Builders Ask Taxpayers for Help Building Homes
Three Democrats in the House recently introduced legislation that would require the Treasury to guarantee $15 billion in construction loans. Backers say the program will give builders a boost until the housing market recovers. The measure, which would be open to all builders, addresses what has become a big divide within the building industry: While the downturn forced many private players to halt construction and suspend land acquisition, publicly owned builders have been able to soldier on–while losing money–benefiting from the advantage of selling stock to raise money and financing debt long-term. Public players have also reaped monetary windfalls, thanks to a new law letting companies apply losses from 2008 or 2009 against the previous five years, instead of two.

The Wall Street Journal
Builders Ask Taxpayers for Help Building Homes
By Dawn Wotapka and Jessica Holzer
The nation’s private home builders, crippled by a lack of access to construction financing, have turned to taxpayers for help building more homes.

Three Democrats in the House recently introduced legislation that would require the Treasury to guarantee $15 billion in construction loans. Backers say the program will give builders a boost until the housing market recovers.

The measure, which would be open to all builders, addresses what has become a big divide within the building industry: While the downturn forced many private players to halt construction and suspend land acquisition, publicly owned builders have been able to soldier on–while losing money–benefiting from the advantage of selling stock to raise money and financing debt long-term. Public players have also reaped monetary windfalls, thanks to a new law letting companies apply losses from 2008 or 2009 against the previous five years, instead of two.

“The big builders have already received their backstop. What they got was their lifeline – the five year look back. We’re just looking for own,” says Craig Perry, president of privately-owned, Florida-based Centerline Homes Inc.

Rob Bowman, president of privately held Lancaster, Pa.-based Charter Homes & Neighborhoods, agrees. “The playing field is certainly not level when it comes to financing,” he says. “We have to find a way to compete from a capital standing.”

Under the proposal, the government would guarantee the loan, meaning it would pay only if the builder defaults. Still, the legislation faces a tough battle because Congress may be loathe to subsidize more home construction, given the overhang of unsold and foreclosed homes already weighing on prices. Independent housing analyst Thomas Lawler estimates there are 1.5 million more vacant homes than normal.

Home builders have seen access to capital dry up as regulators have cracked down on banks to reduce their real-estate exposure. Such loans, including those to builders, have performed miserably in the housing bust, pushing many banks to failure. As a result, builders have seen loans recalled by lenders. They’ve also been asked to pony up more collateral, even if the loans are current, according to the National Association of Home Builders, a trade group that supports the legislation.

Builders complain that potentially successful building projects are being stalled or killed.

“We’ve been trying to push the regulators for well more than a year to be discriminating about telling banks to limit their real-estate exposure,” said Brad Miller (D, N.C.), the bill’s main sponsor. “We’re not talking about continuing to build in overbuilt markets. We’re talking about continuing to build in markets [where] there is a demand.”

To be eligible for the proposed program, a builder’s creditworthiness and record of successful residential building projects would be considered. The builder would also need, at minimum, a net worth equal to the loan guarantee.

Projects would have to be considered “viable,” a determination made by the Treasury Secretary. That earned scorn from Mr. Lawler, who is known for speaking his mind. “Banks weren’t able to figure it out because they were eviscerated by losses on their loans,” he said. “The Treasury Secretary can’t.”

http://blogs.wsj.com/developments/2010/06/02/builders-ask-taxpayers-for-help-building-homes/