David Clark

Of all the problems associated with today’s housing industry crisis, there’s no question that the virtual shutdown in AD&C lending is the most severe.

Not only are lenders simply refusing to consider new AD&C loans, they also are making demands on existing loans that far exceed sensible regulatory requirements. As a result, our members and our industry are suffering. Unreasonable demands are impairing many performing loans, and in some cases, they are forcing builders with viable projects into insolvency.

At the heart of the problem are regulators who are conducting more frequent bank examinations and requiring institutions to update appraisals on AD&C projects and to increase loan loss reserves.

Due to this overblown regulatory scrutiny, many builders are rapidly drawing down interest reserves and are having to put up additional equity as appraised values decline.

Further complicating this already difficult situation is the rising number of bank and thrift failures. Builders with outstanding loans that are placed under the control of the FDIC are frequently unable to contact a decision maker to deal with matters related to loan draws or extensions.

Just to be clear, let me emphasize that we all know that it is essential to correct the regulatory shortcomings that contributed to the ongoing crisis in the credit and housing finance markets. But we also know from long experience that the economy will not emerge from recession until the housing sector rebounds, and that won’t happen until builders can get AD&C loans.

The NAHB has been working on builder credit problems for some time, but the accelerating degree of the crisis demands even more intensive action. To that end, the NAHB has launched a comprehensive initiative to focus attention on the urgent need to get credit flowing to the housing industry once more.

The campaign, which will use the NAHB’s national and grassroots resources, will include regulatory, legislative, and public affairs components as well as coalitions with industry and banking organizations.

One of the initiative’s key elements involves joining with banking organizations in meeting with the Treasury Department and federal banking officials to explain how housing is being affected by overzealous regulators, and to explore possible remedies. We expect these meetings to focus on four main areas:

  • Curbing regulatory excesses that are occurring in field level examinations;
  • Seeking reforms in asset valuation methods and systems;
  • Developing viable loan workout techniques and disseminating those to builders, lenders, and bank examiners;
  • Designing new regulatory approaches that go beyond the current rules and guidelines to facilitate working out loans in depressed markets.

We will definitely be calling on the grassroots for support in this important effort. In particular, we would like to hear from members about their experiences with inappropriate or unreasonable regulatory actions.
I urge anyone who has come up against inappropriate regulatory actions to report them to John Dimitri at the NAHB: 800-368-5242, ext. 8529 or jdimitri@nahb.com.