KeyCorp, Comerica, PNC See Builder-Loan Problems

The damage to banks caused by underperforming or defaulted mortgages is well known. Now there is starting to be evidence that banks are getting hurt by another big area of the real-estate industry: development.

Builders have taken out loans for developments in what had been some of the country's hottest real estate markets. But falling home prices and rising default rates among homeowners is leaving those new housing projects in the lurch.

As companies report their financial conditions for the first quarter, there is mounting evidence that the builder loans are not only dragging on business, but may force some to raise loan-loss reserves, the American Banker said.

KeyCorp and Comerica were among the companies that cited deteriorating loans to home builders in Southern California when they showed worse than expected conditions.

BB&T Corp. said it tripled its loan-loss provisions. PNC Financial cited slowness along the mid-Atlantic seaboard. And Zions Bancorp. pointed to weakness in the Southwest.

PNC Chairman James Rohr put it bluntly in a conference call this week:

"We are in the worst housing market in recorded history of the United States."