Builders with Perfect Credit Records Are Being Foreclosed upon by Banks
Banks are foreclosing upon builders with perfect credit records. One of the victims is Dave Brown, a renowned builder in Tempe. All through the housing crisis he has been walking straight and has not missed a single mortgage payment. It was little wonder then that he was completely taken aback when the bank suddenly demanded millions as extra collateral. He could not comply and last October Morgan Chase foreclosed on five of his developmental projects. Soon after the business he had been running for more than three decades as Brown Family Communities downed its shutters.
Brown complained, “They treated me like a deadbeat who missed car payments. They wanted their money now.”
After having lorded over one of the greatest housing booms in American history today they are facing a catastrophic reversal of fortune. The housing crisis is more than two years old but as yet the banks have not descended harshly on the small house builders. But now they have started to flex their muscles and it seems a wide group will be pushed out of business within the forthcoming years. The concentration of the problem is in the Sun Belt – it having seen a spike in over-construction.
The sale of new houses has come to a halt and the builders are being challenged by waves of foreclosed units pushing into the market. The prices have gone down below the amount that had been spent on building these units. To sell them they have to shoulder losses. The amalgam of all these factors are bringing together the medium and small builders who comprise of 70% of the total number of builders down to their knees.
Steve Fritts of FDIC said, “The reality is, we’re seeing conditions in home construction and home finance that are the worst since the Depression.”
The financial crisis has hit the big public traded house building companies as well. So far they have been meeting their obligations because they are “better capitalized and they have cash on hand” said housing analyst Ivy Zelman. He explained that their position is much better than the private building companies.
As yet accurate details are not available of how many builders have gone out of operations since the beginning of the foreclosure related financial crisis. According to the National Association of Home Builders approximately 20,000 builders, calculating to a fifth of the group across the nation, have downed shutters during the previous two years.
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