The Florida Home Builders held a press conference today in which they had everything but the three-alarm sirens. Their unmistakable message: stop extreme bank lending practices that are jeopardizing their ability to hold onto what's left of their shaky industry.
Here's what's happening in a nutshell: Banks that gave loans to builders in better economic times are now reappraising the value of their loans. The loans were based on earlier projections of home prices and, now that those values have dropped -- by as much as 30 percent -- banks want builders to make up the difference. Banks are conducting "capital calls" and demanding large amounts of cash from these builders to restore the original loan-to-value ratio.
No surprise, the builders can't manage it. "The cash call is forcing builders into insolvency,'' said Jay Carlson, president of the Florida Home Builders Association. The building industry troubles that are already wreaking havoc on the state's budget, he said, "have gotten much worse and the result will be further deterioration of Florida's economy."
A contingent of home builders from Florida visited U.S. Sens. Christopher Dodd and Bill Nelson in Washington, D.C. last week and Florida CFO Alex Sink in Tallahassee on Monday demanding a time out -- not a bail out. They want a moratorium on lending insitutions calling in loans. They want government -- state and federal -- to help homeowners to stop the spiraling decine in homeownership that has 54,000 homes in foreclosure in Florida and homes around them rapidly decline in value. And they want Congress to stop banks from taking bail-out money on the front end, but closing credit to builders on the back end.
"This isn’t something we need to do in 60 to 90 days. This is something that has to be done now,'' said John C. "Chuck" Fowke, a builder from Valrico. "Without results now, the economic crisis that you read about will be a picnic compared to what’s coming."
* Earl Snyder, a builder of FHA and VA homes from Englewood, got into trouble when his lender was taken over by FDIC. Within days, they wanted him to repay his loan within 60 days. He sought out 15 different lenders to take over the loan. No luck. "I was treated like a criminal. Like I was the one who took the bank down."
* Don Weatherington, owner of Weatherington Builders of St. Cloud, is under contract with individual borrows for customs homes but the bank considers the loans from those customers trouble "despite the fact that these loans are current, paid on time and not in default.''
The banks wants to hold back more of the loan, leaving him with so little cash that he is in jeopardy of not paying his subconstrators and business partners. "It's forcing me to reconsider the number of employees that I retain."
* Fowke, from Valrico, describes it simply: builders are toxic. "Anybody with a construction line of credit is toxic,'' he said. "Our industry is being unraveled by the lending institutions."