January 24, 2011
Nation's Building News

The Official Online Newspaper of NAHB

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NAHB Board Focuses on Urgent Need to Restore Lending to Builders

With NAHB members continuing to face severe business constraints from the scarcity of credit for housing, the association’s board of directors at its Jan. 14 meeting in Orlando focused on the urgency of restoring the flow of acquisition, development and construction (AD&C) loans.

“Alleviating a crippling drought of AD&C lending remains our top priority,” builder Bob Nielsen, who was elected chairman of NAHB at the conclusion of the board meeting, told his fellow directors. “Reports from the field indicate that we need to resolve this critical issue as quickly as we can, before we see the shuttering of more home building businesses and further weakening of the anemic housing recovery we hope to get underway.”

Economists attending the meeting noted that the AD&C credit crisis is persisting even in parts of the country whose markets are returning to normal and are poised for recovery. Even where the viability of existing and proposed housing projects can be well demonstrated, they noted, the credit crunch is taking a heavy toll, particularly among the smaller builders who are the mainstay of the industry.

NAHB has been fanning out to address this difficult issue on every possible front — including legislative, regulatory, legal and the media. In the meantime, with the lending window shut at the banks that are the traditional source of AD&C credit, NAHB has been mustering its resources to direct members to less conventional sources of finance — including investment partners.

NAHB Members Meet Potential Finance Sources

During the board meeting, which took place in conjunction with the Jan. 12-15 International Builders’ Show (IBS), there were more than 200 meetings at the Finance Forum, an ongoing NAHB initiative designed to match builder members with financing sources. 

This exclusive networking opportunity was first launched at the 2010 IBS in Las Vegas and is available online free of charge to association members at www.nahb.org/FinanceForum. It provides NAHB builder and developer members the opportunity to discuss their projects and funding needs with representatives from financial institutions and non-traditional funding sources. 

“The NAHB Finance Pavilion is just one of many strategies we are advancing to help members find the credit they need to move forward with new or existing projects,” said NAHB CEO Jerry Howard.

Among the 200 educational programs offered at the IBS, builders also heard from experts in various seminars on how to persevere until the current situation improves. Builders were told to expect significantly different market conditions from those of the years leading up to the downturn, and they were told that the healing process will be notably slow. However, housing demand will intensify as households and the U.S. population resume growth at a healthy pace, with construction activity hitting its full stride in a couple of years.

Major banks and traditional lenders, they were told, remain under the sharp scrutiny of the regulators and may not currently be reliable sources of financing for new residential projects. That may force smaller builders with viable plans to look beyond traditional sources of credit to investors, partners and even family and friends.

Meetings in Washington

In the meantime, the association is also gearing up for the full-scale effort that will be needed to reconstitute the nation’s housing finance system — with Fannie Mae and Freddie Mac in conservatorship and with government initiatives and programs responsible for the vast majority of credit currently available to home buyers.

In recent weeks, NAHB leadership and key staff met with the staff of the President’s National Economic Council to discuss builder financing and the future of the housing finance system.

Discussions also took place with top officials at the Federal Deposit Insurance Corp. that focused on the future capacity of community banks to lend to builders.

NAHB Housing Finance staff met recently with their counterparts at the American Bankers Association to discuss possible joint efforts to address the AD&C credit crisis and problems with appraisals that undervalue new homes.

As the 112th Congress gets under way, NAHB is reaching out to both sides of the political aisle to seek additional solutions to the current lending crisis and urge lawmakers to call on federal banking regulators to reduce regulatory restrictions on AD&C credit and rein in overzealous bank examiners.

Builders Tell Their Stories

This will be a top issue during this year’s annual Legislative Conference, which will take place on Wednesday, March 16. Builders are encouraged to travel to the nation’s capital and urge their representatives and senators to support policies that will open up the lines of credit for new housing production, stabilize home values, mitigate foreclosures, bolster consumer confidence and get the economy moving forward. More details on the meeting can be found at nahb.org/legcon.

Reaching out to the media on AD&C, various members of NAHB’s senior leadership have conducted interviews with news organizations recently, including The Wall Street Journal, The Washington Post, Fox Business and Bloomberg.

Reporters are particularly interested in hearing from builders who are willing to tell their story and explain how the credit crunch is killing projects, slowing business and keeping them from hiring more workers.

These case studies provide essential support for NAHB's efforts to improve the availability of AD&C credit and curb regulatory excesses that are contributing to the severe credit crunch — not only in the media but also in association meetings with key policy makers in Congress, the Administration and the bank regulatory agencies.

NAHB members can click here to share their stories. NAHB will obtain a member’s permission prior to sharing any of the case study information that is provided.

Making Headway on Appraisals

On a closely related issue, NAHB is vigorously pursuing solutions to problems with appraisals, particularly the inappropriate use of foreclosed and distressed properties as comparables, which has negatively affected home values and remains an obstacle to the recovery of the housing market.

To help find constructive solutions to appraisal problems, NAHB last month hosted its third “Appraisal Summit” with federal regulatory agencies and the major housing and financial stakeholder and appraisal organizations. (For a related story in the Dec. 20 issue of NBN, click here.

During the summit, NAHB discussed communication with appraisers and the importance of giving all parties involved in an appraisal, including the builder, the opportunity to provide relevant information during the valuation process.

Another important area of discussion was appraiser education and qualification requirements, particularly for valuing new homes. NAHB has established a working group to develop new construction qualifications and educational requirements, and representatives of the appraisal industry said during the recent summit that they would welcome assistance from NAHB on curriculum updates.

One of the issues that the summit participants discussed at length was the Interim Final Rule on Appraisals that the Federal Reserve released in October. This rule, which focuses on appraiser independence, was mandated under the Dodd-Frank Wall Street Reform and Consumer Protection Act.

The rule makes it clear that home builders and others can ask an appraiser to consider additional information about a property, including information about additional comparable properties.

NAHB is generally pleased with the Fed’s interim final rule, and will be working with the central bank and other stakeholders to see that it reflects the association’s critical concerns.

In the weeks and months ahead, NAHB will continue working with all stakeholders involved in the AD&C and appraisal issues to restore the flow of credit to housing and enact concrete reforms to ensure that appraisals accurately reflect true market values.

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