DRAW: Construction Lending Management Application

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1 DRAW: Construction Lending Management Application Contents Executive Summary... 2 Construction Lending Management for Lenders ( Draw Internal )... 3 Communication with Automated s and Reports... 5 Construction Lending Management for Builders ( Draw Public )... 7 Summary... 7

2 Executive Summary The Construction Lending Management application - or DRAW for short - is an online database application built to assist commercial lenders with the day-to-day oversight of their construction loan portfolio. Typically large banking software corporations don't include the required functionality in their systems for tracking onsite inspections and construction lending details. Our application fills this small void in the market and gives commercial lenders a boost above their competitors who are managing construction loans manually and on spreadsheets. When a home is built by a builder, the builder typically secures a construction loan for funding from their community bank. The loan is funded in reverse of a typical loan. A typical loan starts out at the commitment balance and is paid down. A construction loan starts out with a small initial balance that is increased until it reaches the commitment amount near the end of its short (12 month) life. As each house (the collateral) is constructed, the builder requests "draws" (disbursements) from his lender to fund the construction costs as the house is built. When the builder sells the house, he settles with the lender and pays off the loan balance. Construction loans are typically short-term, interest-only loans. The builder may also have a "Master Guideline" which allows him to have multiple loans active at one time. For example a builder may have a $1,000,000 guideline approved upfront as an upper lending limit at the institution. If the aggregate balance of his entire loan portfolio totals $900,000, then he is able to quickly request a new $100,000 loan to start a new house. As he builds and sells houses, he is drawing up and paying down loans. Our system easily tracks and reports guideline limits in comparison to loan balance aggregates to assist in planning for new loan activity.

3 DRAW also has three separate interfaces to communicate and share data with other databases. It receives data feeds from the internal core banking platform, sends and receives info with the on-site inspectors, and has a public facing web site for clients (the home builders). The core banking platform feeds daily balances, rates, payment transactions, and statuses so that this key information is never stale or incorrect. The Inspectors submit inspection reports and compliance information. In turn, DRAW sends Inspectors new loan and paid off loan details. DRAW also sends and receives data from a public web site which the builders have access to. The public-facing web site allows the bank's clients to log in and see realtime inspection and draw reports. The key on all our applications is to automate a proven business process that is generally manual and without an existing software solution. Our goal is to ease the administrative burden on our client and help maximize efficiency through workflow and data integration. If data is available in one system, no one should have to re-type it into another system! DRAW Internal: Construction Lending Management for Lenders The Internal DRAW application runs on a web browser, but is restricted to access behind the bank s firewall. This is the primary system used by commercial lenders, processors, and operational personnel for managing draws and construction loans. The major components of this application consist of: Master Guidelines Borrowers/Guarantors Loans Inspections Draw Transactions Deposit Transactions Imaging Reporting Communication Data Integration Master Guidelines are macro level lending limits set for a pre-defined credit authority. Data points maintained and tracked for guidelines: maximum commitment amount (aggregated for all active loans), Inventory at other Lenders (reported weekly), maximum number of model homes or speculative homes the builder can have on their balance sheet at any one time, loan terms, commitment fees, loan-to-value limits, loan-to-cost limits, and other restrictions or comments. All loans within DRAW are associated to a Guideline. All Guidelines are associated to Guarantors. Reporting can be done based on the Guideline or individual borrowers or guarantors as required.

4 Borrowers (or Guarantors) are pulled and synchronized with the bank s core system nightly. All contact info is tracked, along with additional contacts for automated communication. Inspection details are submitted via a web service from third party Inspection companies. The data tracked here consists of compliance items (# of beds, # of baths, square footage, # of levels, exterior, basement type, etc.), inspection date, percent complete per construction item, total percent complete, and any comments from the onsite Inspector. Inspection detail reports are also available for each inspection/draw transaction as shown below. Inspections are then directly sourced for draw transactions. A new inspection is converted to a draw request. DRAW records consist of the inspection date, disbursement date, approval date, transaction approval status (all draw disbursements must be approved via the DRAW Queue ), paid date, eligible amount, and disbursement amount. Draw transactions are aggregated per the borrower s deposit account (kept in DRAW system on Guideline level) so that for each draw disbursement request, a separate deposit amount is sent to Operations for Credit to the borrower s account. Disbursements and loan draws are both reconciled each morning to ensure that the requests match the actual loan debits and deposit account credits. Extensive reporting is available from the internal DRAW application. Reports can also be added easily for the Bank s specific business purposes. Here are just a few examples of the type of reports:

5 Communication with Automated s and Reports Several automated s are generated on a scheduled basis. This communication is helpful for alerting the processors or administrative staff when an event occurs (payoff requested) or notifying the Borrower when draw disbursements have been approved for funding. Each CIF record can have an unlimited number of contacts for specific purposes. This is controlled in DRAW from the Borrower s administrative screen (see example below).

6 During each business day, DRAW monitors activity and sends alerts, notifications, and reports as required. For example each day s approved draw disbursements are ed to the Borrowers. See an example on the next page of an sent to the borrower regarding his or her daily draws and disbursements. This is an example of sent to Borrower regarding his or her daily draws & disbursements: Approved Construction Draw Notification Dear John Smith: The following construction loan draw disbursements were approved on 06/07/2014. Subdivision Lot Complete Total Available Disburse Inspect Fee Net Draw Remaining Available Lake George % $ 67, $ 67, $ 0.00 $ 67, $ 0 Lake George % $ 44, $ 44, $ 0.00 $ 44, $ 0 Lake George % $ 42, $ 42, $ 0.00 $ 42, $ 0 Totals: $ 153, $ 0.00 $ 153, If you have further questions, please don't hesitate to contact at. Thank you for your business, Bank Residential Construction Lending

7 Other automated s include: Notification of payoff requested (daily as required to Bank) Notification of paid loans (daily as required to Bank) Notification of Total % Complete out-of-balance with Inspector (daily as required to Bank) Draw disbursements approved for funding (sent upon daily approval to borrowers) Active Loans as of end of month (sent monthly to borrowers) Interest paid year to date (sent monthly to borrowers) Consolidated Invoices (sent monthly to borrowers) DRAW External: Construction Lending Management for Builders The external or public facing web site for Builders is synchronized throughout the day with the internal DRAW database. The public site allows builders (or authorized employees of the construction company) to see draw transactions, inspection reports, lending limits, guidance line criteria, and additional reporting regarding their loans. The public site attempts to expose all records to the client so that manual reports do not need to be generated and ed to the builder on a periodic basis. Instead the client is allowed to view and download their own loan record content on demand at any time. Summary LBA Ware s DRAW software application has one main purpose; to ease the administrative burden of tracking, reporting, and monitoring construction loans. LBA Ware is a software development company comprised of motivated software engineers who understand mortgage and retail banking and the business challenges faced in today s compliance-centric world. We focus on building software that streamlines data integration and repetitive workflow so clients maximize productivity and profitability. L Brewer and Associates, D/B/A LBA Ware, is headquartered in Macon, GA and servicing the mortgage and retail banking industry across the nation. For more information, please contact us today at or by at [email protected].