Battered small developers face collapse

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As home sales slow around the country, many small builders on are on the brink of bankruptcy as inventory and land remains unsold. As they fall behind on interest payments, they face foreclosure on developments. Some are financing developments with “recourse debt,” meaning that if a default would lead to banks seizing homes and personal assets. Smaller regional banks also face losses, after they turned to construction lending when large national lenders muscled them out of the mortgage business. Federal regulators’ decision on Wednesday to allow Fannie Mae and Freddie Mac to inject up to $200 billion into the mortgage market could alleviate the credit crunch and boost sales. 

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