How Community Banks Should Maintain Control of Residential Construction Loans
With the high risk of construction loans, mitigating risk should of paramount importance for any bank. But for small banks, that may have the largest share, especially relative to their size; this could essentially mean their livelihood.
Key Points and Takeaways
Three key points for Construction Lenders to keep in mind:
1) Keep diversified
This may be obvious and intuitive, but here is our 38 years of insight. In the private sector certain types of construction are usually the first to start dropping off and last to rebound while others are usually the last to drop off and first to rebound. Residential remodeling is the latter while commercial is the former.
2) Keep good controls
Of course, right! But what is important here is to make sure that everyone in your organization truly understand why specific controls are in place and what they are protecting from.
3) Establish your own “Warning” indicators
You know the market, your customers, and the local economy, so set up indicators that can alert you when something might potentially be a problem.
With the steady growth the construction industry has enjoyed since the recession, it is more important than ever to keep a watchful eye, and mitigate your risks.