An FDIC Resource for Credit-Crunched Builders
Amid ongoing concerns about the “jobless recovery,” the Federal Deposit Insurance Corporation played host to a symposium on January 13 that was designed to sharpen the focus on boosting lending to small businesses. The event featured a “Framing the Issues” panel that included FDIC Chairman Sheila Bair, Federal Reserve Chairman Ben Bernanke, Senator Mark Warner (D-Va.), and Tom Bell, chairman of the U.S. Chamber of Commerce.
Another group helping address the issues, the “Confronting the Obstacles Panel,” included public and private-sector officials. The audience included a variety of stakeholders. And the upshot for small-business owners, including those in the homebuilding industry, is that the symposium prompted the FDIC to create a hotline and website that enable small business owners to highlight issues or problems they might be having as they try to negotiate acquisition, development and construction credit with lenders.
The AD&C credit crunch “that has cut off the flow of credit for housing production remains NAHB’s top priority,” the National Association of Home Builders said in a press release about the FDIC service, whose representatives are available 8 a.m. to 8 p.m. Monday through Friday Eastern Standard time at 866-924-6242 (an NAHB line that will patch callers through to the FDIC). Association members need to have all relevant information at hand before they make the call. Alternatively, they also can provide full details to the FDIC by filling out a business assistance form on the agency’s small-business lending website: www.fdic.gov/smallbusiness
The collateral question
A lot of the early conversation at the symposium zeroed in on a broad economic issue – weak sales, which Bernanke and Bair said have been slowly improving and are expected to continue trending up in 2011, with overall economic growth in the 3% to 4% range. That is not rapidly enough shave big points off the unemployment rate, but it should be enough, as Bernanke put it, to make small businesses with improved sales commensurately more creditworthy, in a kind of “virtuous circle” of economic improvement.
One of the issues that Bair noted – and which is pertinent to many builders and other businesses with real estate assets – is the tendency for FDIC examiners to criticize loans based on the decline in the market value of real estate collateral.
“We do not want our examiners criticizing an otherwise creditworthy loan just because the collateral has declined,” she said, while acknowledging that “most small business lending is a higher risk form of lending that generally is collateralized, and to the extent home equity has provided the collateral, as well as commercial real estate, and those valuations are down significantly as well, this is going to be a continuing problem.”
However, Bair added, “we’ve asked for examiners to focus on the borrower’s ability to repay, not to collateral declines.”
As NAHB Chairman Bob Nielsen noted in the press release, speak up if you’ve got a lending problem. “Strong member participation is vital to raise greater awareness of the AD&C credit problems builders are facing and to find constructive solutions that will restore the flow of credit to our industry. So once again, I urge any NAHB members who are experiencing lending problems to weigh in with the FDIC today.”