by Calculated Risk on 11/25/2008 07:15:00 PM

From the WSJ: Home Builders Hammer FDIC

Home builders from Florida to Texas are railing against the Federal Deposit Insurance Corp., saying the agency is cutting off construction financing from seized banks and demanding early repayment of current loans.
...
In the third quarter, 15.2% of single-family-home construction loans were delinquent, up from 12.5% in the previous quarter, according to Foresight Analytics, an Oakland, Calif., research firm. About 20.5% of condo construction loans were delinquent, up from 16.5%.

It takes some real digging to determine if a Construction & Development (C&D) loan is in trouble. These loans are typically made with interest reserves, and they tend to blow up when the construction project is completed (but not before since the payments are made from the interest reserve).

The FDIC put out a guidance on C&D loans and interest reserves in June, see: A Primer on the Use of Interest Reserves

Of particular concern is the possibility that an interest reserve could mask problems with a borrower’s willingness and ability to repay the debt consistent with the terms and conditions of the loan obligation.

The FDIC is probably just following their own guidance and freezing the C&D loans until they make sure the projects are viable.