Local builders tell of headaches with FDIC

Nov 26, 2008 (Houston Chronicle - McClatchy-Tribune Information Services via COMTEX) -- FBTX | Quote | Chart | News | PowerRating -- Local builders who had loans with defunct Franklin Bank SSB worry that the Federal Deposit Insurance Corp. could cost them business because of its cumbersome bureaucracy.

Bank regulators seized Franklin nearly three weeks ago and arranged for Houston-based Prosperity Bank to buy its $3.7 billion in deposits and $850 million in assets.

As part of the deal, the FDIC assumed control of Franklin's loans and other assets.

Some builders who had lines of credit and construction loans with Houston-based Franklin say they are having difficulty accessing their funds and that it takes too long for the agency to make decisions.

"We don't build widgets. We build expensive homes, and that requires a lot of cash," said Brian Binash, president of the Greater Houston Builders Association. "Without that cash flow, it puts a lot of businesses in harm's way. Nobody's making a lot of money these days. Cash is tight, and when you're building houses that goes quickly."

David Barr, a spokesman for the FDIC, said in an e-mail that it reviews all unfunded commitments on an individual case-by-case basis to determine which loans should receive additional funding.

Creditors come first

Construction loans are especially problematic for the banking industry in general, he wrote, but ultimately regulators have to consider what's best for the failed bank's creditors.

"For the assets that are not acquired by an assuming bank, the FDIC will immediately encourage borrowers of the failed bank to refinance their loan, as we typically will market and sell the assets of the failed institution beginning approximately 60 days from the date of closing," he wrote.

Binash estimated that about 25 builders and developers in the Houston area had lines of credit or outstanding loans with Franklin Bank.

Binash, who is also a partner at Austin-based Wilshire Homes, said Wilshire hasn't received a letter telling it to refinance, but it also hasn't been granted permission to draw on its $10 million credit line.

The FDIC's review process has led to requests for more information and is causing the types of delays not encountered at banks, he said.

Binash also complained that the borrowers haven't been kept in the loop about the process.

"We'll be fine," he said, "But it puts us in a position where we have to look for other banks.

Tough times

Borrowers may have a hard time finding another lender, said Dan Bass, managing director of Houston investment bank Carson-Medlin Co.

"Right now, it's a tough time to be refinancing," he said. "Unless you have a really good balance sheet and put down a lot of equity, it's hard to get good loan terms."

Builders who banked with Franklin are also worried the delays could put off buyers trying to close on homes.

Some deals aren't getting done because it's taking so long for title companies to get a clear title on the homes, some builders said.

They explained that the FDIC is slow in telling the title company how much the construction loan payoff is, which would clear the way for the home buyer to assume the title.

"If the buyer can't close because the title company doesn't know how much to pay, they're going to cancel," said Greg Yakim, president of Castle Rock Communities.

Yakim said he's been able to work around the FDIC for now, but worries that as many as six upcoming sales could be affected if buyers get impatient.

Delays inevitable

Bass noted delays are inevitable when regulators take over a bank.

"There's bureaucracy in place within the FDIC that just makes it difficult to turn things around as quickly as a bank could," he said.

Aside from the builders, delays can also hurt other banks that funded loans with Franklin Bank. That's especially true if Franklin was the lead bank.

"Some loans may be good, but until the FDIC decides what they're going to do with those loans, they're kind of in limbo," said Larry Fraser, chairman of Houston-based Independence Bank.

purva.patel@chron.com

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