Printer Friendly

NAHB: PROPOSED LENDING RULES WILL HURT HOUSING, THE ECONOMY

 NAHB: PROPOSED LENDING RULES WILL HURT HOUSING, THE ECONOMY
 WASHINGTON, Sept. 2 /PRNewswire/ -- Home builders from across the nation report that proposals by the nation's federal banking regulators to impose maximum loan-to-value (LTV) ratios for all real estate loans represent a disaster in the making that would severely disrupt the availability of credit for home builders and land developers.
 "Our recent builder survey confirms our worst fears," said Robert "Jay" Buchert, president of the National Association of Home Builders (NAHB). "The pending rules will establish maximum LTV ratios that are far below those currently being used by lenders for residential loans. The result will be a significant tightening of credit availability and a sharp drop in housing production."
 The Federal Deposit Insurance Corporation Improvement Act of 1991 (FDICIA) requires federal banking regulators to establish uniform regulations for real estate lending by banks and savings associations by Sept. 19, 1992, and put them in effect by March 19, 1993. In response to the law, federal banking regulators proposed two alternative methods for establishing limits on real estate lending based on LTV ratios.
 Under the first approach, lenders would establish a single maximum LTV ratio for each selected real estate category. The uniform standard would allow banks to lend no more than 60 percent of the appraised value of raw land, 65 percent for land development and construction (75 percent for construction under certain conditions), and 80 percent on one- to four-family residential mortgages and home equity (95 percent with private mortgage insurance).
 The second alternative would allow lenders to individually establish LTV ratio limits for each real estate category. This would set an LTV range of 50 percent to 65 percent for raw land, 55 percent to 70 percent for development, 65 to 80 percent for combined construction and development and a range of 80 percent to 95 percent for mortgages on single-family homes. However, the proposed regulation specifically calls on the regulators to view the low end of each supervisory range as the "benchmark" LTV ratio for that category of loan.
 "A single LTV ratio for both residential and commercial real estate is neither appropriate nor practical," said Buchert. "Risk characteristics are significantly different for residential and commercial properties, even in the early stages of land acquisition and development. It is just preposterous that a construction loan on a $30 million office building and a $100,000 single-family home would fall under the same LTV ratios."
 Residential builders and developers overwhelmingly report a tightening of lending standards at banks and thrifts during the past three years, according to NAHB's August Builders Economic Council Survey. About 90 percent of survey respondents report tighter lending standards for residential land acquisition and nearly 80 percent report tighter standards for residential construction loans. Nevertheless, the proposed rules are generally more stringent than the tougher standards now being applied and those that existed prior to 1982, both in terms of the maximum LTV ratios and in terms of the conditions and circumstances of compliance.
 The home building industry is dominated by a large number of small builders operating in limited geographical areas. Companies that build 25 units or fewer per year account for about 75 percent of all home builders in the country.
 "In view of the structure of the industry, and the heavy reliance of builders on thrifts and banks for housing production credit, a system of LTV limits that disrupts current lending arrangements inevitably will have adverse impacts on a large number of small firms," Buchert said.
 This regulatory over-reaction will cut off funding for many projects that would be safe and profitable for the lender, Buchert said. In short, the home building industry would be required to raise billions of dollars in additional equity to back loans that already have equity margins that have proven to be more than adequate. If finalized, the rules would severely disrupt the availability of credit for home builders and many of the nation's other small businesses at a time of tenuous economic performance.
 The objective in proposing regulations on LTV ratios should be to establish a regulatory environment that supports lending institutions' efforts to manage their lending operations in a responsible manner, by giving them direction combined with flexibility, he added. The imposition of real estate lending rules should not cause further disruptions in the availability of loans for the production of housing.
 NAHB believes that residential real estate loans should be exempt from any system of maximum LTV ratios. However, if the regulators insist on implementing an LTV framework for residential real estate loans, the following five principles should be incorporated:
 -- The rules should not result in maximum LTVs that are more stringent than the statutory limits that were repealed by Congress in 1982.
 -- The rules should acknowledge and accommodate the different risk profiles of different classes of real estate loans, particularly the difference between commercial and residential real estate.
 -- The rules should allow individual institutions the flexibility to set LTV ratios based on their own policies which are grounded on analysis of market conditions and other credit quality factors.
 -- The rules should allow continuation of current prudent real estate lending practices that have not raised questions of loan quality.
 -- The rules should allow an institution to make some loans that do not conform with maximum LTV requirements.
 -0- 9/2/92
 /CONTACT: Jay Shackford of the National Association of Home Builders, 202-822-0406/ CO: National Association of Home Builders ST: District of Columbia' IN: SU: ECO


KD -- DC023 -- 6116 09/02/92 17:15 EDT
COPYRIGHT 1992 PR Newswire Association LLC
No portion of this article can be reproduced without the express written permission from the copyright holder.
Copyright 1992 Gale, Cengage Learning. All rights reserved.

Article Details
Printer friendly Cite/link Email Feedback
Publication:PR Newswire
Date:Sep 2, 1992
Words:920
Previous Article:FIRST PEOPLES DECLARES REGULAR DIVIDEND ON COMMON STOCK
Next Article:MCI OFFERS FREE PHONE CALLS AT MOBILE PHONE CENTER IN HOMESTEAD, FLA.


Related Articles
PROPOSED LENDING RULES WILL HURT HOUSING, THE ECONOMY, ACCORDING TO NAHB
NAHB SETS THE RECORD STRAIGHT ON ACCESSIBILITY GUIDELINES FOR MULTIFAMILY HOUSING
NATIONAL ASSOCIATION OF HOME BUILDERS LOWER HOUSING FORECAST IN RESPONSE TO INTEREST RATE RISE
NAHB's 61st Semiannual Construction Forecast Conference.
Fed Action to Cut Short-Term Rates Will Help Housing Lead the Way to Recovery, Builders Say.
NAHB Calls for Greater Transparency in Bank Real Estate Portfolios.
Builders Recommend Strengthening Housing Goals for Fannie Mae and Freddie Mac.
NAHB: tighter lending won't derail recovery.
NAHB, Senior Lending Network Work With Rebuilding Together New Orleans to Rebuild Damaged Home.
Fixing housing market would help revive ailing wood products industry.

Terms of use | Copyright © 2017 Farlex, Inc. | Feedback | For webmasters