CONTENTS:
Fannie Mae Under Fire
New Structural System Weathers Charley's
Wrath
Texas Tackles Workers' Comp Crisis
Big Builders See Gains in Customer
Satisfaction
Florida Requires Ring-Shank Nails for
Hurricane-Zone Roof Sheathing
Offcuts
A regulator's report of "cookie jar" accounting sparks
hearings and a criminal probe
Fannie Mae, the federally created financial corporation that
serves as a major market maker for home mortgages, is facing a
barrage of regulatory scrutiny, a criminal investigation, and
Congressional hearings in the wake of a harshly critical report
from a watchdog agency charged with keeping an eye on the
lending giant's practices.
A September report by the Office of Federal Housing Enterprise
Oversight took Fannie Mae to task for in essence cooking the
books to make the company's financial performance look better.
The report alleges that Fannie Mae's management team set aside
a "cookie jar" cash fund and used it to keep reported income up
during actual down periods, smoothing out the company's
earnings reports from quarter to quarter so that short-term
trends would not spook investors into pulling out of Fannie Mae
stock.
The "cookie jar" allegation might trigger criminal charges
because of a conflict of interest: By boosting reported
earnings, executives may have not only suckered investors, but
also inflated the value of their own stock options and even
earned themselves higher cash bonuses. Equally serious is a
charge that Fannie Mae accountants deferred the write-off of
certain operating expenses to a later accounting period to
improve the company's financial report, with the same possible
motive of personal financial gain.
Any
instability in Fannie Mae is a potential worry for the home
building industry: Fannie Mae looms large in the world of home
sales. The nation's second largest financial company (only
Citicorp is larger), Fannie Mae purchases around half of all
the conventional mortgages issued in the U.S., repackaging them
into large bond issues and selling the bonds to investors of
all stripes.
The bonds are popular with fund managers because they add
stable earnings to an investment portfolio. But it's home
builders and homeowners who reap the direct benefits from
Fannie Mae's activities: As a ready buyer for home mortgage
loans, Fannie Mae keeps the mortgage banking industry stoked
with cash, stimulating a strong flow of mortgage lending that
has kept home buyers buying and builders building, even as
other industries have in recent years flagged.
Big builders who finance their own sales rely heavily on
Fannie Mae. Many large builders earn more from the mortgage
lending side of their businesses than they do from the
home-building side. After earning origination fees on each loan
they issue, they can immediately roll the loans over to Fannie
Mae for another profit, and at the same time step away from the
risk of a homeowner default. Meanwhile, by bundling the loans
into large, diverse packages, Fannie Mae cuts the risk to the
bond investors whose cash is floating the whole arrangement,
and spreads that reduced risk over a wider pool of
lenders.
A hiccup or a choke? Fannie
Mae's stock has already dropped sharply in reaction to the
allegations. If the company is forced to restate its earnings,
the stock could continue to fall, and Fannie Mae has already
promised regulators that it will increase its capitalization
with further bond issues, storing up cash in case the worth of
its mortgage-loan holdings weakens. All these factors could
translate into higher mortgage rates for home buyers, and a
cooling of the home building market.
But the company's underlying mission — bundling home
mortgages into bonds to spread risk and support homeownership
— remains a strong one. With population growing,
productivity rising, and land, labor, and materials still
scarce, demand for homes continues to outstrip supply, and
homes continue to be a strong personal investment. That ride is
far from over, say analysts, and most see little reason to fear
that stricter accounting at Fannie Mae will amount to more than
a brief speed bump.
— Ted Cushman
Back to
TopNew Structural System Weathers
Charley's Wrath
On August 6, home builder Brian Bishop put the finishing
touches on three affordable homes in Port Charlotte, Fla., and
turned them over to the owners. He had built the homes using an
innovative new structural system designed to resist high winds
better than standard framing. A week later, the system got its
first real-world test. Hurricane Charley blew through the
state, leveling or damaging 30,000 homes. The eye wall passed
through Port Charlotte, but Bishop's homes emerged unscathed.
Two of the homes remained completely intact, and the third was
only slightly damaged when a palm tree landed on the roof. "It
was a minor leak," says Bishop. "It was quickly patched."
Stronger SIPs. Most new
Florida homes use wood trusses tied to block or wood-framed
walls with steel strapping. In a wood frame, additional straps
tie the pieces of the frame to one another and to the
foundation. Bishop's homes used none of these techniques. His
company, Home Front in Venice, Fla., offers an alternative to
wood-frame and concrete-block construction: a panelized home
system with reinforced concrete and steel structural insulated
panels (SIPs).
The workers setting a roof panel in place
on this Florida home (left) are using a new structural system
designed to withstand high winds. The houses built with the
system — including the one on the right — rode out
last August's Hurricane Charley with barely a
scratch.
The panels are standard SIPs, but the wall panels replace the
oriented strand board facings with fiber-cement board, and the
roof panels with aluminum. This gives the home resistance
against flying debris. To withstand the high pressures caused
by hurricane-force winds, the builder assembles the panels
around a welded steel frame. The frame consists of a steel
ridge beam that runs the length of the house and steel columns
sunk into the home's concrete slab.
Dade County test. Bishop
engineered the system to meet the wind-load requirements for
Dade County, which are the strictest in the nation. To pass, he
had to build a complete house in a wind tunnel at a Miami
testing center, where it endured 9,000 cycles of winds of up to
200 mph, then was hit with three pieces of 2x4 lumber shot out
of a cannon at 39 mph. Because the house was tested as a
system, it must be built as one; builders can't choose bits and
pieces of it and still meet code.
The homes are comparable in cost to a concrete-block house, but
dry-in takes days rather than weeks. Bishop says that the
walls' R-20 insulation translates to a $50-per-month summer air
conditioning bill. And the absence of wood framing eliminates
termite worries
Bishop is offering the system to builders in Florida and
elsewhere. He says that about 50 homes have been built using
his system in the last three years, some by Home Front and some
by others. But after a particularly bad hurricane season,
builders are taking a closer look. Before Charley, "we were on
track to build 100 homes," says Bishop. But by early September
orders were pouring in.
"Now," he says, "because of the storm, we have hundreds more."
— Charles Wardell
Back to
Top
Texas Tackles Workers' Comp
Crisis
A state "Sunset Commission" advisory panel assembled to
troubleshoot the Texas workers' comp system is recommending
"drastic changes," including the abolition of the Texas
Workers' Compensation Commission (TWCC). Doctors, employers,
insurance companies, and injured workers have all been
complaining about the Texas system for years; state
representative Burt Solomons, the panel chairman, sums it up:
"Nobody likes it."
Doctors certainly don't. A recent survey by the Texas Medical
Association (TMA) found that fewer than a quarter of Texas
doctors accept workers' comp patients. San Antonio neurologist
Richard Senelick told the San Antonio Express-News,
"The entire system needs to be blown up. Most of us have
withdrawn from it because it is so unfair." Every treatment
chosen or bill submitted takes a special phone call, and it
takes an average of two months to get a treatment plan approved
— and five months to resolve disagreements or billing
disputes.
Nevertheless, Texas pays more per comp claim than any other
state — while covering fewer treatments than most. It's a
truism in the insurance industry that slow processing makes
cases more costly and outcomes worse. Texas is the poster child
for that problem, according to panel chairman Solomons: A
quarter of all Texans hurt on the job do not return to full
employment. Time out of work averages 21 weeks per injury, and
physical recovery is reported to be 75 percent lower than in
other states.
Meanwhile, the high cost of comp creates an economic drag for
the state. It's not just the comp premiums: Texas is the only
state in the U.S. where employers can opt not to carry comp
insurance at all. But if they don't, they're exposed to
ordinary liability lawsuits from injured workers, which aren't
allowed in states where comp is mandatory. So Texas employers
who opt not to carry comp are bidding up the cost of general
liability insurance instead — for themselves and for
everyone else in Texas.
To clean up the mess, the Sunset Commission recommended
completely abolishing the TWCC and giving its functions to the
Texas Department of Insurance (TDI), where a special
customer-service division would be set up to speed cases to
resolution.
The TMA's Dr. David Henkes told reporters that "it only makes
sense" to put the comp process in the hands of TDI, which is
familiar with claims handling. But Mike Hachtman, the TWCC's
current chairman, disagreed, saying that the TDI is not set up
to administer disputes over medical issues.
Hachtman said scrapping the TWCC would be "like replacing the
crew of the Titanic but not changing course. The Texas workers'
compensation system is still headed for disaster."
But with the AFL-CIO, the Texas Association of Business, and
the TMA all backing the plan, Hachtman is bucking heavy
political odds — and his agency will be lucky to survive
the next session of the Texas legislature.
—
T.C.
Back to
Top
Florida Requires
Ring-Shank Nails for Hurricane-Zone Roof Sheathing
The 2004 edition of Florida's building code has a new
nailing requirement for residential pitched roofs: All
sheathing must be nailed with ring-shank 8d nails at 6 inches
o.c.
The requirement grows out of research conducted by Ricardo
Alvarez, a professor at Florida International University's
International Hurricane Center, and his colleagues as part of
Florida's "Hurricane Loss Reduction Program." The program has
paid for extensive study of construction techniques and their
effect on building durability in high-wind events. After
testing the holding ability of ring-shank nails, Alvarez and
his team concluded that using the modified nails would provide
a major upgrade in strength for a barely noticeable cost.
In the Florida team's testing and other studies, 8d ring-shank
nails at 6 inches o.c. have shown an uplift capacity of 292
psf, while ordinary 8d common nails provide only 126 psf of
uplift capacity. "Currently prescribed 8d common nails would
only meet allowable design uplift pressures for some limited
roof conditions, roof heights, and only up to wind speeds of
120 mph," said the team in their code change proposal. "The
proposed 8d ring-shank nail would perform adequately under all
roof conditions and heights, from 15 feet up to 40 feet,
including gable ends in any exposure." According to data in the
proposal, the added cost for a typical house would be about
$7.
Press stories in Florida hailed Alvarez's research as a
breakthrough, but the holding power of ring-shank nails was
established long ago. "As the inventor of threaded nails, Maze
Nails is not surprised," said Roelif Loveland of Maze Nails in
an e-mail message. "They've been available for 70 years." Maze
introduced a screw-shank nail in 1933, and Independent Nail,
now owned by Maze, brought out ring-shank nails in 1934.
A 1958 paper by the late Virginia Tech professor George Stern
argued that threaded nails should replace bright nails for many
applications, particularly for house construction in wind
zones: "There is no doubt that a frame assembled with threaded
nails results in a stronger house which may be able to resist
the forces of wind better than the weaker frame assembled with
plain-shank nails ... its walls are less likely to crack and
its joints are less likely to open." A house built with green
lumber would perform properly only if threaded nails were used,
argued Stern, because they maintain more holding power as wood
shrinks and moves. His testing also showed that ring-shank
nails had as much as a fourfold holding advantage over smooth
nails in flooring applications.
Information on the Florida Building Code is available at
www.floridabuilding.org. —
T.C.
Back to
Top
Big Builders See Gains in
Customer Satisfaction
Smaller builders have always touted construction quality and
customer satisfaction to differentiate themselves from big
production companies. That may get harder as the big guys
improve their image in those areas. J.D. Power and Associates,
a marketing and research firm based in Westlake Village,
Calif., reported in September that, as a group,
production-builder customers have been happier with their new
homes in 2004 than they were in 2003. The company said
satisfaction scores increased in 18 of 20 metropolitan markets
over the previous year. The biggest jumps were in Minneapolis;
Raleigh-Durham, N.C.; Las Vegas; Austin, Texas; and the
DenverColorado Springs region.
"The bar continues to be raised by builders committed to
improving customer satisfaction," says Paula Sonkin, executive
director of the real estate industries practice at J.D. Power.
"In this kind of market, with builders increasingly focused on
exceeding customer expectations, simply staying consistent will
not allow builders to remain competitive."
—
C.W.
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Top
Offcuts
OSHA has launched a Web site containing
information and tips related to the safety and health of
residential construction workers. Created with input from the
NAHB, the Residential Construction Safety and Health site
(
www.osha.gov/ SLTC/residential) features
information about OSHA standards that apply to residential
construction, hazards unique to the industry, and available
solutions.
The NAHB Research Center has posted an updated
version of the "Builder's Guide to Frost Protected Shallow
Foundations" on its Web site. The manual examines the
applications and limitations of FPSFs, and includes information
on design methods and recommended construction techniques and
details, such as how to use FPSFs for home additions and
walkout basements. The new version also contains detailed
drawings showing insulation details. Tables include a
simplified comparison of the FPSF design requirement and the
energy-code design requirement, and ways of calculating the
design of an FPSF in different climates. To download the guide,
go to www.toolbase.org/fpsf.
Back to
Top