The Official Online Weekly Newspaper of NAHB
In a major step forward in making the nation's lawmakers aware of the dire financial situation faced by most home builders, Reps. Gary Miller (R-Calif.), Brad Miller (D-N.C.) and 29 other original cosponsors on May 5 introduced NAHB-supported legislation designed to address the severe credit crunch for acquisition, development and construction (AD&C) financing.
Immediately following the bill’s unveiling, an updated BuilderLink Alert was posted on www.nahb.org informing NAHB members of this latest development and explaining what they need to do to help build support for the legislation among members of Congress.
The credit crunch has taken an enormous toll on the nation’s economy, especially in the housing sector, where more than 1.4 million construction workers have been idled since 2006.
Factoring in industries that provide materials and services to home builders, the housing slump has been responsible for a total loss of more than 3 million jobs and $145 billion in wages in all housing-related industries.
H.R. 1755, the Home Construction Lending Regulatory Improvement Act of 2011, represents a substantial step forward in the effort to restore the flow of credit to the housing industry.
“We commend Reps. Gary Miller and Brad Miller for championing a legislative solution aimed at ending the freeze in housing production credit that has forced countless home building firms across the nation to shutter their doors, resulting in grave repercussions for job growth and the overall economy,” said NAHB Chairman Bob Nielsen.
Over the past several months, NAHB worked closely with concerned lawmakers in creating this important bill to open up the lines of credit for new housing production to help spur job growth, support a recovery in the housing market and keep the economy moving forward.
Approximately 500 members helped drum up support for the legislation during the association’s annual Legislative Conference in mid-March. This was followed by many NAHB members making in-person visits to their representatives' home district offices in order to urge support for the legislation during the recent congressional recess.
H.R. 1755 would address specific regulatory obstacles to the credit needs of the nation’s home builders and is a significant advancement in NAHB's overall strategy to help members find the credit they need to move forward with new or existing projects.
In a letter to fellow lawmakers seeking support for their bill, Reps. Gary Miller and Brad Miller noted that “one of the major reasons for this lack of credit is the overly restrictive actions by banking regulators which have hindered federal and state chartered banks and thrifts’ ability to make and maintain loans to qualified small home builders that have viable projects.”
To rectify this situation, the bipartisan legislation would grant authority and guidance to federal and state banking regulators to ensure that financial institutions that provide financing to America’s home builders are permitted to make loans, restore liquidity and provide stable financing to the residential housing sector.
In addressing three key regulatory areas that have unnecessarily hampered the flow of credit for new housing production, the bill would remove barriers to lending while preserving the regulators’ ability to assure the safety and soundness of the financial institutions they oversee.
Specifically, the measure would:
- Require bank regulators to follow their own guidelines and issue regulations to stop limiting banks from arbitrarily lending more than 100% of their total capital on AD&C loans.
Based on the experience of NAHB members and bankers, it appears that the 100% AD&C capital lending “guideline” has become a hard-and-fast cap beyond which banks are not permitted to expand their AD&C lending, Nielsen said.
H.R. 1755 would direct bank regulators to issue regulations to cease implementing the 100% capital lending threshold as a hard limit. This provision would also direct banking regulators not to impede a financial institution from deciding to lend to home builders with viable projects that are likely to be completed.
- Require appraisers, lenders and examiners to use the “as-completed” value when assessing loan collateral on projects that have reasonable prospects of reaching completion.
The bill would also ban the use of foreclosure and other distressed sales as comparables in setting collateral values in determining loan amounts for new projects.
- Direct regulators to abstain from forcing lenders to curtail or call AD&C loans in cases where the borrower is making payments in accordance with the original loan documents.
Builders have been coming under increased pressure from lenders — including calls for additional equity, denials on loan extensions and demands for immediate repayment — even when their loans are current.
The bill would also permit financial institutions to work with struggling borrowers for a period of 24 months to realize the maximum current market value for such loans.
In order to advance the legislation, NAHB continues to urge lawmakers to cosponsor the House bill and is conducting outreach to members of Congress who sit on key committees. NAHB is also urging senators to introduce a companion bill in the Senate.
To view the legislation, click here and type the bill number in the box in the center screen.
NAHB members who want to learn more about the bill and how they can help encourage Congress to act on this important legislation can click here.
For additional information on H.R. 1755, email Scott Meyer at NAHB or call him at 800-368-5242 x8144.