Expert: The issue is not implementing technology, it’s getting more construction lenders

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The vast majority of lenders have never made a construction loan, therefore new technology alone can’t improve the construction lending industry, one expert explained.

“The real issue is not getting construction lenders to implement more technology, it’s about getting more construction lenders,” said Shannon Faries, Land Gorilla director of risk management and 2018 HousingWire Insider. “The vast majority of lenders have never made a construction loan before, therefore, software alone is not the fix.”

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“My biggest driver is in cultivating a new generation of lenders and originators that understand the construction lending process in order to address the crisis of affordability and adequate housing inventory,” Faries said.

HousingWire sat down with Faries to discuss what is driving the construction lending industry.

HousingWire: What is the biggest technology need for construction lending and why?

Shannon Faries: Construction loan management technology needs to be based on industry best practices to help lenders maximize efficiencies while mitigating risks. The biggest technology need for construction lenders is a complete software solution that enables them to protect their physical, financial and legal interests while allowing for scalability of their loan programs.

Generally speaking, the technology sector needs a more broad-based understanding of the challenges associated with construction lending. Understanding the risks and challenges inherent in providing these loan programs is necessary in order to implement an effective software solution. Future software design needs to be established around best practices.

HW: How could technology revolutionize the construction lending process, and how would it look different than what we see today?

SF: Technology can not only help lenders scale their loan production without raising fixed costs, but also create opportunities for lenders who want to offer construction loans to get these programs started quickly and with confidence. Technology must provide a seamless framework to manage construction loans with a controlled and consistent process. With these tools and processes in hand, lenders can provide construction loans at scale, stimulating more building to address the massive housing shortage we face in this country.

Technology must provide lenders with a cost-effective way to manage construction loans, which typically require more touch time from staff. Fully integrated tool sets that go beyond digital draw management and ensure compliance with local statutes, while decreasing the per loan touch time will revolutionize the process and make it much more enticing for lenders to enter the space. Additionally, technology can support the development of standardized “builder acceptance” and tracking processes that could be universally used by lenders, GSEs, FHA, VA and USDA.  

HW: What is the key to getting construction lenders to implement more technology?
SF: The real issue is not getting construction lenders to implement more technology, it’s about getting more construction lenders. The vast majority of lenders have never made a construction loan before, therefore, software alone is not the fix. A major benefit technology provides is risk mitigation and increased profitability for lenders. However, lenders won’t invest in new technology if they don’t feel confident offering construction loan programs in the first place. Let’s start by educating the lenders that might invest in technology once they understand the opportunity and benefit of doing so. Fannie Mae and Freddie Mac could play a huge role in developing standard uniform best practices, procedures, forms and documents. The Fannie Mae Selling Guide discussion basically begins when the house is completed. It omits the builder vetting process, project reviews, construction underwriting, draw management and everything in between. The reason for this is Fannie Mae will not buy the loan until completion, therefore it is all on the lender, which is why there is very little standardization and conformity. Software technology must provide a consistent process to ensure that it supports salability to GSEs and government agencies as well as allowing for a lender to portfolio the loan.

Don’t forget to nominate this year’s Insiders here. Nominations close June 28, 2019.

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