Work is stopping on some home construction projects and builders' home sales have been lost because of the tumult that takes place after the Federal Deposit Insurance Corporation takes over failed banks and thrift institutions, the National Association of Home Builders asserted today, Nov. 20, in a letter to FDIC Chairman Sheila Bair.

"Builders with outstanding loans that are placed under FDIC control are frequently unable to contact a decision maker to deal with routine but time-sensitive matters related to loan draws or extensions," NAHB president and CEO Jerry Howard wrote in his letter. "Some builders have encountered what seem to be arbitrary criteria on whether or not loans receive continued funding. Again, these developments are unnecessarily turning good loans into problem assets that will significantly exacerbate the losses that must be absorbed by the FDIC and the building and banking industries."

The NAHB's letter echoes the results of a ProSales survey conducted last month. That poll found that just over 42% of dealers said their contractor customers were having slight difficulty obtaining loans, while another 36% said their customers were having significant difficulty.

The NAHB said reports of severe financing problems stemming from FDIC bank takeovers "have started proliferating among builders in Texas, a part of the country whose housing markets have been performing notably better than the national average. One builder, for example, complained that he has been unable to receive a draw on his construction loan for more than four weeks and, as a result, has been unable to finish work on homes that have already been sold. He said that there is a possibility that the FDIC will also require another appraisal of his homes, which would cause more delays and further jeopardize the viability of his project."

Nineteen banks have been taken over by the FDIC this year, but only one of them was in Texas: Houston's Franklin Bank, a state-chartered savings bank with $5.1 billion in assets and deposits of $3.7 billion. It was forcibly merged on Nov. 7 with Prosperity Bank of El Campo, Texas.

"Home builders are having extreme difficulty in obtaining credit for viable projects, and those with outstanding construction and development loans are experiencing intense pressure as the result of requirements for significant additional equity, denials on loan extensions and demands for immediate payment," the NAHB's Howard wrote to Bair. "In many cases, performing loans are rendered nonperforming as a result of these actions."

Howard asked for an opportunity to meet and work with the FDIC to address what he described as "this serious and urgent issue."