Persistent Tight Lending Conditions for Home Builders Threaten Economic Recovery

WASHINGTON, Dec. 6 -- The commercial banks on which home builders and developers largely rely to finance their projects continued in this year's third quarter to hold tight reins on acquisition, development and construction loans (AD&C), according to the most recent quarterly survey by NAHB's Economics and Housing Policy Group on the availability of credit to the housing industry.

"Restoring the flow of credit to housing is critical for the industry to rebound, provide jobs and boost the economy," said NAHB Chairman Bob Nielsen, a home builder from Reno, Nev.

More than half of the single-family builders and developers surveyed by NAHB indicated they had decided to put any new construction or land activity on hold until the financing climate improves.

This has broad repercussions for housing and the economy. With inventories of new homes nearly depleted in many markets, builders should be gearing up to meet demand, create new jobs and keep the expansion moving forward. Unfortunately, production remains stymied because builders in these locations cannot get credit from lending institutions to begin work on new homes.

In normal times, housing accounts for more than 17 percent of the nation's gross domestic product. Constructing 100 new-homes generates more than 300 full-time jobs and $8.9 million in local, state and federal tax revenue that supports local schools and communities across the land.

"There can be no economic recovery without a housing recovery," said Nielsen. "While NAHB's Improving Market Index shows several housing markets around the nation are slowly starting to mend, a full-fledged revival will not take hold until we resolve the ongoing credit problems for home builders."

NAHB has been working to obtain a legislative solution on Capitol Hill.

On May 5, Reps. Gary Miller (R-Calif.) and Brad Miller (D-N.C.) introduced H.R. 1755, the Home Construction Lending Regulatory Improvement Act of 2011, to address specific regulatory impediments to the flow of credit needed by home builders. That measure currently has 80 cosponsors, and NAHB is seeking a companion bill in the Senate.

Of the minority of builders who sought AD&C loans in the third quarter, few saw improvement in the lending climate over the previous quarter and a significant share saw conditions continue to deteriorate.

Forty-eight percent of those polled said they had looked for financing for single-family construction in the third quarter.

Only 8 percent said the availability of financing for single-family projects was getting better (compared to the previous quarter), 61 percent said it was unchanged and 31 percent reported it had worsened.

Survey respondents who indicated that lenders were clamping down further on credit availability in the third quarter noted several ways in which the tightening was occurring:

· 77 percent said lenders were reducing the amount they were willing to lend.

· 75 percent reported seeing the allowable loan-to-value ratio being lowered.

· 66 percent found lenders who were not making any new real estate loans.

· 63 percent said they encountered lenders who were requiring personal guarantees or collateral not related to the project.

Lenders most often told builders they were tightening on loans because the regulators were forcing them to do so.

Sixty-eight percent of those surveyed said they were given this reason for restrictions on new AD&C loans and 52 percent heard it was the reason for tightening on outstanding loans.

Statement from NAHB Chairman Bob Nielsen on the Need to Reinstate Loan Limits

WASHINGTON, Nov. 15 - Bob Nielsen, chairman of the National Association of Home Builders (NAHB) and a home builder from Reno, Nev., issued the following statement regarding the need for Congress to pass legislation to reinstate the higher loan limits for the Federal Housing Administration that expired on Sept. 30:

"Legislation pending in the House and Senate will restore the higher mortgage loan limits for the Federal Housing Administration and is essential to help stabilize the nation's housing financial markets.

"The FHA program is fully self-supporting, and a great example of a public-private partnership with lending institutions. Restoring the loan limits will provide millions of potential consumers in markets throughout the nation access to safe, affordable mortgage financing.

"To help mend the struggling housing market, stabilize home values, provide constancy while private investors re-enter the market and ensure that millions of creditworthy home borrowers can access the best possible mortgage rates, Congress must support this bill to help American families and get the lackluster economy moving forward."

Congress must act to reinstate the higher conforming loan limits that expired on Sept. 30

To help mend the struggling housing market, provide affordable mortgages for creditworthy home buyers and stabilize home values, which are all critical to creating jobs and helping the sputtering economy, .

The Senate has already approved a plan to reinstate and extend the higher loan limits for an additional two years. In light of the continuing weakness in the overall housing market, it is incumbent upon the House  to follow suit to ensure that millions of homes will still be eligible for Fannie Mae, Freddie Mac and FHA funding.

Last month, the national ceiling for mortgages securitized by Fannie Mae and Freddie Mac or insured by the FHA dropped from $729,750 to $625,500 and the formula for establishing area loan limits became more restrictive, producing decreases in more than 650 counties in 42 states in addition to those bound by the national ceiling.

This ripple effect means that millions of homes nationwide, including a substantial number in our local community, are now ineligible for Fannie Mae, Freddie Mac and FHA funding. In order to obtain a home loan, buyers will be subject to higher mortgages interest rates, fees and downpayments and more stringent credit standards.

Restoring the higher loan limits will provide home owners and home buyers with safe and affordable financing while providing a much-needed boost to housing markets all around the country.

If the House fails to act, the results could prove catastrophic for our local and national economy. The current drop in mortgage loan limits will reduce housing demand and place downward pressure on home prices in our local market and other areas across the nation. In turn, this will trigger more foreclosures, impede job creation and cause the fragile economy to backslide into recession.

The stakes could not be higher. At a time when stabilizing home values is vital to bolster household wealth, spur job growth and get the flagging economy moving forward, the House must act responsibly and reinstate the higher loan limits.

NAHB URGES CONGRESS TO RESTORE HIGHER LOAN LIMITS

To help mend the struggling housing market, provide affordable mortgages for creditworthy home buyers and stabilize home values, which are all critical to creating jobs and helping the sputtering economy, Congress must act to reinstate the higher conforming loan limits that expired on Sept. 30.

The Senate has already approved a plan to reinstate and extend the higher loan limits for an additional two years. In light of the continuing weakness in the overall housing market, it is incumbent upon the House  to follow suit to ensure that millions of homes will still be eligible for Fannie Mae, Freddie Mac and FHA funding.

Last month, the national ceiling for mortgages securitized by Fannie Mae and Freddie Mac or insured by the FHA dropped from $729,750 to $625,500 and the formula for establishing area loan limits became more restrictive, producing decreases in more than 650 counties in 42 states in addition to those bound by the national ceiling.

This ripple effect means that millions of homes nationwide, including a substantial number in our local community, are now ineligible for Fannie Mae, Freddie Mac and FHA funding. In order to obtain a home loan, buyers will be subject to higher mortgages interest rates, fees and downpayments and more stringent credit standards.

Restoring the higher loan limits will provide home owners and home buyers with safe and affordable financing while providing a much-needed boost to housing markets all around the country.

If the House fails to act, the results could prove catastrophic for our local and national economy. The current drop in mortgage loan limits will reduce housing demand and place downward pressure on home prices in our local market and other areas across the nation. In turn, this will trigger more foreclosures, impede job creation and cause the fragile economy to backslide into recession.

The stakes could not be higher. At a time when stabilizing home values is vital to bolster household wealth, spur job growth and get the flagging economy moving forward, the House must act responsibly and reinstate the higher loan limits.