DEL.ICIO.USMETRO ATLANTA
Builders with unsold homes get little leniency from bankers
Restructuring loans may not be in banks’ best financial interest, experts say
The Atlanta Journal-Constitution
Thursday, January 01, 2009
In his 35 years as a home builder, Bobby Lunceford earned plenty of accolades. Kennesaw Citizen of the Year in 2000, home builder of the year in 2003 and outstanding Georgian, according to a resolution approved by state lawmakers in 2004.
None of that mattered, however, when Lunceford tried to work with five banks to save his business, Bob Lunceford Properties, after home sales plummeted. He asked the banks to suspend loan payments until his homes sold, at which time the loans would be paid off.
Elissa Eubanks/eeubanks@ajc.com
Bobby Lunceford (right) builds solar shades with friend and associate Wayne Trundle in a warehouse next to Trundle’s home in Ranger, Ga. ‘We’re just trying to make it through the down time,’ Lunceford says of working with Trundle at his business, Majesty Manufacturing.
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Instead, “the instant we ran out of money all but one bank began foreclosure proceedings,” Lunceford, 56, recalled.
He and his wife, Becky, lost their home, their cars, their life savings and their business, and now live in a rented house.
Builders with cash flow problems want more leniency from banks, but banks are trying to shed problem loans to improve their health.
Mounting loan losses erode a bank’s worth and put it at risk of running afoul of regulators, who can order a bank to make changes or even shut it down.
“The regulators are hammering the banks for not following the strict interpretation of all the rules, especially as they relate to residential real estate construction,” said Joe Brannen, president of the Georgia Bankers Association. “Unfortunately, this gets perceived and portrayed as banks not being willing to work with our borrowers.”
A bank that modifies a troubled loan to help a builder still carries a troubled loan, so its financial picture hasn’t improved.
Therefore, “my incentive to work with that borrower from a regulatory standpoint is largely gone,” said Steve Bridges, president and CEO of the Community Bankers Association of Georgia.
At the same time, foreclosure is considered the last option because banks face steep losses if they have to sell foreclosed properties.
Banks concerned about falling property values are requiring reappraisals. When the new valuations show declines, builders are being told to pay off loans or pay them down. When they can’t do that, the properties are foreclosed on.
“It appears that there is not-so-subtle pressure from regulators to get new appraisals and immediately write down loans based on them,” said Steve King, president of the Greater Atlanta Home Builders Association. “When that occurs the banks often decide that they are better off foreclosing, since they have already been forced to reduce the value of the loan on their books.”
Rob Braswell, the state banking commissioner, said banks have been advised to work with builders on loans when doing so strengthens the bank’s position.
Mark Schmidt, regional head of bank supervision for the Federal Deposit Insurance Corp., concurred.
“The primary objective should be to reach the best economic conclusion for the bank,” Schmidt said. “Sometimes that means shutting things down and foreclosures. Sometimes that means working with the borrowers to try to get through the economic situation we’re in. That’s largely a bank decision.
“In a deteriorating economy,” he said, “there are probably more banks that are choosing the foreclosure route, not knowing how bad it is going to get. It’s most difficult to work out a loan restructuring in a declining environment.”
King said “the privately expressed view of the federal regulators is that builders built too many houses and banks made too many real estate loans, and now both groups must pay the price.”
State and federal regulators shut down five Georgia banks in 2008, largely because of bad real estate loans.
Meanwhile, more than 900 metro Atlanta home builders went out of business from September 2006 to September 2008, the Greater Atlanta Home Builders Association says. The organization’s membership is off about 25 percent.
Brannen said “relative to all banks in the country, our banks are doing slightly better than their peers.” But that doesn’t mean they’re doing well.
About 40 percent of Georgia banks are unprofitable, and banks now employ 9,740 fewer people than they did in the fourth quarter of 2007, Brannen said.
Non-performing loans in Georgia are more than double the national average, late loans increased $5.1 billion to $7.6 billion, and foreclosed real estate is up by $1.3 billion, he said.
At a recent hearing at the Capitol, two housing experts said Georgia’s residential market is in a depression. Legislators called the hearing to try to figure out what can be done to encourage home buying and rescue builders. Some of the testimony blamed banking for putting homebuilders out of business.
The General Assembly convenes Jan. 12, and new bills might be introduced calling for tax incentives, expanded down payment assistance or reductions in home-building regulations.
“A downpayment assistance obviously would be very, very beneficial to citizens,” Lt. Gov. Casey Cagle said after speaking at the hearing.
Strict regulation is not the sole reason for builder-banker tension, Brannen said.
“It would be disingenuous for us or anyone to blame everything on the regulators,” he said. “One reason why they are being forced to be so strict is that some of what was being done by the bankers to work with homebuilders was stretching basic lending fundamentals.
“For the vast majority of our banks, especially in metro Atlanta, real estate lending is the predominant lending they do,” he added. “It is in our collective interest that builders remain successful and solvent, and to go beyond any call of duty to save a loan customer.”
Lunceford used to have 13 full-time employees and many more subcontractors. Now he does small projects and builds churches for a volunteer group called Builders for Christ.
“When houses don’t sell, there’s got to be some relief in regulations,” he said. “Foreclosure doesn’t help anybody.”
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Comments
By Kevin
Jan 4, 2009 1:08 AM | Link to this
Its simple the goernment bailed the banks out with our money. Now the banks owe us.We should demand payment from THE BANKS,,, if we dont get reimbursed from the BANK.....keep the collateral....the car you own on ...the house you own on ...the credit card you owe on...as repayment from them for the money YOU THE TAX PAYER BAILED THEM THE BANKS OUT WITH.People its time to stand tall and make DEMANDS, TAKE WHATS RIGHTFULLY YOURS!!! They can't throw us all in jail and they don't have the man power too...lol
By Gerry
Jan 3, 2009 9:40 AM | Link to this
The IRS should be investigating all these builders to make sure that all the illegal workers they employed paid their Social Security and federal income taxes.
Then we should bill these builders for the benefits to illegal aliens that local taxpayers had to pay! These builders put their own interests and those of foreign nationals before those of US citizens. Why should we support them by purchasing their homes!
By JC
Jan 2, 2009 6:28 PM | Link to this
Tony Glaze, you have to have net worth to have lines of credit. Net worth is also your working capital invested in the business to grow the business, whether it home building, manufacturing or retail. Saving for tough times is done. But when the financial and market stops, the economic cycle tanks, all can be gone in an instant, even with the well capitalize companies to make up for the devaluation of the investment. Unfortunately, everyone can get shafted, subs, suppliers and employees. What type of business do you operate? Apparently, it is not tied to the financial market.
GaNative, maybe its predatory lending that caused this mess, but its mostly the banking industry selling these overleveraged mortgage securities to other investors that cannot make their margin calls to the banks when the default rate exceeds their capital infusion for the investment. The results are exactly what you said about the tax liabilities and the wave of bankruptcies to follow, in many industries, not just home building.
By JC
Jan 2, 2009 6:13 PM | Link to this
Captain Obvious, why didnęt houses sell? They did for many years, even prior to beginning of the housing market collapse. Banks stopped lending. See the comment to PR below.
PR, agree that supply and demand runs our capitalistic economy. What caused the over supply? Customer demand. What caused the housing market to stop selling and collapse? The banks stopped lending! Agree the greed in the banking financial industry has caused this potentially FRAUDULANT conditions that we as developers to the consumers are victims. Itęs not just the builders.
By Don Craig
Jan 2, 2009 4:28 PM | Link to this
As a followup to deregulation.
Has anything that has been deregulated, airlines, electricity, natural gas, banking, etc., etc. ever in the long run actually ended up cheaper, more cost effective or with better service?
Electricity in CA and TX deregulated ... any cheaper or better service? Nope!
Airline service any better or stable? Nope!
Banking (aka financial markets) any cheaper, better rates, better service, more stable? Nope!
I do not like unions either but they are necessary, necessary to offset the greed of the corporate bigwigs. They used to be about ensuring the American worker had better/safer working conditions, no child labor, length of work week and so on, but have morphed into what they have to do today.
I would rather that things like laws, regulations, unions and etc. go like the dinosaurs but society has to have them to survive..
Those states which have mandatory liability insurance laws, remember them stating that when everyone had insurance your rates would go down? Did they? Mine never did!
Laws, regulations and even religions are there for one purpose, to force people to do the right thing because they have proved time and again that they will not do so willingly. Take away those laws and then greed and all the other vices take over.
Now we also do not need laws that already cover what is on the books ... it's already against the law to commit murder, we do not need such laws such as hate crime rules that have recently been passed. You commit murder, depending on the state you live in, you get sentenced to whatever sentence for it. It does not matter if the victim where white, black, purple, green, etc. ... you do the deed, you get to do the XXXXX.
By quantumfoam
Jan 2, 2009 4:22 PM | Link to this
To; GaNative; You are partly right,However? Preachers only preach to us about lives we should lead. We can either follow their guide or reject same. Corrupt politicians make laws that we must adhere to or face penalties!
By hrw
Jan 2, 2009 3:43 PM | Link to this
The United States for years put our image out that we are the strongest, biggest, mightest, etc. Nation and yet, we can't put our own people to work, create jobs, keep our people moving forward. Yet, I well to do now knows what it is like to be looking in from the outside. People scamming the public and real estate agents tricking people and soon or later, we all know things was just to good, when it actually was not. This whole thing started bursting with Enron, it was already cracking before enron. Now we have everybody wanting a bail out; so the big people get monies and leave the taxpaying public broken and have no where to turn. This is not a quick fix and it will take everybody who is paying taxes to get a bail out if we are to see our nation back on its feet. How they are going to do it...well, we all shal see!
By hrw
Jan 2, 2009 3:26 PM | Link to this
The United States for years put our image out that we are the strongest, biggest, mightest, etc. Nation and yet, we can't put our own people to work, create jobs, keep our people moving forward. Yet, I well to do now knows what it is like to be looking in from the outside. People scamming the public and real estate agents tricking people and soon or later, we all know things was just to good, when it actually was not. This whole thing started bursting with Enron, it was already cracking before enron. Now we have everybody wanting a bail out; so the big people get monies and leave the taxpaying public broken and have no where to turn. This is not a quick fix and it will take everybody who is paying taxes to get a bail out if we are to see our nation back on its feet. How they are going to do it...well, we all shal see!
By GaNative
Jan 2, 2009 3:11 PM | Link to this
Well said Don Craig. I never want anything else dereggulated in my life. Sonny Perdue suckered Georgians into deregulating natural gas and look what it did for us. I use space heaters in my home, but because of all the silly junk fees the gas providers charge, I still pay about $40.00 a month for gas.
By Don Craig
Jan 2, 2009 3:03 PM | Link to this
>By Puzzled
>We have been in a recession since 2007.
Wake up people! This got started a long time ago! Much longer than '07. The recession accelerated greatly last year but has been building for at least 7 or 8 years and yes indeed helped greatly thanks to Bush & Co. policies. And I even voted this fool into office twice! God, what was I thinking?
The Big 3 (and yes even the foreign transplants!!!) are struggling due to no one buying cars, not the cost of labor, pensons, materials, etc., etc. The Big 3 bailout will do nothing to fix the real problem of nobody buying, this is nothing but a Band-Aid; a feeble attempt to close the open gaping wound instead of sewing it shut. Until that happens they and other businesses will not survive.
BTW, the foreign transplants already got bailouts from their mothers but the GOP want the Big 3 (aka labor) to jump hoops to get any money. Why doesnęt Wall Street have just as many if not more hoops to get their greedy hands on the green?
Does anyone remember the S&L bailout?
1. We (taxpayers) never got our money back.
2. Charles Keating
3. The Keating 5 (guess who was one?) McCain!
The above past occurred in the late 80s to early 90s and was a direct result of deregulation. McCain stated early in '08 that we needed to deregulate the health care industry just like what we did for the banking and financial industries.
Yep, just what this country needs ... more greed without someone looking over your shoulder.
When will my brother (suffering with a lot of other contractors) get his bailout like AIG and others?
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