NVR Credit Deal Restricts Lending
|
TOOLBOX
   Resize
COMMENT
 Discussion Policy
 CLOSE
Comments that include profanity or personal attacks or other inappropriate comments or material will be removed from the site. Additionally, entries that are unsigned or contain "signatures" by someone other than the actual author will be removed. Finally, we will take steps to block users who violate any of our posting standards, terms of use or privacy policies or any other policies governing this site. Please review the full rules governing commentaries and discussions. You are fully responsible for the content that you post.
Who's Blogging  |
Saturday, August 25, 2007
The mortgage unit of NVR, the Washington region's largest home builder, said yesterday that a borrowing agreement it struck with a consortium of banks bars it from using a line of credit to make riskier home loans.
The restrictions could shrink the Reston company's pool of potential buyers, an analyst said, as the building industry struggles to whittle down an excess of unsold homes. The move is aimed at limiting lenders' exposure to the global credit crunch.
Builders that have in-house mortgage operations typically finance about 70 percent of the homes they sell through those units, said Gregory E. Gieber, an analyst at A.G. Edwards & Sons. "If people can't get loan commitments from these units, the builders have a tougher time selling houses."
The agreement, disclosed in a filing with the Securities and Exchange Commission, said that the lenders extended NVR Mortgage Finance's ability to borrow from a $125 million line of credit for one year, until Aug. 21, 2008.
But the money cannot be used to make subprime loans, less risky Alt-A loans, which generally serve people who do not document their income, or "piggyback" mortgages, which split the purchase price of a home between two loans, one sizeable loan and a second, smaller loan with higher interest.
Second loans are especially risky for lenders. If borrowers lose their homes, proceeds from the sale typically go to the first loan. What's left, if anything, is used to pay the second loan.
Many financial institutions have stopped or curtailed the same types of loans that NVR Mortgage Finance's bankers have targeted. But Gieber said this is the first time he knows of that a builder has publicly announced limiting its use of such loans through its mortgage units.
"I have to believe that this will become industry-wide," he said.
The mortgage unit's lenders are U.S. Bank National Association, Comerica Bank, National City Bank and Washington Mutual Bank.
In July, NVR said its second-quarter profit fell to $90.7 million from $190.4 million, and its revenue dropped 25 percent to $1.32 billion. The company could not be reached for comment last night.
