Hint: It’s not your loan officers.
When a borrower comes in looking for a loan, the typical process is for one loan officer to work that loan from beginning to end. This standard procedure gives the borrower a great experience; they have one main contact with the lending institution, and the loan officer makes sure everything is handled properly and timely. It also makes for a clear-cut commission for the loan officer. But what about construction and renovation loans? Who manages the loan during the in-progress construction project?
We have talked to a lot of loan officers, and most don’t want to manage the draws for construction and renovation loan projects. However, LOs know if they originate a construction loan they will also be managing it, but for a variety of reasons. Typically we hear that there isn’t another resource in which to pass the management of the draw process. And some loan officers believe it’s their responsibility to personally handle the construction loan post-close, simply because that’s the type of personalized service they have always provided their borrowers: they are with them every step of the way until they get their loan. Maybe they want to have the most control over the project to make sure everything is handled perfectly. Or perhaps the loan officer doesn’t want to miss out on the mortgage from that two-time close product that comes around at the end of the construction project. Or maybe that’s simply the way it’s always been done at their lending institution.
Whether by choice or force, loan officers managing the post-close portion of the construction or renovation loan is a popular method, a method that we here at Land Gorilla advise against.
Despite its popularity, we believe it is a complete misuse of the loan officer.
Reasons Loan Officers Shouldn’t Manage Construction and Renovation Loans
Time is money: For a loan officer, time literally can be money. If loan officers are spending their time managing a construction loan and NOT creating new loans, that is money left on the table for both the LO and the lender.
Time is Time: Managing the draw process for all the loans in your pipeline can take a good portion of the day, especially if the draw process is managed with spreadsheets. And as noted above, this time could be used in other ways that will help close more loans and provide better service to customers during the origination process.
There’s high risk: Properly managing the draw process of construction or renovation loans takes training and a certain level of expertise. It can be fraught with risk and LOs who are unfamiliar with these potential pitfalls may expose the lending institution to more risk.
Builders and Contractors need a full time draw admin, not a part-time loan officer: Simply put if you want construction lending to be a recurring form of revenue; the best way to get more projects is referrals from builders. They will have the best experience if they have dedicated resources to the post-close process, not a loan officer who is also trying to close loans to make a commission that month.
Who Should Manage Construction Loans?
Get a dedicated internal team to do it.
With loan officers doing what they do best (originating and closing loans) move the responsibility of the post-close management of the construction or reno project to an admin or project management team at your institution. This may require building a team of one or two to start. Your in-house team will become proficient at the different qualifications for each loan program you offer, and over time will become experts. As demand grows, their skill level will also grow and they can effectively manage more and more loans. This team will be a great support to your loan officers: as LOs close loans, they seamlessly pass the loan off to the construction admin to manage post-close activities through to project completion. And if you have that two-time close product, set up an alert for the loan officer to cycle back to the borrower before the construction is complete.
Get software that helps the team be even more efficient.
Lenders typically use spreadsheets as the main tool to manage post-close construction and renovation loans. As experienced spreadsheet users, lenders are well versed in the pitfalls of spreadsheets, such as entry errors, repetitive entries, and mistakes that get lost in the depths of the spreadsheet. This single source of information on the loan is visible only to the loan admin; however many different stakeholders would like to get an understanding of the loan project at any time. The borrower, builder or contractor, lender, and inspector at some point or another are needing some type of limited access to the loan file. This is a lot of management for the post-close construction loan administrator.
These difficulties create a high level of risk on the loan. This becomes compounded as the administrator manages more and more loans. We’ve seen that loan administrators become less effective once they reach a saturation point around 30 loans they are managing per month. After that, you need to hire another member of the team in order to continue to grow. Spreadsheets can only take your construction loan programs so far, and even at lower loan volumes expose lenders to unneccessary risks. Soon there are more and more moving parts, and the risks become a little too real. This is where software comes in.
Software mitigates risk, streamlines internal processes, and robust software like Land Gorilla’s Construction Loan Manager makes seeing red flags, generating reports, and sharing the right information with the right stakeholder at the right time very easy. Using software allows one loan administrator to manage more loans at one time, effectively and efficiently. This means faster projects and happier borrowers and builders.
Get OUR team to do it: Land Gorilla has awesome software for your teams to use, but you can also hire us to use our software for your loans. We would be happy to manage your construction and renovation loans. Because we use our own software, we know that the draw process turn times with our software is significantly faster than without. This infographic will give you an idea of the days that Land Gorilla can help you cut from your total construction loan process.
So who should manage construction loans post-close? Not your loan officers. Let them be driven and motivated to originate and close more loans. Instead, use Land Gorilla or create your own team who are dedicated to managing those loans.
If you are ready to get started with Land Gorilla, request a demo today: