New Association Seeks Role in Construction Financing

Builders ought to keep on eye on the new National Association of Residential Construction Lenders because it could lower the cost of residential construction financing.

The trade association, based in Greenwood Village, Colo., has a long-range goal of standardizing construction lending products to a point where it becomes feasible to create a secondary market for the loans, similar to what is in place in the mortgage industry. Early members of NARCL include Fannie Mae, Washington Mutual, Granite Loan Management, CitiMortgage, 2-10 Home Buyers Warranty, Chase Manhattan Mortgage Corp., Waterfield Financial and Colonial Savings.

Rick Nirk, national construction lending adviser for Excell Management Group, is executive director of the new association. He says there's a need for standardization of products and education of lenders, builders and consumers on the types of financing available.

"There's been no way to further the understanding of people working in this area for either lenders or builders," he says. "For most commercial institutions, construction lending is just a branch operation, a division. But with the growth of housing, those units are becoming quite significant, but staffing and training is a problem. We'll fill that knowledge gap. We're now finalizing the first standardized builder questionnaire for the lending industry."

NARCL has another goal: to increase understanding and use of construction-to-permanent financing. Common in Florida and other housing markets where lines of credit are tight, especially for small builders, C-to-P financing is growing fast because it creates advantages for customers and lenders as well as builders.

"By getting customers involved sooner, the builder frees his lines of credit for other things like acquisition and development loans," Nirk says. "Customers can lower their overall costs because they borrow at a rate 125 to 200 basis points lower than that of the builder. The big advantage to the lender is to capture the permanent loan right upfront. The fallout rate is much lower for C-to-P than in the consumer mortgage business. And the lender's cost of funds is also a little lower."

NARCL can be contacted through www.narcl.org.