Banks have been struggling to deal with home mortgage defaults. But even as the number of home defaults seems to be growing, a new group of borrowers is about to enter the default crisis.
Home builders, condominium developers, and land speculators are facing growing problems making payments on their loans. There is no money to build and, even if the home gets built, there are no buyers. According to an article in the Wall Street Journal, those banks which are heavily tied to home construction loans have begun to dump them, many at steep discounts, a precursor to billions of dollars in new losses.
In testimony before the Senate Banking Committee on Thursday several bank regulators testified on the seriousness of the situation. Federal Deposit Insurance Corporation Chairman Sheila Bair pointed to banks that are not diversified or with high exposures to residential construction and development as being of particular concern. Also smaller banks are not in a good position to offset losses. Even larger banks in states like Nevada and Arizona that have been hard hit by the housing crisis are already reeling from home loan defaults and may not be able to survive another round of write-offs in the building sector.
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