By Dina ElBoghdady
Washington Post Staff Writer
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.