According to Redfin, “more than one-third (34.1%) of U.S. single-family homes sold in 2021 were new construction, up from 25.4% a year earlier and the highest share on record.” Indeed, since the pandemic began, newly built homes have taken an increasing portion of housing inventory as homebuilders are attempting to make up for the lack of existing homes on the market. And it’s not just residential housing – experts believe a “great American commercial-building boom” is also occurring, leading to more shopping centers, doctor’s offices, and supply stores being constructed around the country.
To meet these incredible needs, lenders are generating a significant number of construction loans. While doing the deal is one thing, underwriting and managing the loan is quite another.
Overseeing the pre-closing and post-closing processes can be…. demanding because it includes lots of documents, lots of stakeholders and lots of risk.
How to Manage the Workload
Often, the construction draw process becomes a long, drawn-out chore for lenders, so outsourcing the services to a third-party vendor saves valuable resources. These services allow lenders to scale a construction loan pipeline and manage the detailed draw process more efficiently while simultaneously completing more projects faster.
When outsourcing the loan administration services, a construction loan administrator performs a wide range of duties. This individual or team of experts guides the loan through each step of the process, providing a point of contact for the builder, verifying work completed, and ensuring builders are paid after work is finalized.
Ultimately, the services free up lenders’ time, allow them to manage more loans, while avoiding compliance issues or wondering where draws stand in the process.
What’s Included in Loan Administration Services?
Loan administration solutions include a suite of processes, reports and services:
Pre-Close
- Contractor/Builder Assessment – Assists lenders by assessing and reviewing potential builders.
- Collateral Assessment – Ensures the building “idea” and documents are sound to mitigate risk after construction begins.
Post-Close
- Draw Administration– Manages the draw inspection process to ensure work is verified
- Orders draw inspections
- Gathers documents such as draw requests, lien waivers, invoices etc.
- Confirms permits are in place
- Verifies insurance
- Title Reports – Discloses a property's lien information, protecting the lender against unforeseen issues and concerns.
While the sophistication of the loan administration process is critical, it also depends on the size of the financial institution, staff, and complexity of the portfolio. Capabilities such as construction loan software, expertise of the team, and a sound loan administration system are critical to ensure efficiency and effectiveness.
Why Consider a Third-Party Vendor?
Since many banks offer in-house loan administration, why consider a third-party vendor to manage these services?
Simply put -- ease, speed, and risk.
- Eases Burdens – The loan administration process is time-intensive, requiring loads of paperwork and attention. A third party gathers and organizes all of the paperwork for the lender, minimizing the need for internal resources and saving time and money.
- Speeds Processes - Loan administration allows lenders to focus on the core business of closing more loans and leaves the nitty-gritty, detailed (and sometimes annoying) work to others.
- Note: Make sure the third party uses encrypted digital-based signature services to ensure speed and security.
- Minimizes Risk – Both prior to and after loan closing, a third-party vendor acts as a point of contact between the builder/contractor and the lender, taking the heat for any decisions made and acting as a defensive line against any unnecessary loan losses.
According to the CoreLogic HPI forecast, 2022 looks to be a strong year for housing, demonstrating an annual growth up 9.6 percent for the year. As the market maintains its surge in new construction residential and commercial properties, effective loan administration services help lenders stay on top of their key loan information, reduce workload and allow more time to close more loans 😉.
For more information about Trinity’s Loan Administration services, click feel free to contact us. We’d love to talk.
