Florida Mortgage Lender Feeling Financial Heat From Housing Market Decline

Coast Financial Holdings Inc. has stopped making residential Florida home loans and expects to report a material adverse impact on part of its loan portfolio, after a company building homes for its customers ran into financial difficulty amid a sluggish Florida housing market.

Coast, the holding company for Coast Bank of Florida, said in a January 19 filing with the SEC that the local builder, whom it did not identify, has construction contracts with 482 borrowers for which the bank has committed about $110 million in residential Florida mortgage loans.

More than half of the committed funds have been disbursed at this point in time, the filing reported. The home builder has indicated it may not have sufficient financial resources to complete its full slate of existing construction contract commitments.

The bank has been told that the builder has effectively ceased construction activities, and that subcontractor and other liens have been placed on several of the construction projects.

The outstanding contracts are directly with the borrowers, who are responsible for completing the construction of their single-family homes and repaying debt. But the failure of the home builder to complete the work may hurt the ability of the borrowers to pay off their loans and may adversely affect the value of the bank’s collateral.

Coast said it is taking steps to determine the impact of the developments on the bank and on the borrowers. A review of each individual Florida home loan and a broader review of the residential construction loan program are underway, to determine if any other builder relationships are at risk.

While the review is ongoing, Coast is not issuing residential construction loans, the filing said. Coast said it was not able at this time to provide an estimate of the potential impairment charge, or to determine if its loan origination status is adequate for the situation.