House of Representatives' Bill Wants U.S. Government to Guarantee Loans For Builders

North Carolina Representative Brad Miller (D-NC) who was the House Member that introduced the pending legislation is most concerned about the building industry’s job drain through out the United States.

As our contractors and builders through out the country struggle to get banks and other lenders to loan money for land development and construction, a North Carolina House of Representative Member has asked the U.S. Government to step up to the plate and start guaranteeing loans for viable construction and building projects.

We’ve gone from indiscriminate lending to indiscriminate refusal to lend, and it’s killing jobs, says Brad Miller.

Congressman Miller in concert with Congressmen Joe Baca (D-CA) and Steny Hoyer (D-MD) introduced the House of Representatives Bill 5409 (H.R. 5409), officially known as the Residential Construction Loan Guarantee Program.

We can’t tell 16% of the [Gross Domestic Product] to just hang around and wait for a while, says Miller, referring to the housing industry and its economic output.

H.R. Bill 5409 would require that the U.S. Government set aside $15 billion over a three (3) year period to be used for loan guarantees for land and building projects.  H.R. Bill 5409 is an amendment or tack on to another House of Representatives Bill that is currently moving through the House that, if passed, would extend $30 billion to small commercial banks for small business loans (SBA Loans).

The House Bill aims to reduce commercial bankers' or other lenders' risks by providing them with U.S. Government loan guarantees for eligible projects deemed to be "viable" by commercial banks and other lenders and the U.S. Department of the Treasury.  The builder or developer (borrower) must have a minimum financial net worth equal or greater than the guaranteed loan amount, and the loan itself can be used only for the acquisition, development, and construction of approved residential real estate projects.

The current House Bill provides the following:

• Loan to value ratio cannot exceed 75%
• Actual loan amount can not exceed the total building and development costs or 80% of the FMV of the real estate project
• 80% of the loan amount would be covered by the Federal loan guarantee

One-third of the guarantees would be made in areas where the lack of financing is most pronounced, as determined by the Department of the Treasury Secretary.  The loan guarantee program would expire three years after it is enacted.

Comments

[John Lithman]

I don't think that the problem is banks aren't lending. I think the problem is that businesses are just hesitant to hire anyone new right now until they have a good foot hold on what is going on with all of these bills coming out of congress. And I can't say that I blame them. Why take on new workers if you don't know if you're going to be able to hold onto them in the long run?

John Lithman

[Kim the real estate investor]

As a real estate investor and a realtor I can tell you that banks not lending has truely droped values. For example our urban core homes that were appraising and selling from $60,000 to $80,000 just a few short years ago now are going for $1,000 to $20,000 now. Same house, same condition, but as the primariy buyer in this area is a real estate investor, and as banks still will not lend to landlords unless they have other collateral to attach the loans to, they are forced to pay cash. And forcing them to pay cash means they will only buy the deal for a fraction of the current vale, driving values down even more.

Because the values are down, homes that would have normally sold, have mortgages higher than current values. So they go into default, and are foreclosed or sold short further reducing the values.

But if investors were able to get loans, while I don't think the home values would go up as high as they were a few years ago, I do think that many of the homes being foreclosed on would sell by short sale or other means and be a values would start at least to stabilize.

We can point to the first time home buyer market that has never had a loss of home loans and were even subsidized by the tax credit, at least in the Kansas City market the values did not go down and in some cases increased a bit. Sure there were more houses and the buyers could be a lot more picky, but the average first time home buyer houses were still selling. The short sale homes and foreclosures were selling lower, but they were still selling. (those urban core houses, they stopped selling until the values were at about 80% of the market 2 years ago(

[Staff]

You both make very good points. We see it from both perspectives. We obviously need hiring to pick-up in order to have a sustainable recovery. We also need real estate activity to increase and "normalize" in order to help fuel other hiring. These are both very important components.

[John]

I don't think the banks are lending. You can have an above an credit and sizeable down payment to 30-40%. How many people can afford that? They can't..so the banks just keep sitting there with the money the government loaned them and make money on it until they feel safe enough to loan it out.

[Mike Johnson - Mortgage Broker]

It's hard not to see a general trend of over-correction on the part of lending institutions and governmental agencies. It's making the market extremely difficult. The standards required to meet this governmental guarantee are very high.

[Government Grants]

My goal is to try to create my very own project since you don't see any positive jobs out there.

Could anyone provide any hints or sites as to how to find government grant money to start my personal small business? I have been looking on the internet but each and every web site requires for money and I have been previously told by the unemployment office to stay away from the websites that ask for money for grant related information because they are scam. I would be sincerely grateful for any advice.