Wachovia Unloads Troubled Loans

Wall Street Journal (08/20/08) P. C12; Corkery, Michael; Wei, Lingling
LandCap Partners, a residential land business, is spending $40 million to acquire distressed land and construction loans from Wachovia Corp. that have an estimated actual worth of $75 million to $80 million. Many of the loans are plagued by delinquencies or declining values of the collateral--a fate shared by other bank loans as more home projects fail. Foresight Analytics reports that delinquencies in the segment hit 8 percent at commercial banks in the second quarter--up from 7.1 percent in the previous quarter and 2.3 percent a year earlier; and research firm Zelman & Associates predicts that U.S. banks could write off as much as $165 billion in residential construction loans and land assets as bad debt over the next five years. The LandCap deal represents just a sliver of the $350 million in such loans that Wachovia put on the market earlier this year; but LandCap's top man, Jeffrey Gault, says future loan purchases are likely. LandCap will service the loans, foreclose if all other strategies fail and sell any foreclosed holdings to other builders.