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Builder Loan Bill Has Hypocritical Bent

A new bill to provide guarantees of new home construction loans is at odds with recent criticism of government support for the banks, says <I>TheStreet</I> reporter Debra Borchardt.



) -- The politicians that chastised financial firms for putting taxpayer dollars at risk are now asking the Treasury to guarantee loans to home builders.

Congressman Brad Miller (D., North Carolina) and co-sponsors Joe Baca (D., California) and Carolyn Maloney (D., New York) have proposed legislation (

HR 5409

) asking the Treasury to guarantee loans to eligible home building companies. The legislation to create the Residential Construction Guarantee Loan Program had a stealthy roll out on May 26 as many were preparing for Memorial Day holidays.

Under the bill, the loans can be up to 75% of the land value and 100% of the construction costs with the taxpayer covering 80% of the borrowings. One third of the guaranteed loans must be made in areas where it's determined there is a need for new home construction. Presumably this means Nevada, California and Florida are left out, but really which state is in need of additional home inventory these days?

The legislators are requesting $15 billion be made available for these loan guarantees. The impetus behind the bill is apparently that banks aren't lending to home builders, which makes sense since they are still so busy working off foreclosure inventory. But residential construction spending rose 4% in April, so why do these politicians feel the need to put their constituent's tax dollars at risk? Let's follow the money.

Congressman Miller lists both the National Association of Home Builders and the National Association of Realtors as top contributors. In fact, five of the top 25 contributors for Miller are associated with real estate and construction. Congressman Baca also lists NAHB and NAR as top contributors. Maloney gets money from the Real Estate Roundtable.

Rep. Maloney has said, "I am tired of reading report after report about the questionable spending by financial institutions, who have been the recipients of taxpayer dollars." Yet she is fully prepared to spend tax dollars to guarantee loans for builders like

Toll Brothers

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whose stock is sitting near a 52 week high and saw orders rise 41% February through April.

It's no surprise who is happy about this legislation.

"We applaud these lawmakers for taking the lead to address the housing production credit crisis that is jeopardizing the housing and economic recovery now under way," said NAHB Chairman Bob Jones, who builds luxury homes in the Detroit area.

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None of the publicly-traded home builders contacted by


would comment on the legislation but judging by recent headlines, they seem to be doing alright without the guarantees. Red Bank, N.J.-based

Hovnanian Enterprises

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recently posted a smaller loss than analysts expected for its fiscal second-quarter results, and it finished the quarter with $460 million in cash and equivalents, and had purchased 500 lots and optioned another 1900.


KB Homes

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on Thursday made a deal to buy 664 parcels in Southern California with plans to open eight new communities this year. Not to be outdone,

Toll Brothers

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has purchased land this year in North Carolina and Pennsylvania with plans for new communities in Texas with land purchased this year.

That doesn't sound like a housing production credit crisis to me.


Written by Debra Borchardt in New York.