Builders helping banks to make ends meet

Charles Ray’s company, CCM Homes, is hustling to finish a house in Lawrenceville so it sells by the end of the month. Still missing: countertops, carpeting, outlets, light fixtures and appliances.

Ray, however, isn’t the owner of the three-bedroom brick dwelling. A bank is.

While the housing downturn has sharply reduced new-home starts and forced lenders to take back many properties, it’s also opened up a new opportunity for builders trying to outlive the slump.

They’re finishing jobs other builders started so banks can dispose of the dwellings.

The clean-up work doesn’t compensate for the fall-off in home construction and sales, but it is helping builders stay afloat and avoid further cutbacks. CCM is working on 45 bank-owned homes.

“It’s good money to tide us over, but it’s nowhere near the money we make on building houses and closings,” said Ray, who started his Lawrenceville company 14 years ago. “We’re struggling like everyone else. But we’re hanging on.”

CCM used to build 120 houses a year; the goal this year is half that number. The company has slimmed down to 12 employees from 25.

At least it’s still around.

The Greater Atlanta Home Builders Association says it has lost about 900 builders since September 2006. Smaller by 22 percent, the trade group now counts approximately 3,200 members.

Some of the small builders still in business have quit putting up their own homes and are doing only fee work for lenders. Bigger companies are still building a few homes and helping banks.

Sharp Residential Builders, which rated near the top in a recently released customer satisfaction survey by J.D. Power and Associates, cut its workforce nearly 75 percent, company founder Tom Sharp said.

Finishing bank homes “is just a way to keep some of our better employees,” Sharp said. “It’s a nice subsidy,” but in no way makes up for the steep decline in construction, he said. “Not even close.”

Building out bank-owned houses used to be an insignificant part of the housing business when sales were strong. But soaring foreclosures mean lenders are stuck with a lot more houses. The number of metro properties scheduled for courthouse sales hit a new high in August — 7,967, according to Equity Depot.

Unsold inventory, including foreclosed homes, has to shrink if the market is to right itself. While the norm is four months supply, today’s inventory would take seven-and-a-half months to sell, according to Metrostudy, which tracks housing starts and closings.

Unfinished houses are particularly hard to move, so banks are investing in their completion. The cost per house ranges from a few thousand dollars to six figures, depending on the work involved.

Neither the Georgia Bankers Association nor the Community Bankers Association of Georgia has a tally of how many properties banks have taken back.

But “I feel sure it’s in the thousands as far as lots are concerned, and that may be true even on houses,” said Steve Bridges, president and chief executive officer of the Community Bankers Association of Georgia.

SunTrust Mortgage lists more than 250 Georgia houses for sale on its Web site.

Builders provide estimates of the cost of completion, then the banks decide whether to proceed. Sometimes a bank will finance the original, money-troubled builder if it’s a trusted business, said Joe Brannen, president of the Georgia Bankers Association.

Patrick Malloy Communities is working with four banks, a pension fund and a real estate investment trust, but it’s building homes from scratch and doing the sales and marketing, owner J. Patrick Malloy said.

“The prevailing feeling is raw land and lots are not saleable and that homes are,” Malloy said. “At some price they will clear the market.”

Lenders are employing Malloy’s company or Malloy is buying bank lots to build his own homes.

Deals involving lender-owned land are becoming increasingly important and next year “will be 35 percent of our business,” he predicted.

Cousins Properties, the big multifaceted development company, has said it’s looking to buy unfinished subdivisions on the cheap.

At the Scenic View Estates subdivision off Scenic Highway in Lawrenceville, CCM was hired to finish work begun by Sterling Builder Group. Sterling built or started several houses in the 99-lot subdivision before work stopped.

“Under normal circumstances this is not a bad area,” Ray said, standing outside the home that’s under contract. “You’re 10 minutes from downtown Lawrenceville. You’re 10 minutes from downtown Snellville.”

After Sterling ran out of money, Scenic View took on a haggard look and erosion became an issue. So CCM not only is building out the homes but mowing the grass and maintaining the silt fences.

The bank is investing $15,000-$20,000 in the house slated to close this month, Ray said. The buyer is receiving down payment assistance in a program that expires Oct. 1, so the sale has to be completed before then, he said.

In better times, that house might have sold in the mid-$200s. Today’s price, about $194,000.

Ray noted that some of the houses he finishes will compete with houses his company is trying to sell.

But that’s how the market is these days.

“We can do it and try to benefit from it,” Ray said about bank work. “Or let someone else do it.”