Lenders Asking Builders, Developers to Pay Down Loans
A recent snapshot of builders and developers in a special survey by the NAHB Economics Group has found that acquisition, development and construction (AD&C) credit has tightened since last year.
In addition, while not a majority, significant numbers of builders and developers have been asked to pay down outstanding construction and land acquisition or development loans, according to the study.
More than 80% of all the respondents reported that the availability of new credit for land acquisition and land development had tightened this year compared to the second half of 2007.
Sixty-nine percent of the respondents said that credit had become more constricted over that timeframe for single-family construction loans, while 29% responded that loan availability remained about the same.
On the multifamily production front, 78% reported worsening conditions for construction loans, and 20% said they had seen no change.
The NAHB survey found that lenders have been making adjustments on existing loans, and hurting businesses, in these four areas:
- For single-family construction loans, 34% of those polled said that lenders had ordered new appraisals — 19% saying that most of their loans were being reviewed and 15% saying that some of their loans were being put up for reinspection.
Of those who saw new appraisals ordered for their single-family building loans, 62% said they were asked to pay down part of the original loans and 49% were asked to put up additional assets as collateral. Some were required to do both.
- Twenty five percent of the respondents said that lenders required new appraisals on their multifamily construction loans, 16% reporting that the order was for most of their loans and 9% saying it was for some of them.
Sixty-one percent of those who saw their multifamily building loans reappraised were asked to pay down part of the original loans and 57% were asked for more collateral. Again, some had to do both.
- Of the 62% of survey respondents who had loans outstanding from a financial institution for land acquisition, 30% were asked to pay down part of their loans out of concern for declining land values. Fifty-six percent of the single-family builders, 66% of multifamily builders and 74% of land developers reported having outstanding land acquisition loans.
- Of the 66% of respondents with outstanding loans for land development (52% of single-family builders, 74% of multifamily builders and 87% of land developers), 31% were asked to pay down part of their loans.
Of those who had been asked to pay down land acquisition or land development loans, personal savings was the source of the money for 54% of the respondents. Twenty-six percent took out equity from an investment property, 21% took out equity from their primary residence and 20% said they borrowed from an investor or sold personal assets.
About 8% of those buying down loans borrowed from their 401(k) accounts and 5% borrowed from a friend or relative.
Among the sources of credit identified in the survey:
- Of the 65% who said they sought credit for land acquisition this year, 80% said the main source of credit was commercial banks, followed by thrift institutions (8%). “Other” sources, primarily private financing, were used by 10% of the respondents.
- Of the 65% who sought credit for land development, commercial banks accounted for 85% of the credit, followed by thrift institutions (8%) and others (6%).
- Of the 63% who have sought credit for single-family construction in 2008, 82% said banks were the main source, followed by thrifts (10%) and mortgage companies (4%).
- About a third (31%) of all those polled have sought credit for multifamily construction in 2008 — 75% from banks, 10% from thrifts and 5% from mortgage companies.
For more information, e-mail Gopal Ahluwalia at NAHB, or call him at 800-368-5242 x8480.