AD&C Loans Tighten With Financial Markets

Realty Times (05/12/08); Mosca, Peter L.
The National Association of Home Builders (NAHB) says the credit crunch has put a damper on land acquisition, land development and home construction (AD&C) lending, noting that such funding typically is provided only by federally insured depository institutions--which have either scaled back or eliminated such loans in the current market. According to former NAHB President Bob Mitchell, "The current financing quagmire for home builders vividly illustrates the importance of developing additional sources of AD&C credit." He suggests the creation of a secondary market for residential AD&C loans to minimize lenders' risk, which would make more funding available and reduce the negative effect of equity calls on builders. NAHB is calling for Fannie Mae to boost its AD&C loan purchase program, for Freddie Mac to implement such a program, for the Federal Home Loan Banks to allow the use of housing production loans as collateral for secured advances to member banks, for the FHA to insure the construction component of AD&C loans and for banking regulators to assume a "balanced approach" in their evaluations of AD&C loans.