Special to Realty/Builder Connection
The National Association of Home Builders has told Congress that inappropriate appraisal practices and the acquisition, development and construction lending crisis that has choked off credit for home builders threaten to prolong the current housing and economic downturn.
Testifying before the House Small Business Subcommittee on Finance and Tax, NAHB Chairman Joe Robson, a home builder from Tulsa, Okla., said these two issues “are placing enormous pressure on home builders’ bottom lines and, for many, endangering their ability to survive the economic downturn. Additional credit resources could be extremely helpful to them and other small businesses to bridge the divide and survive to the eventual economic recovery.”
While there are several signs that the housing market may now be at or near bottom — new and existing home sales have stabilized, the inventory of unsold homes continues to fall and single-family housing starts have posted four consecutive monthly gains — Robson said the appraisal and credit crunch problems are headwinds that continue to buffet any significant housing recovery.
“The inappropriate use of distressed and foreclosed sales as comparables in determining new home values is needlessly driving down home prices and forestalling an economic recovery,” he said, citing a recent NAHB survey that found 26 percent of builders are losing sales because appraisals on their homes are coming in below the contract sales price.
These appraisal practices are a major contributing factor to the current AD&C credit crisis. Falling appraised values for land and subdivisions under development have led some financial institutions to stop lending to developers and builders, to demand additional equity and even to call performing loans.
NAHB is calling on housing and federal financial regulators to adopt clear, concise regulatory guidelines that will allow appraisers to develop realistic valuations based on sales that are truly comparable.
To maximize the ability of the Small Business Administration to help home builders and other small businesses to gain access to credit, NAHB recommends increasing funding and the loan size for the America’s Recovery Capital loan program. This program offers small businesses guaranteed deferred-payment, interest-free loans of up to $35,000 that can be used to pay principal and interest on existing loans; qualify small business debt, including mortgages; and for other purposes. The $255 million program continues through Sept. 30, 2010 or until the funding is exhausted.
NAHB also supports proposed improvements to the SBA 7(a) program, which provides capital for a range of purposes, including construction and supplies, to increase the participation of non-traditional lenders in SBA programs.