Wall Street Journal (07/02/08) P. C1; Corkery, Michael; Forsyth, Jennifer S.; Wei, Lingling
Wall Street believes it is only a matter of time before the nation's small and regional banks acknowledge large losses from their mounting volume of soured construction loans made primarily to home builders. The Federal Deposit Insurance Corp. reports that $45.4 billion of the $631.8 billion in construction loans outstanding at the end of March was delinquent, and banks are expected to post additionally sharp increases in such loans when they announce upcoming second-quarter results. During the housing boom, a large number of small and regional banks doubled down on construction loans after being boxed out of the home mortgage market for the most part by large originators. Now these banks' difficulties are threatening to shrink the home building industry, and Credit Suisse analyst Dan Oppenheim estimates that up to half of the closely held builders will not be able to weather the tightening lending environment and residential property market downturn.
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