ABA Banking Journal - January 2008 - (Page 22) COVER STORY Keeping that hard hat handy L 22 JANUARY 2008/ABA BANKING JOURNAL www.ababj.com/subscribe.html ILLUSTRATION BY COREY HOCHACHKA/IMAGES.COM ast year saw the counmembers of ABA’s try’s largest home America’s Community builders backing out Bankers Council in late of options or contracts on October, and in follow-up land that hadn’t been built discussions in December. on or developed yet. The group discussed local D.R. Horton, Inc., the building and credit trends, as country’s largest homewell as regulatory and exam builder, ended its fiscal year issues in construction and on Sept. 30, 2007, with a net commercial real estate credit. loss of $712.5 million. A “We don’t do business hefty portion of that came with volume builders,” confrom writeoffs of deposits tinues Bradford. Indeed, ten and pre-acquisition costs years ago, he says, the bank Community bankers find challenges of related to land option conhad perhaps two real estate tracts that the company loans on its books at all. But residential construction lending and other chose not to pursue— with competition, the bank commercial real estate finance a variable affair evolved its balance sheet, $107.3 million for the year, and $40.3 million just in the like so many other commucompany’s final quarter. nity lenders, and today To Horton and other large builders, houses aren’t homes, but about 65% of the bank’s loans are in construction and developinventory. When it doesn’t move, it has to get moved. So big ment and other types commercial real estate. Two-thirds is builders began selling homes in certain markets at cut-rate prices, owner-occupied, mostly in-market. simply to clear the balance sheet and hope for better times. But in So what happens in Horton’s backyard is what happens in the real estate market, ripple effects abound. Part of the fire sale First National’s world, pretty much. was seen in Horton’s own backyard, Fort Worth, Texas. “The D.R. Hortons of the world are the real volume builders, Community banker George M. Bradford, president at Fort and they’re losing their shirts right now,” says Bradford. “So Worth’s National Bank of Texas, saw these ripples hitting his own they’re dumping their homes, and that’s been causing some customers, the smaller builders that his $113.7 million-assets bank problems, because the custom builders that we finance can’t.” finances. Bradford was one of eight community banking execuThe typical builder that First National works with puts up tives taking part in an ABA Banking Journal roundtable with perhaps four new homes a year, keeping two on “spec.” “We’ve got one builder who just stopped building, until By Steve Cocheo, executive editor Horton got all of their inventory in his area sold,” says http://www.nationalbanktexas.com http://www.ababj.com/subscribe.html
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