Called Acquisition, Construction and Development (ADC) loans, they total 8.4 percent of all bank loans, just below a 30 year peak, and are used by developers to buy land, put in infrastructure and construct housing or commercial and office space.
Whoops.
Until they are cleared there can't be a stabilization in home prices," said Ivy Zelman, a longtime housing analyst at Zelman & Associates, who thinks the pressure will cause "hundreds of banks" to be closed and liquidated.
"The Federal Deposit Insurance Corporation doesn't have the funds to deal with all this. They don't have the scalability to deal with all these problem banks. They can't examine the smaller banks fast enough," she said.
I am sure the $500 Billion more Blair ask for will help.
Zelman estimates that U.S. banks risk having to charge off an additional $84 billion of ADC loans between now and 2013, equal to a hit of nine percent of Tier 1 capital.
Most banks with just that kind of loss would be in deep trouble. With the current losses we are moving towards a complete wipe of the bankers.
That will drive land and real estate prices down further and suck others into what amounts to a negative self-reinforcing cycle.
Till we figure out a way to break the cycle we are still going to keep going down. We need real solutions not the raping of tax payers and half baked ideas.
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