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Housing Crunch

How would a real estate downturn affect you? Well, it starts with your bank . . .

This story appears in the January 2003 issue of Entrepreneur. Subscribe »

As home construction continues to defy the recession, Cassandrasat the Federal Deposit Insurance Corp. are worried about whathappens when the boom ends.

In its fall report on the banking industry, the FDIC reportedthat the high level of home mortgages and construction loans bysome community banks, particularly in the Southeast, may spelltrouble for lenders in the event of a real estate downturn. If theindustry is hit by widespread defaults, other borrowers will likelysuffer. "Banks may have less of an appetite to add on othertypes of risk," says Robert R. Davis, managing director ofgovernment relations for America's Community Bankers, a tradegroup in Washington, DC. "So it pays to have more than onesource of credit."

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