Agency Is Accused of Curbing Credit From Seized Banks
Home builders from Florida to Texas are railing against the Federal Deposit Insurance Corp., saying the agency is cutting off construction financing from seized banks and demanding early repayment of current loans. The FDIC, which has become a leading advocate for modifying mortgages of financially strapped homeowners, isn't extending that same tolerance to the housing industry, the builders said.

Home Builders Hammer FDIC
Agency Is Accused of Curbing Credit From Seized Banks

Home builders from Florida to Texas are railing against the Federal Deposit Insurance Corp., saying the agency is cutting off construction financing from seized banks and demanding early repayment of current loans.

The FDIC, which has become a leading advocate for modifying mortgages of financially strapped homeowners, isn't extending that same tolerance to the housing industry, the builders said.

"They can do anything they want," said Earl Snyder, president of Snyder Construction Co. in Englewood, Fla., whose construction lender, Freedom Bank, was taken over by the FDIC on Halloween.

Four days later, Mr. Snyder met with FDIC officials, and was told that he had 60 days to pay off his $2 million construction loan and he couldn't draw additional cash to finish 10 houses that he is building in southwest Florida. "I felt like a criminal and I had done something wrong," said Mr. Snyder. An FDIC spokesman said that construction loans tend to be "problematic" and the "FDIC must take into consideration what is in the best interest of the creditors of the failed banks."

The FDIC and state regulators have been sorting through the wreckage of souring construction loans that have been weighing on the balance sheets of the nation's small- and medium-size banks. The nation's largest home builder by number of houses built, D.R. Horton Inc., reported an $800 million loss for its fourth quarter on Tuesday and said that it expects 2009 would be a more challenging year.

In the third quarter, 15.2% of single-family-home construction loans were delinquent, up from 12.5% in the previous quarter, according to Foresight Analytics, an Oakland, Calif., research firm. About 20.5% of condo construction loans were delinquent, up from 16.5%.

Meantime, the amount of outstanding single-family-home construction loans fell 8% in the third quarter and has contracted 33% since the peak in the third quarter of 2006, Foresight Analytics said. Analysts said the credit squeeze is a painful, but necessary process in curtailing building and controlling the glut of homes.

However, some home builders said the FDIC is exacerbating difficult market conditions by crimping credit to companies that still are able to sell homes and make interest payments to lenders.

Brian Binash, a partner of Wilshire Homes of Houston, said he has been unable to draw money from his $10 million credit line since lender Franklin Bank was put into FDIC receivership Nov. 7. The FDIC has taken over 22 banks this year, and the agency said Tuesday that its problem list increased to 171 banks at the end of the third quarter from 117 at the end of the second quarter. "We have performing loans that are not in trouble and we can't get money to continue to do the business we need to do," said Mr. Binash.

He said the FDIC's actions are preventing some Houston builders with loans from Franklin from making payroll and finishing houses under construction.

The lending squeeze is hitting the nation's smallest home builders the hardest. For months, banks have been requiring builders to cough up more cash because the value of the underlying collateral on loans -- land and unsold homes -- has plummeted.

The builders are taking their complaints to Washington. In a letter that will be sent to Treasury Secretary Henry Paulson, Sen. Ron Wyden (D., Ore.) said banks that are participating in the financial-rescue plan should allow builders more "leeway."

"We are concerned that this situation is creating an unnecessary deteriorating strain on our economy," Sen. Wyden wrote.

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