AD&C loans are used to purchase land; develop lots; build a project’s infrastructure such as streets, curbs, sidewalks, lighting, and sewer and utility connections; and construct homes.

Builders with outstanding AD&C loans are facing mounting challenges because lenders receiving current appraisals that reflect lower values on lots and homes are seeking additional equity for outstanding credit and balking at loan extensions.
 
“Defaults on AD&C loans are rising. In this environment, banks are actively reducing exposure levels to home credit,” said Eckstein.