According to a regulatory filing, Banner cut back construction and land development loan originations by 36 percent in 2007, to $855 million, and made even more drastic cutbacks in 2008. By the end of last year, Banner said it had reduced the outstanding balance of one- to four-family residential construction loans by $233.9 million, down from a peak of $655 million in the summer of 2007.
Nevertheless, at the end of September, two dozen developers who owed Banner Bank more than $1 million each had stopped making payments on their debts, the company said.
Among those defaulting on their loans were a developer with 196 unfinished lots in a subdivision near Seattle, who owed $18 million, and the builder of a partially completed, 49-home subdivision in "a desirable suburban location" near Portland who owed $11 million.
Banner has also been forced to take back more and more of the property put up as collateral by developers. The $10 million in real estate-owned property on Banner's books at the end of September included a subdivision with a book value of $4.5 million "secured by 74 fully developed and marketable single-family building lots" in Salem, Ore.
By the end of the year, the dollar value of REO inventory and repossessed assets on Banner's books had more than doubled, to $21.9 million, the company said.
With new-home construction in many regions having essentially ground to a halt, there will inevitably be a shortage of new homes once a recovery sets in because there will be a lag before builders can catch up with demand, Larsen said.
"Nobody is building new homes right now, and once these are gone, they're gone," he said.
Banner's low rates have caught the interest of the news media, including columnist Laura Rowley, who called the incentive program "a model of how the Troubled Asset Relief Program is supposed to work," in her "Money & Happiness" column published by Yahoo! Finance.
Larsen said the attention the program has received is not unwelcome, but comes as something of a surprise, given that many builders offer incentives to buyers. It may be that the program is easier for consumers to grasp than seller contributions or interest-rate buy-downs, he said.
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