Banks Continue Measured Push Into Construction Lending

For only the second time since the financial crisis, banks increased net construction lending during the third quarter. Construction loans held on balance sheet inched up $3.6 billion, of which $1.1 was for single-family and small residential properties; $2.5 billion, for multifamily and broadly-defined non-residential development.

Banks’ legacy exposure to construction lending has improved significantly over the last several quarters. From a peak default rate of nearly 17 percent in early 2010, the percentage of construction loans 90 days or more delinquent or in non-accrual status has fallen to 4.9 percent, half its year-ago level. Construction loans in REO have been halved, as well. Not everything is improving. The recidivism rate of construction troubled debt restructuring is still 47 percent.