If you looked at the pure numbers on the surface, you'd think Bird Anderson, senior vice president of Wachovia Real Estate Financial Services, wouldn't be too busy. After reaching a high of $7.1 billion in construction loan originations in 2005, the bank's new loans to home builders plummeted to $0.3 billion in 2007.

That steep decline in business doesn't mean Anderson hasn't been busy; in fact, it's been just the contrary. He's constantly working with builders to adjust covenants on the loans Wachovia made during the height of the boom. In some cases, builders have been through multiple covenant renegotiations.

"Banks, by and large, have been very accommodating with covenant relief," Anderson said during the Big Builder '07 session "Capital A for Access," Wednesday, Nov. 28.

Wachovia didn't want to take assets back, according to Anderson. "If we do foreclose, we don't want to be a long-term equity partner," he said. "When we have to take it back, we want to get rid of it as quickly as possible."

Anderson wasn't the only panelist who expressed that banks have worked with their builders–at least up until now. "More than half of the banks have been accommodating," said James Fielding, a director for Standard and Poor's. "We expect that to change."

With banks who arrived later on the scene, things are already starting to change. "During the covenant renegotiations, a lot of the overseas banks have used this as an opportunity to get out," Fielding said.

But banks aren't the only ones saddled with troubled builders in these difficult times; land developers have similar issues. Tom Bruin, CEO of Hearthstone, explained that 39 of the company's 40 deals are still performing. "We're fortunate to have dodged a lot of bullets," he said. "There's no silver bullet other than our ability to be flexible."

Bruin admitted that he's had to work with builders in about half of those developments to adjust terms. The company will continue to do that "until it no longer makes sense."

That's bad news for builders fighting to renegotiate their covenants, but the situation isn't hopeless. There are things they can do, as evidenced by the story told by Gary Herdler, CFO of Orleans Homebuilders. As the company renegotiated its $75 million trust preferred, it also tweaked its operating structure. It's saving on cycle time, reducing overhead, and more closely monitoring its spec inventory.

Kevin Davis, CFO of William Ryan Homes, told a similar tale. Like Orleans, he cited communication as the key factor that has helped his company assuage bank fears. Last year, the builder decided to get out of debt. So, even though it was taking a loss, it churned through inventory.

Things became more difficult for builders in their renegotiations with banks after the credit crunch hit this summer. That's prompted banks to reevaluate just how far they'll bend for their home building customers. "The credit crunch has been an extraordinary event," Anderson said.

Right now, Anderson said he judges all requests on a builder's "Four C's": character, collateral, credit, and cash flow.

Davis said he understands why banks are getting nervous about some of their loans. In many cases, they have two, three, and even four times more invested in a deal than builders do. Often, the return on that risk isn't great.

"They'll earn 1% or 2% percent on good days," Davis said. "On bad days, they'll take a loss."

That cold, hard truth has caused Anderson to reevaluate what he asks for in renegotiations. He stated that banks need more compensation for the increased risk in the current market.

"Look for banks to be more and more concerned about getting fair market return to go along with the heightened risk they're taking," Anderson said. "Our risk profile has changed dramatically."

Learn more about markets featured in this article: Anderson, IN.