Construction Capital Source

I thought I would take a moment to pat ourselves on the back.  I attached a story from the Salt Lake Tribune which doesn’t mention us by name (even though it should), but really was a comlement to our business, and our model.

The story took me back a few years to more aggressive lending days.  I had a sales associate at the time come in every week lamenting that we lost a 95% spec loan to Centennial Bank, Barnes Bank, or somewhere else.  We would try to tell him that if they lent that aggressively, they wouldn’t be around that long to be our competition.  Turns out, they lasted longer than that particular salesman, but true the statement turned out to be.

Not just to single out Centennial and Barnes, we could also add First Horizon, IndyMac, WaMu, and a host of others to the list of former competitors who had years of executive banking experience, more capital, resources, and labor, and who we outived.  Even Zions Bank has taken severe construction related losses, and if they had to only rely on construction lending, they would’ve bitten the dust as well.

We have survived the storm when all we do is construction lending, and that speaks volumes to how we do it.  We do it with common sense.  Sure, we have had foreclosures, but at a fraction of a rate as almost every community bank and national lender out there.  So read the article below, and as they are pumping up Bank of Utah for being so smart for surviving by not doing as much construction lending, think of Construction Capital Source who survives while lending on construction.  So we might not be as smart as Bank of Utah (because, I mean, they’re a BANK…) but if you needed an expert in construction lending, who would you call?

http://www.sltrib.com/D=g/ci_15094054

Recovery? Or calm before the storm?  Ask 100 people that question, and you may be split down the middle with answers.  After getting torched in 2008 and 2009, it seems that the green sprouts of economic life are peeking through the forrest floor again.  But are we just in the middle of the “W” as they say?  At any day are we to slide back down to new lows?

Depends on who you ask.  You might ask the stock market.  Our friend Mr. Dow might say that profits are being turned again, and all indeces are back up.  You might ask the job market.  Jobs might tell you that the only reason companies have turned a profit is because they’ve laid everyone off.  And until we have a net gain in jobs, not just a slowing in people losing jobs, growth is still seasons away.

What about if you ask housing or construction.  Housing and construction are just out of comas, and they’re not answering questions very well yet.  Construction has enjoyed a new lease on life, but it has an aneurysm called “interest rates”.  If they spike, it might burst and kill construction and housing all together.

Whatever your stance, we have to continue to plug away.  CCS is trying to do its small part by providing capital to the residential construction market, and hopefully that can help, at least locally, to morph the “W” into a “V”.

We have had so many inquiries about FHA takeouts that I thought I could address them in our blog.  While we are not changing our guidelines to reflect this, we have done some construction loans with the 3.5% FHA down payment guideline, and below is a scenario when we would consider it:

1.  They put 3.5% down, but have an additional 16.5% subordinated between land and builders profit.
2.  They don’t have a current house to sell.
3.  They are better than average borrowers (this is a call the underwriter makes after looking at the complete file)

Approving a file with an FHA takeout and a 3.5% cash downpayment is still an exception, I repeat–is still an exception.  But we are seeing more of them, and we have approved some, so I want to give this to you brokers as an option.  Let us know if you have a scenario to run.

I’m going to try to use this forum as a place to talk about common scenarios we are facing and projects we are doing.  I think it might help some of you with similar files, and hopefully, might provide some solutions to close more loans.

We have had a few scenarios lately that have required a VA take out loan that would be above the 417K limit.  VA’s limit will go over the 417K limit (check your county), but it must be structured as a purchase transaction.  Since we need the homeowner on the construction loan, this posed an initial problem. 

What we are initially structuring for these borrowers is to put the builder on the loan and the title, but the homeowner on the loan only, not on the title.  This will satisfy VA’s guidelines for a purchase–since the homeowner wasn’t on title during construction.  It will also satisfy our guideline of only lending on owner occupied projects–since the occupant is on the construction loan. 

One of my favorite lines from the movie “Days of Thunder” is — “If you’re not rubbing (which is hitting the racer in front of you), you’re not racing…”  Something similar can be said about construction lending in today’s market — “If you’re not creative, you’re not lending…at least not on construction…”

So yes, we are trying to break the stereotype that construction lenders are not tech savvy–as we have officially started the CCS construction lending blog. Some of us went kicking and screaming, but eventually we all should embrace progress–as long as it truly is a progression.

So every week (or two) we will post something useful about our company, construction projects we are doing, or tidbits about the market. Hopefully you can be better informed about what we are doing, what construction projects are being funded out there, and maybe a better idea of the crazy construction market out there.

Feel free to comment, as I do check the comments, or feel free to email me more specific questions on construction loan scenarios, or construction lending in general. Because if this is truly to be labeled as progress, it should help you and us close more construction loans, or be more efficient in doing so.

For our first market tidbit, here is a link to the building permit numbers for Salt Lake County for December.

http://censtats.census.gov/cgi-bin/bldgprmt/bldgdisp.pl

Pretty dismal. But the good news–CCS did more volume in January 2010 than any single month in 2009–including the summer months.

Hopefully things are on the mend. Thanks for reading.