The way Crosswinds Communities president Bernie Glieberman sees it, there are a multitude of threats that a face a builder today.

If you are not an infill site, you've got one strike against you. And $4 per gallon for gas is the latest factor driving lack of demand.

Compounding that, there's the foreclosure issue. Glieberman has tried to combat it by bidding up and, in some cases, actually buying back foreclosed homes in his Detroit market communities to keep them from hitting the market at a lower, bank-owned price.

It's a creative tactic, to be sure. But at some point, it's one that becomes impossible to maintain. "I have 250 houses built right now [in the Country Walk community], and my God, I have a situation where there are 10 houses for sale by the banks. I can't do anything with 10 houses," said Glieberman.

As a result, prices have fallen so low that Crosswinds can't build houses and make money. So despite the fact that there are still another 160 lots in the community, he had to stop selling. "Based on our lot releases, we couldn't break even," Glieberman explained

In this weeks' Digital Dirt, Big Builder looks at what is likely the biggest threat to Glieberman and the vast majority of builders: Who owns the land, and at what price? And how long will builders be held hostage as banks with a concentrated portfolio of land and construction loans decide which way they'd prefer to lose money on their investments?

"We are working with our banks," Glieberman said. "We have to mothball until the banks decide that maybe they ought to take less money because we can't do anything with it."

While we have been watching builders write-down land values since the last quarter of 2006, the banks are just getting started. According to Christopher Mutascio, a banking analyst with Stifel, Nicolaus & Co., there is a still a great deal of work to be done to determine the commercial real estate exposure.

While much has been made of the dollar values invested in construction by the large-cap banks like Wachovia, Wells Fargo, and Bank of America, Mutascio noted that the exposure only equals roughly 4% to 5% of the banks' total exposure. Instead, it's the small- and mid-cap banks that have violated the guidelines for "concentration risk" that will be under the greatest scrutiny.

"We already know there are issues, because they aren't cash-flowing," Mutascio said. "So now we need to know: What's the value of the property collateralizing that loan? Therein lies the debate."

While the banks are at different levels of recognizing the pain, what's clear is that they will soon be forced to bare their souls. The Office of the Comptroller of the Currency (OCC) will ultimately determine the speed and degree to which they do so.

Chatter continues to escalate about an impending return to an RTC-like structure, but, at least for now, the OCC seems to be playing the role of a kinder, gentler agency. It seems there is some sensitivity at the OCC regarding its admitted "controversial practices" of the late '80s.

At that time, much like today, a sharp decline in markets meant that appraisals became outdated. Because bankers were reluctant to make adjustments that reflected the evolved conditions, examiners unilaterally made the adjustments for them.

At that time, a piece of government legislation called the Federal Institutions Reform Recovery and Enforcement Act (FIRREA) was passed, which essentially told all the S&Ls to get out of the equity investment business.

Then, the industry collapsed when roughly 1,000--or 25% of all lending institutions--simply failed. To deal with this implosion, the Resolution Trust Corp. (RTC) was formed to take in assets and liquidate them.

Earlier in his career, Mutascio worked for the OCC as an examiner. "During that time, we were beating people over the head," he said. "The appraisal guideline 12CFR34, we would cite that as a violation in every single exam, numerous times if every 'I' wasn't dotted."

Last week, the OCC's chief officer, John Dugan, gave testimony to the Senate Committee on Banking, Housing, and Urban Affairs. It was his first update since March when it became clear that there was a substantial rise in the number of non-performing loans.

Not surprisingly, the risk of CRE loans was a hot topic.

Dugan revealed that, in April, a conference call was held by the OCC's senior deputy controllers for bank supervision. During it, they had a nationwide discussion with examiners to "discuss policies and expectations with regard to CRE concentrations."

To help ensure a consistent approach, the examiners were taken to school on issues they were likely to encounter during their diligence. Among those specifically noted: details on how to measure project performance for construction and development loans.

Dean DeBuck at the OCC said the office won't comment further on the strategies being given to examiners, other than to point to this statement by Dugan: "This time around, we have stressed to bankers, and reiterated to examiners during this call, that our objective is to minimize the need for such action. We emphasized that examiners should give bankers reasonable time frames for obtaining updated appraisals and making their assessments."

It should be noted that while some banks are nationally regulated by a charter like the OCC, others are governed by the state and charters like the FDIC. And there is some concern that the state agencies may not be recognizing losses in the same way as the nationals. As a result, even the regulators may not be able to agree on what the value of land is within the same bank.

Regardless, right or wrong, the end valuations these guys come to are going to be what happens, according to Mutascio.

"At the end of the day, the price of this land lays at their feet," he said. "They won't stick their finger in the air and see which way the wind blows. They will look at cash flows and the appraisals, and they'll nitpick them. But in this environment, the pendulum typically swings violently from one side to the other. It's going to be human nature to take a more Draconian view on what these valuations are worth. I believe if the regulators are going to err, it's going to be on the side of conservatism to writing down more, not less."

As always, there is much to talk about. Please e-mail me at with any insights on these or other current issues.

In the meantime, here's more on what's happening in the trenches:

MINNEAPOLIS, MINN. Wells Fargo Bank is selling roughly 300 residential lots in two distressed Twin Cities area developments. Eden Prairie-based Insignia Development was the lead developer of both projects.

LAS VEGAS, NEV. Vegas Grand, a local condominium complex in foreclosure, will finish construction next month. The 20-acre, 212-unit development is the first fully completed vacant mid-rise condo project that has come to market.

ATLANTA, GA. In certain parts of the country, Bank of America is hoping to contain debt worries and drawing the line for homeowners, preventing them from overextending themselves by cutting off their home equity lines.

VISALIA, CALIF. The Visalia Unified School District board of trustees gave home builders and developers a break this week when it unanimously voted not to raise residential construction fees.