Trickle-Down Economics

A recent story from the News and Observer (which just announced layoffs) described the increased pressure many banks are applying to builders. This particular article highlights SunTrust and their demands for repayment or refinancing from one builder in order to avoid foreclosing on his homes. In the past, builders could refinance homes that stayed on the market longer than expected with a simple request. Now banks like SunTrust are increasing interest rates, requiring more equity in the deal or denying refinancing request altogether.

This lack of liquidity often puts the builder in a situation where he has to CHOOSE who gets paid. If he pays the bank, his contractors might not get paid, forcing them into financial harship. If he pays the contractor, the bank might foreclose and everyone could lose.

Basically, without the ability to refinance, the builder isn't the only one that stands to lose. Anyone who might have poursed resourced into the project could be stuck with unpaid debts. In fact, this trickle-down scenario has already caused many contractors to file bankruptcy.