Banks Limit Exposure, Homebuilders Seek Helpby Tim Manni
Chances are you’ve heard the phrase “you are the company you keep.” For some banks, the fear of keeping risky company has been reason enough for them to consolidate.
Despite never even falling behind on payments, numerous home builders have been told by banks that their business is no longer needed. Bank regulators have put the pressure on financial institutions to limit their exposure to the risky industry:
Dave Brown, one of the best-known home builders in Tempe, Arizona, had kept his head above water through the housing downturn, not missing a single interest payment on his loans. So he was confounded a few months back when one of his banks, spooked by the decline in his company’s revenue, suddenly demanded millions of dollars in additional collateral to continue carrying loans on his projects.
Since the credit crunch has made it nearly impossible for industries like home building to operate, the group has taken their case to Capitol Hill. The Fix Housing First Coalition has petitioned Congress to include specific measures aimed at increasing home sales as well as stabilizing the ongoing decrease in home values in the upcoming stimulus package. The measures “would expand that [current] tax credit to include all purchasers and would eliminate the current requirement that it be repaid,” as well as create a “permanent low mortgage rate.”
The coalition’s proposed solution, supported by the National Association of Home Builders, doesn’t address their credit concerns, and more importantly, doesn’t take into consideration the potential damage such intervention would do to the natural functionality of the marketplace:
Some analysts, however, say that such a bailout would artificially re-inflate home prices and encourage further building in a saturated market. “What is the public good for that?” asked Thomas Lawler, a housing analyst and former vice president for risk analysis at Fannie Mae.
Is prompting more homebuilding into an already-glutted market really the solution to the housing mess?
(story courtesy of NewsNEconomics)