Thursday, October 9, 2008

Greenspan Says Major Homebuilders Face Chapter 11 Bankruptcy in 2008, 2009

The collapse of the subprime mortgage market may push some big U.S. home builders toward Chapter 11 bankruptcy protection starting next year, according to bankruptcy advisers and lawyers who specialize in the real estate industry.

The weakest publicly held builders are staying out of bankruptcy by relying on the profit they made when sales boomed, and on the public debt they sold in those years, said Ronald Greenspan, a lawyer and financial adviser to the creditors of four bankrupt subprime mortgage lenders. Home builders issued $3.6 billion in public debt in 2005 and 2006, though only $600 million of that comes due this year, he said.

"There is no sword over the industry's head yet," Greenspan said Saturday at a conference of the American Bankruptcy Institute in Washington. "That doesn't mean the industry is not wounded. Instead, the breaking point could come in 2008 or 2009."

The real estate market has been powered in recent years by subprime homebuyers, who typically have shaky credit histories. Now that such loans are no longer being made, demand for new homes will plunge, pushed down even further by the more than one million homes now in foreclosure, Greenspan said. At least 30 home lenders have halted operations or sought buyers in the past 12 months, including 5 that went bankrupt since November.

None of the major, publicly traded home builders have declared bankruptcy, though there are signs that many are in financial trouble, Greenspan said, declining to name specific companies. The value of shareholder equity for some companies equals or exceeds the value of the undeveloped land that the companies have under contract, Greenspan said. As the housing downturn continues, that land will fall in value.

Today in Marketplace by Bloomberg
Bank of America moves quickly to cut jobs after earnings disappointSony profit helped by camera sales, but game console still trailing rivalsMicrosoft profit soars 23 percent, beating expectationsThe perceived risk of owning the bonds of some of the biggest U.S. home builders has risen since a wave of bankruptcies hit the mortgage industry that caters to homebuyers with poor credit histories. Credit default swaps have more than doubled in price since Feb. 1 for two of the four biggest builders, D.R. Horton and Pulte Homes, and for Toll Brothers, the big luxury-home builder.

Credit default swaps are financial instruments based on bonds and loans that are used to speculate on a borrower's ability to repay debt, and were created to shield bondholders from default.

Kara Homes, a New Jersey builder, was one of the first major, closely held home builders to file for Chapter 11 bankruptcy protection, in October. Such regional builders are likely to precede any of the big public companies into insolvency, said Kara's bankruptcy lawyer, David Bruck.

By 2008 or 2009, some of the larger companies will have to restructure as the housing crunch continues, he said, adding, "It's only a matter of time."


Anonymous said...

how about leaving the post as it originally was with the link to Thanks.

Homebuilding Industry News said...

Many builders, such as Mercedes Homes, continue to hang in. With the government interventions and bail-out, everyone remains optimistic.

Anonymous said...

That would be Mercedes Homes.. Thanks!

Anonymous said...

Mercedes Homes hanging in there?

Give me and others out there who are watching a break.

Could it be the only reason is Mercedes Homes are using the worse sub-contractors ever - most cannot speak english and run whenever a camera shows up; Why?

Mercedes Homes being built today a junk!!!

Anonymous said...

Three posts on here in support of Mercedes Homes with the link to their website?

Mercedes Homes are so poorly build that they have to post on blogs as anonymous said... links and all.


Anonymous said...

How funny is this - TWO of your annoymous posts are from Mercedes Homes.

Anonymous said...

It is NOT funny, if you are one of the unlucky people to have bought from Mercedes Homes.

Anonymous said...

"...Mercedes Homes continue to hang in." What a statement, followed by a post from them.
" That would be Mercedes Homes..Thanks!"
The only way Mercedes Homes is hanging on is building shoddy, over priced homes. This may work in the short term, but word will get out and their sales will drop more than they have already!!!

Anonymous said...

Mercedes Homes filed bankruptcy today January 26, 2009!
So much for hanging in there Mercedes, why all the denials? You knew full well where you were headed but didn't care who you hurt. Shame on you!

Anonymous said...

What a bunch of liars! Mercedes Homes knew when they posted on here October 13th what the H*** they were going to do file bankruptcy!
Liars, and Frauds sure does describe the Bueschers!
I'm sure if someone looks into their sales and closings, fraud will be found. Have they stopped since filing bankruptcy? NO, they have not. Have they screwed subs, employees and homebuyers? YES!