Last week, Big Builder Online launched a survey to determine how its readers' banking relationships have changed in response to the credit crunch. Given the government action that unfolded this past weekend, it's entirely possible that our readers' opinions may have changed post-Columbus Day, which is why the editors are posting a follow-up survey today.
When asked if anything had changed in their dealings with their banks due to the credit crunch, an overwhelming majority said "yes" at 84.6%, while 15.4% said they had not seen a change. Many pointed to a lack of capital for construction financing as well as an increase in rates. Said one respondent, "We have had the plug pulled on one loan due to the LTV [loan-to-value ratio] current variance from the original underwriting, which required additional capital to reduce the spread."
As to the likelihood of a change in banking relationships--whether positive or negative--in the coming months, 58.3% said they did not anticipate such a change, 16.7% said they do expect a change, and one third of respondents remained unsure. Most pointed to a lack of confidence in the market as a driving factor in a potential stalemate.
Said one respondent who deals primarly with community banks for A&D loans and revolving credit facilities to finance vertical construction, "Until the residential marketplace improves, specifically when the amount of foreclosures available is reduced significantly, our lenders have indicted they will not jump back into the market. Our marketplace has anywhere from 12 months to 18 months before the current absorptions remove the REOs from the marketplace."
When asked to define the relative difficulty or ease in accessing operating capital in today's market, 58.3% said it had become very difficult, while 16.7% identified it as impossible; 8.3% of respondents selected somewhat difficult, neither difficult nor easy, and somewhat easy respectively, while no one selected very easy or extremely easy--which is hardly surprising.
"LTCs are no longer driving the lenders' pro formas due to the extreme reduction in LTVs relative to costs," asserted one respondent. "Costs have not decreased as consistenly as the sales pricing. By default, the LTVs are falling into the 60-65% range, and LTCs are now closer to 75% if you can make the numbers work; 90/10 or even 80/20 LTCs are a thing of the past."