Eight Construction Loan Monitoring Reports That Crush Risk

There’s a four-letter word we hate to hear in the construction lending space. The word is RISK and, like an evil force that encourages unintentional oversight, it threatens progress and compliance throughout the construction loan administration process.

But, alas, a new construction loan management hero has quickly entered the picture – Construction Lending Software. One of its superpowers comes in the form of machine learning designed to crush the risks associated with error-prone and time consuming manual data entry. You know the type of manual data entry I’m talking about – pulling, editing, and inserting line items from 100’s of documents into massive spreadsheets. How often do you have to go back and make changes to formulas, line items, and data to get the perfect working spreadsheet or report? Too often.

Other risks inherent throughout the construction lending process include:

• Over Capacity
• Project Delays
• Geographic and Asset Class Risk
• Inefficient Employees, Vendors, and Builders
• Fraudulent Activity
• Cash Flow
• Suspicious Line Items
• Change Orders
• Slow Payments that Lead to Liens

There is a better way to manage construction loans and leading software providers for construction lenders include features to address all of these common risks and more.

Applied machine learning technology reads and reconciles draw documents, identifies errors, and provides intelligent recommendations (predictive modeling) to cut days from the construction back-office operations. At the same time, the technology helps to ensure compliance and reduced liability for everyone involved. Process automation technology is available today within best in class construction loan software, and its power leads to faster disbursements, incremental earned interest income, and time for your team to take on more projects and interact more closely with customers; not to mention lien-free completion of projects.

Today we’re going to focus on the analytics and insights necessary to quickly identify opportunities and to limit exposure for construction lenders and borrowers. This type of vital visibility into a portfolio of loans and projects serves as a competitive differentiator for construction loan administrators, lending institutions, and real estate developers.

Eight Construction Loan Monitoring Reports That Crush Risk

Consolidation of Portfolio Level Data

A Portfolio Overview Report offers a look at your portfolio’s overall status including pending draws, loans outstanding, and total loan commitments including the types of loan projects across your entire portfolio like Commercial, Custom Home, Lot Development, SBA and more. This type of portfolio reporting also offers a visual of project completion status so you can measure risk and capacity at a glance.

A Portfolio Composition Report details the types of projects, locations, loan and projects sizes, and more; all factors uses for assessing geographic and asset class risk. This report also shows the percent of project completion based on asset class. 

Project Level Vantage Point

A Project Level Report provides project performance details in an easy to read and follow visual dashboard. This report provides a breakdown of the most critical project elements to help make operational decisions, maintain a strict timeline, and mitigate risks well in advance of them becoming an issue.

Within this report, you can expect to see a breakdown of budget elements including percent complete, requested and contingency used, as well as the overall funding schedule to keep tabs on whether or not the project is ahead or behind schedule.

Project details contained in this report outline the number of draws remaining, total invoices to date, and the project total. This report also provides a history of all draws by date, the amount requested and the amount paid.

The individual draw breakdown section of this report provides a status update, alerts to missing documents and workflow steps, pending activities in need of authorization/signatures, and all of the individual draw documents.

Finally, this report dashboard provides a visual timeline of how all stakeholders are engaging with the software and project including a list of recent documents and activity.

Expedited Draw Processing

The Draw Processing Report is a comprehensive overview of all aspects relating to construction draws in a specified period, such as approval dates, days to process, dates funds withdrawn, and more.

One of our lenders recently discovered through their Draw Processing Report that the time to process draw packages went from 19 days on their first draw down to 1.6 days on their most recent draw. This is an example of how quickly lenders and borrowers adopt construction loan software and how they immediately begin to realize efficiencies.

This report also lists which employees, vendors, and builders are most efficient and therefore creating the most profit for your institution. For example, does inspector A have a faster turn-around time than inspector B; does borrower B provide more accurate draw packages than borrower A? 

Loan Payment Progress

A Loan Payments by Division Report breaks down all draw requests by project and type of cost over a specified period. Tracking this information goes a long way to prevent fraudulent activity by monitoring labor, supplies and material costs; cash flow; suspicious line items; and change orders.

This report also enables lenders to track progress and per square foot costs on different line items in their projects. Say, for example, a lender wants to know how much they pay for framing per square foot on commercial projects in Dallas. This report would show them that.

Cash Equity Position

A Cash Equity Over Time Report tracks the equity contributions and requirements per loan over time. This enables the monitoring of HVCRE requirements and equity contributions to ensure loan equity requirements are met and appropriately monitored.

Lien Release Management

A top pain point for many construction loan administrators is how to monitor lien activity and link the release of liens to payments. In our recent study, we found that 80% of contractors have filed a lien due to slow payments. With these odds, the risk of a lien delaying the completion of a project is more likely than not. Feel free to download the 2018 Construction Payments Report.

A Lien Releases Report is used to track the status of conditional and unconditional lien releases for every invoice broken out by the project over a specified timeframe. The report prevents issues from falling through the cracks by digitizing a process once managed through email and Excel spreadsheets.

Retainage

A Retainage Report tracks the retainage status and “withheld to date” for every line item broken out by the project over a specified time. In this report, you can see which line items are having retainage reduced on all projects. This report provides visibility into where exposure risks may lie.

Interest Reserves

An interest reserve account may be in place to pay interest on itself using borrowed funds. The interest is determined by the expected rate during construction as well as the planned construction period, beginning loan balance, and the final construction loan amount.

The Interest Reserves Report provides interest activity by project name, including the total amount of interest in reserves, interest reserves used and remaining, total loan amount, and loan drawn amount.

About Rabbet

The leading software for construction lenders and construction loan management incorporates digital process automation that reduces human error and provides intelligent recommendations to mitigate risk and dramatically improves efficiencies. Rabbet is the only construction loan software provider that offers machine learning technology to the market. If you’re curious about how all of this looks works, feel free to request a demo today to see how Rabbet automates tasks and crushes risk.