NAHB Associate Vice Chairman Urges Associate Members to Weigh in on Bank Credit Tightening

By Michael Kurpie, CGA, CGP
Director Trade Association Relations, ProBuild
Associate Vice Chairman, NAHB

As most, if not all, of you know NAHB has been working tirelessly with concerned lawmakers to address the AD&C lending crisis. Below is a summary of NAHB’s 3rd Q survey on AD&C financing.  Associates, reach out and ask your Congressman to support improving lending conditions for home builders today!

Builders Report Banks Still Tightening Stance on AD&C Credit
A recent Fed survey of senior loan officers indicated that credit conditions in the real estate sector eased slightly in the third quarter -- but builders and developers aren't buying it. To the contrary, in NAHB's newly published survey for the third quarter of 2011, more of our builder/developer members reported that new AD&C loan availability is getting worse than reported it is getting better, and over half of them said they were putting land acquisition, development and single-family projects on hold until the financing climate improves. The most common ways that banks are tightening, according to builder/developers, are by reducing the amount they are willing to lend (cited by 77% of those who said credit availability had declined), lowering the allowable LTV ratio (cited by 75%), not making new AD&C loans (66%), and requiring personal guarantees or collateral not related to the project (63%).

Depending on the category (land acquisition, land development, single-family construction, and multifamily construction), between 20% and 33% of respondents to our survey reported that lenders were also tightening terms and conditions on outstanding production loans, with such action being most common on outstanding loans for single-family construction and least common on outstanding loans for multifamily condo and rental construction. Importantly, in at least 84% of the cases, the AD&C loans in question were performing before the lender's tightening action. NAHB's survey found that the most common ways lenders are tightening conditions on outstanding production loans are by requiring a partial down payment based on re-appraisal (as reported by 66% of respondents) and demanding additional assets as collateral (reported by 64%). Asked about the reasons lenders are citing for their tightening on both new and outstanding loans, builders were most often told that regulators are forcing this to happen. In fact, lenders gave this as a reason 68% of the time when tightening the availability of new AD&C credit, and half the time when tightening terms on outstanding AD&C loans.

Such results put a spotlight on the ongoing problems that home builders are confronting in obtaining and maintaining construction credit, and the alarming degree to which these obstacles are hampering a housing and economic recovery.