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Special Reports
Construction Lending: Building
the Foundation
New South Sees Construction to Fill Refi Void
Creating a plan to call on builders
By Amilda Dymi
BIRMINGHAM, AL -- As the refinancing market leaves the spotlight to new home construction
loans, the star of the show at New South Federal Savings Bank here are builders, Realtors and brokers, as is a
construction-perm program with features that make it flexible enough to fulfill growing demand.
"In the market that we're in today with refinancing business dropping rapidly,
new construction remains strong, so there is more need for lenders to offer construction lending options,"
said vice president of construction-perm lending at New South, Shane White. "If they don't, lenders are not
going to be able to maintain their volume, and that's why we are interested in increasing our builders' business."
During the first week of June, New South executives organized a brainstorming
meeting to discuss future business strategies so that the company preserves the 10%-15% growth rate it has enjoyed
for years.
"Everybody agreed that new construction in their markets is strong, so now
they need to contact their builders to keep that line of business going and basically be a lot more aggressive,"
he recalled. "They have been doing refinancing for the last couple of years now and need to go back out there
calling and creating a plan for calling on their builders."
Its main offer is the enhanced single-close construction-perm product, which was
initially introduced in 1993 as an option with terms and conditions customers agree on prior to closing and home
construction, and automatically rolls over once the house is built preserving the same interest rate and loan conditions
to the end of the loan term.
Eventually the company introduced the rate change CPP option, Mr. White explained.
It allows customers to close the loan at a given market rate and readjust the rate to current market rate after
the home is built, on either a 30-year fixed loan or an adjustable-rate loan, compared to locking the program and
the rate before construction starts.
As to demand, or customer preference, it depends on the marketplace. "In
today's market when rates are not going down, people would prefer the single-close rate option, so that they will
not be affected by whatever happens in six or nine months," he said. It helps customers take advantage of
the current rates.
A recent addition to CPP is "the construction-perm modification loan option,"
that allows the customer to change all of the loan terms that they may have, not just the interest rate, so they
do not lock any terms upfront. Once the house is finished, customers have the flexibility to modify loan terms
choose from the company loan product mix and get a current rate.
Loan choices, according to the executive, include jumbo CPP loans, conforming
and nonconforming products that serve customers whose credit score is slightly off the agency guidelines. He said
"differences basically depend on the person, so we start with a standard construction-perm and then figure
out what they need."
CPP loans are thus tailored to fit specific client needs, "for example for
someone who does not want a mortgage insurance, we offer first and second mortgages," he said.
And although homebuyers cannot acquire downpayment assistance at the closing with
New South, they can use gift funds from many sources, or take an FHA CPP option, for which they can receive downpayment
assistance from DPA providers.
"Over the years demand has kind of been tailored to the market," he
said. "Now demand is getting stronger as people start worrying about where will the market be in six months."
To attract new customers New South operates both retail and wholesale business
channels. Yet, Mr. White believes the broker network, which generates leads through the company wholesale business,
"also are calling on builders and Realtors."
"So we're doing construction-perm on the wholesale side, which is not what
lenders do," he noted. "I mean a lot of lenders do not offer the product through their wholesale channel,
we do it on both. It has been a good source of business that has allowed us to tap into markets that we maybe don't
have."
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