WASHINGTON, March 29 — Proposals by federal banking regulators to tighten restrictions on commercial real estate (CRE) lending could further exacerbate a severe acquisition, development and construction (AD&C) credit crisis that is choking off new home building activity and threatening the fragile housing recovery now under way, according to the National Association of Home Builders (NAHB).
"We have received scores of reports from builders across the nation who have been unable to obtain AD&C financing for viable projects or have experienced adverse treatment regarding an outstanding loan," said NAHB Chairman Bob Jones, a home builder from Bloomfield Hills, Mich. "At a time when we are struggling to restore the flow of credit for housing production, any regulatory response to CRE lending must be done in a responsible manner that takes into account the differences between commercial real estate and residential construction loans."
Comptroller of the Currency John Dugan said recently that banking agencies plan to issue new tougher standards to rein in CRE lending and are considering hard limits on the amount of these holdings on bank ledgers as well as more stringent underwriting standards and increased capital requirements for CRE loans.
While NAHB believes that banks should engage in sound, balanced underwriting standards when considering all types of loans, the pendulum has already swung too far on the restrictive side in the current regulatory climate.
"The stories we are hearing from our members all echo the same theme: Banks are not issuing new AD&C loans and are calling loans in good standing in order to get them off their books because of pressure from regulators," said Jones.
At a time when financial institutions need to be engaged in responsible lending practices to spur job creation and economic growth, establishing overly harsh limitations on construction lending will do just the opposite by further stifling the flow of credit for housing production, he said.
"With the housing market struggling to regain its footing, regulators need to be issuing more flexible guidelines that will encourage banks to maintain funding for residential AD&C loans in good standing that fall below their underlying value," said Jones. "Tightening the screws further could have a devastating impact on the housing market and jeopardize the budding economic recovery."
ABOUT NAHB: The National Association of Home Builders is a Washington-based trade association representing more than 175,000 members involved in home building, remodeling, multifamily construction, property management, subcontracting, design, housing finance, building product manufacturing and other aspects of residential and light commercial construction. NAHB is affiliated with 800 state and local home builders associations around the country. NAHB's builder members will construct about 80 percent of the new housing units projected for 2010.