WASHINGTON -- Home builders have bombarded bank and thrift regulators with letters protesting proposed limits on real estate loans.

The builders argue that the proposed tightening of lenders' loan-to-appraised-value ratios would drive them out of business.

2,100 Letters Generated

Robert Buchert, president of the National Association of Home Builders, spearheaded a letter-writing campaign that generated 550 letters to the Office of Thrift Supervision, 550 to the Federal Reserve Board, 700 to the Office of the Comptroller of the Currency, and more than 300 to the Federal Deposit Insurance Corp. as the comment deadline approached on Monday.

Mr. Buchert himself wrote that the proposal as worded "would have a devastating effect on home builders and the housing sector of the economy."

But the builders were not alone in warning of dire consequences.

Mickey W. Dry, executive vice president of Wachovia Corp., Winston-Salem, N.C., wrote that if the final rule were too rigid, it "would severely depress a weak real estate industry ... as well as force more creaditworthy borrowers to seek financing outside of regulated financial institutions."

Rule Dropped in 1982

The protest were prompted by a proposal that regulators issued in June, after Congress had mandated a restoration of loan-to-value limits that were removed in 1982. Lawmakers blamed that changes for encouraging the speculation that worsened the thrift crisis of the 1980s.

Congress allowed the regulators some flexibility in setting the loan-to-value rule, and the banking agencies offered two options for comment:

* A flexible approach, in which banks could make realty loans ranging from 50% to 95% of appraised value, depending on type of loan (land, preconstruction, home equity). Higher ratios would have to be justified to regulators.

* Industrywide standards of 60% on raw land, 65% on preconstruction, 75% on construction, 75% on improved property, 95% on one- to four-family housing and home equity.

The builders say even the first approach, which some bankers have said they prefer oven an enforced, rigid standard, is not flexible enough. They would prefer to see both options scrapped.

"For the last five years I have been holding on by the skin of my teeth," T.D. Bulwinkle, president of Benchmark Builders Inc., Goose Creek, S.C., told the Office of Thrift Supervision. "A change in the maximum loan value ratio of 65% might be the last nail in the coffin, not only to me, but to thousands of other small builders."

"If this regulation is put into effect, we'll be out of business," wrote J.L. McIntosh, president of M&H Development Co., in Bellevue, Wash. "I cannot think of any of our projects that we've done over the past 18 years that would have been feasible if these rules were in effect."

Roland Bergeron of Bergeron Builders Inc., Simpsonville, S.C., said that with a loan-to-value ratio of 65% in effect he could build only seven to 12 houses a year, instead of 10 to 15, and would have to lay off six of his 25 employees.

"My whole business becomes marginal at less than 10 houses per year," he said.

Called Highly Restrictive

Patricia T. Habicht, counsel with First Chicago Corp., said the rule would tighten credit, "hindering the ability of banks to compete effectively in the marketplace." She added that it would "severely restrict" a bank's ability to advance funds in workout situations.

Donald Coonley, chief national bank examiner with the OCC, said it is nuclear whether the agencies will be able to write final rules by the Sept. 19 deadline because of the flood of letters still coming in. He said the agencies will carefully weigh the comments before decisions are made.

"I don't think we are going to come out with something so draconian that it is going to kill anything," he said. "It's not finished until the last comment comes in."Bane of the BuildersLending limits proposed by FDIC,as percentage of appraised value Option #1 Option #1 Bank sets Industry-wide limits withinType of loan these ranges limitRaw land 50-65 60%Preconstruction 55-70 65Construction 65-80 75Improvedproperty 65-80 751-4 family 80-95 95Home equity 80-95 95Conditions would apply forsome types of loans

Subscribe Now

Access to authoritative analysis and perspective and our data-driven report series.

14-Day Free Trial

No credit card required. Complete access to articles, breaking news and industry data.