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PROPOSED LENDING RULES WILL HURT HOUSING, THE ECONOMY, ACCORDING TO NAHB

 PROPOSED LENDING RULES WILL HURT HOUSING, THE ECONOMY,
 ACCORDING TO NAHB
 WASHINGTON, Aug. 4 /PRNewswire/ -- Recent proposals by the nation's federal banking regulators to impose maximum loan-to-value (LTV) ratios for all real estate loans will severely disrupt the availability of credit for home builders and other small businesses, according to the National Association of Home Builders (NAHB).
 "We've already gone through all of the problems of the credit crunch, which helped to contribute to a 46-year low in housing starts in 1991," NAHB Vice President-Treasurer Tommy Thompson told a House Banking subcommittee. "Now, the pending rules will establish LTV maximums that are far below those currently being used by lenders for residential loans, which will result in a significant tightening of credit availability and a sharp drop in housing production."
 The proposed rules fail to distinguish between residential and commercial loans. For example, a construction loan for a $30 million office building and a construction loan for a $100,000 single-family home would fall under the same LTV ratios.
 "The housing industry has suffered disproportionately during the credit crunch because of the crisis in commercial real estate," said Thompson. "There has been an overwhelming tendency to paint all real estate with the same brush, even though the residential sector has continued to perform well."
 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 are proposing two alternative methods for establishing limits on real estate lending based on an LTV ratio.
 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 as much as 60 percent of the appraised value of raw land, 65 percent for construction and land development (75 percent under certain conditions), and 80 percent on one- to four-family residential property 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, 65 to 80 percent for construction and land development and a range of 80 percent to 95 percent for loans on residential property. 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 Thompson. "Risk characteristics are significantly different for residential and commercial properties, even in the early stages of land acquisition and development."
 Second quarter Gross Domestic Product grew by a meager 1.4 percent and new home sales during this period were down 11.4 percent from the first quarter. Housing starts are also off significantly from their March peak of 1.34 million units on a seasonally adjusted annual basis. These economic indicators are evidence that the housing industry and the economy remain on unsteady footing.
 "If finalized, the regulators will impose further hardships on our nation's housing production system at a time of tenuous economic performance," said Thompson. "In short, the joint regulatory proposal represents a disaster in the making for the home building industry."
 NAHB believes the imposition of real estate lending rules should not cause further disruptions in the availability of loans for the production of housing and that any final regulation addressing LTVs for real estate loans should incorporate the following four principles:
 -- 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 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- 8/4/92
 /CONTACT: Jay Shackford of the National Association of Home Builders, 202-822-0406/ CO: National Association of Home Builders ST: District of Columbia IN: CST FIN SU:


DC -- DC019 -- 6780 08/04/92 16:00 EDT
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Date:Aug 4, 1992
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