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EXECUTIVE SUMMARY

02. CONSTRUCTION

EXECUTIVE SUMMARY

    Another tool of the MC OFFICE Software is the Construction package.

The Construction Software Package

    The Construction package accounts for loan proceeds from the day the loan is closed to the disbursement of all funds.

    After the loan application has been received, approved, the loan closed, and the notes signed, the house or building is ready to be constructed.

    A Building Loan Agreement has been signed by the borrower, allowing the lender to hold the funds and disburse as the work is completed. The signed note amount is entered into Loan Servicing and on the GL as a Construction Note Receivable. The funds are deposited into an Undisbursed Construction Loan Proceeds checking account. The funds are controlled by the lender and disbursed according to the Building Loan Agreement.

    The Construction package accounts for the disbursement of funds and the single most important feature of this software package is -- CONTROL.

The Primary Risks with Construction Lending

  • Sufficient funds to complete the project according to the plans and specifications. The appraisal is based upon the plans and specifications. If not completed according to the plans and specifications, the value of the property could be less. The loan secured by the property could be in jeopardy.
  • Construction loan proceeds have not been used to pay for labor or material on the project.
  • There can be no material or mechanic's liens against the subject property securing the construction loan.
The Construction Package Provides the Following
  • Compares the projected costs to a comparison percentage based on the type of construction. This comparison is to assure sufficient funds to complete the project.
  • Disbursement of the loan proceeds are controlled and monitored by various methods. Funds can be disbursed by:
    • Craft (Line Item) Disbursement
    • Percentage of Completion
    • Draw Stage
    • As Requested
  • Borrower funds are accounted for and disbursed prior to the construction loan proceeds being disbursed.
  • Interest can be computed on the loan amount or the amount of loan proceeds having been disbursed.
  • Interest can be billed to the borrower, contractor, or paid from the borrower deposited funds or loan proceeds.
  • Costs can be monitored against the cost breakdown to protect against cost over runs.
  • Property inspections showing dates and percent of completion are entered to assure funds are not advanced before the work is completed.
  • A management report lists all loans with funds advanced faster than the work being completed.
  • When a disbursement by percentage is indicated in the loan record, a percentage of hold-back can be set up. The amount allowed to draw would then be based upon the percent completed less the percent of hold-back.
  • Funds are disbursed by checks prepared from the data in the Master Record and the Transaction Codes.
  • The package provides a craft code number, a check register, and a complete accounting of all funds.
  • Reports are provided for management. Of special concern are reports on funds disbursed, location of projects, if project is:
    • Speculation homes
    • Pre sold - built in builders name
    • Construction - Perm
  • Each loan can be set up according to disbursement type, interest rate, etc.
  • An important feature of the Construction package is the "pseudo posting" and showing a what if scenario. The "what if" shows how the account will look IF the funds are disbursed as entered. This is a great catch it prior to funds being advanced.
  • Control is the advantage of this package.

Menu Driven

    Mortgage Computer programs are menu driven. Menu driven programs are user friendly, require less training to use, and allow a user to make selections quickly.

    The use of function keys in the program design of the packages expands the number of available choices.

Expanded Design Features

    The Construction package provides four major records:

    • MASTER RECORD
    • HISTORY RECORD
    • COST BREAKDOWN
    • ACCOUNTING

Master Record

    The Master Record contains 85 data base fields for imputing:

    • Borrower Information
    • Loan Information
    • Property Information
    • Commitment Information
    • Codes
      • Builder
      • Location
      • Construction Quality
      • Freeze codes
      • Disbursement codes
      • Vendor Codes and addresses
    • The Master File data and Vendor Files are used for producing disbursement checks.

History Record

  • The History Record maintains a record of all disbursements, check numbers, and check information.
  • The percentage disbursed is compared to the percentage completed.
  • Interest due is displayed along with the amount of interest paid to date and fees that should be charged.
  • Information for the loan payoff and analysis of funds disbursed can be printed or displayed.

Budgeting

  • The Cost Breakdown permits up to 77 crafts (your description) to be entered.
  • Each craft can have an individual budget or phase.
  • The percentage each craft or phase represents is in relation to the construction project.

    • Prior to granting a loan, a Comparison is provided. This feature is for new contracts that are accompanied with a Cost Breakdown and compared to a Profile Cost Comparison for analysis prior to approving a loan.

    Separate various "Profile Cost Comparisons" can be set up for various types of construction both by number of units, i.e. duplex, multi family, and building quality. This permits control of funds being disbursed. As each unit is closed out, the system updates the comparison percentages to accurately reflect any change in costs.

Interest Computation

    Interest is computed per the code on each loan:

    • monthly
    • quarterly
    • at maturity

    Interest rate can be:

    • Fixed interest
    • Variable based upon a table plus margin (up to 99 various tables)
    • Computed on 360 or 365
    • An interest floor can be set

Interest Statements

    Interest statements can be printed for each billing cycle. The interest billing can be billed to the borrower, the contractor, or the interest can be subtracted from the loan proceeds.

Construction Loan Payoff

    Construction loan payoff is computed by the program. The interest rate per draw is shown on a dollar-day basis. If the interest is a variable rate loan, the interest rate for that period is shown.

    One of the audit features of the package is on a payoff request, the program re-computes the interest from the initial day to the day of payoff. This feature is a safeguard to prevent reversals or draws posted in error for a previous period that interest had been billed and paid.

    Included in the payoff quote is a history of all disbursements, etc.

    Transaction Codes are a part of the program, to assure construction fees have been collected and other charges paid.

Reporting

    The program provides more than 60 reports for the user.

Objectives for Acquiring an Automated Construction Software Package

  • Invest in a package that will automate all functions of construction lending.
  • A package that will handle accounting and budgeting.
  • A cost comparison and analysis feature.
  • Cost breakdown and budget control.
  • Funds disbursement control without entering data again.
  • Check writing capability and check register control.
  • Various types of reports.
  • One call for support.

Conclusion of Executive Summary

    The benefit is having all the tools handy to do the right job!

    The risk of construction lending is advancing funds before the work has been completed.

    The benefit of the package is controlling disbursements throughout the process.

    There are fewer risks involved to complete the project using the cost comparison prior to the loan being closed.

    The benefit is having the right figures, the right cost-breakdown, and knowing when more funds are needed.

MC's Construction package is best stated in one word.

CONTROL

02. CONSTRUCTION

    The Construction Main Menu:




Construction Main Menu (02)


    The menu arrangement follows the typical work flow. This arrangement assists an operator in learning how to use and reduces the learning time.

01. Index - Status Inquiry

    The Construction package provides an index by five options. The Index is for locating the account number.

    The Construction Index Screen Display:




Construction Index Screen Display (02.01)


    LOAN NUMBER

      If the number was known, you could index who the borrower was.

    BORROWER NAME

      Most of the time you know the borrower name.

    PROPERTY ADDRESS

      Perhaps you have the property address, but do not know the name or loan number. This could happen with a fire policy, a tax notice, or an inspection by property address.

    CASE NUMBER

      You can index by case number, which would be the FHA, VA, or PMI case number. Many times inspections come back by case number only.

    BUILDER NAME

      Index can be by builder name.

    <L>CONVERSATION LOG

      The operator can record conversation information with the borrower concerning the loan. This information is stored for later viewing or printing.

    <I>INSPECTION DATA

      Displays the Inspection Data Ledger indicating date of inspections, percentage complete, and cost for inspections.

    <C>COST BREAKDOWN

      Access to a cost breakdown that has been set up.

    <S>STATUS

      The STATUS of the loan displays the borrower funds, loan proceeds, disbursements, interest owing to date, and the amount of interest paid.

    The Loan Status Screen Display:




Loan Status Screen Display (02.01.<S>)


    <H>HISTORY

      When the <H>HISTORY option is selected from the Index, the screen below is displayed. The operator can select the date and Transaction Code to begin the display if desired. The program will display the transactions from the beginning of the Transaction History if no beginning date is entered.




Construction History Screen Display (02.01.<H>)


    LOAN

      Loan number to be entered. Borrower name is displayed.

    START DATE

      Date to begin the history display.

    DATE

      Date of transaction.

    T/C

      Transaction Code for the entry.

    AMOUNT

      Amount of the transaction. B indicates borrower funds being disbursed. L indicates loan proceeds being disbursed.

    REV DATE

      Reversal date if the entry is a reversal.

    CRFT

      Craft code number corresponding to the Cost Breakdown, showing where the funds were budgeted to be drawn from.

    LN DISB

      Loan funds disbursement.

    CHECK NO

      Check number for the disbursement.

02. Conversation Log

    A record of conversations with the borrower and/or builder.




Conversation Log Screen Display (02.01<L>) or (<CF4>)


    The date, time, and user ID are displayed at the top of the screen. A full screen of comments can be entered per conversation. The Conversation Log can be modified, viewed, or printed.

03. Funds Input

    This selection is for setting up the Construction loan proceeds for accounting. Upon entering the loan number, the program displays data fields and asks if the operator wishes to continue. Various codes are for entering borrower funds so they can be set up along with additional loan funds or additional borrower funds.

    The Borrower Funds Screen Display:




Borrower Funds Screen Display (02.03)


    When the operator enters the loan number, the program will display the following group of fields to verify this is the correct loan.

    01. LOAN NUMBER

      Loan number assigned to this account.

    02. NAME

      Borrower's name.

    03. PROPERTY ADDRESS

      Property street address.

    04. CITY

      Property city.

    05. STATE

      Property state.

    06. ZIP CODE

      Property ZIP Code.

    CORRECT <Y-N>

      If <Y>YES is selected, additional data can be entered.

    07. TRANSACTION DATE

      Defaults to System Date but can be modified.

    08. TRANSACTION CODE

      Disbursement Transaction Code.

    09. AMOUNT

      Amount of disbursement.

    10. LOAN OFFICER

      The loan officer assigned to follow this account.

04. Funds Disbursement

    For the disbursement of Construction loan proceeds. The operator enters the Loan Number, Transaction Code, Craft Code, Vendor Code, and to whom the proceeds will be paid, including Street Address, City, State, and ZIP. Only disbursement codes are accepted through this selection.

    The Disbursement Transactions Screen Display:




Disbursement Transactions Screen Display (02.04)


    When the Vendor Code is entered, the program reads the maintenance file and enters the data already set up. If no Vendor Code is selected, the information must be entered to whom the proceeds will be paid to for printing on the check, including:

    • Street address
    • City
    • State
    • ZIP Code

    The data is transferred to an IRS file for 1099-MISC reporting.

05. Interest Payment

    This selection is used to apply interest payments received. The program asks for the loan number and displays the borrower's name, etc.

    The screen is the same as shown for option 04. DISBURSEMENT TRANSACTIONS on the previous page. Only transaction Codes that apply to the payment of interest can be entered.

06. Loan Payoff Entry

    This selection is used to pay off a Construction loan.

    The screen is the same as shown for option 04. DISBURSEMENT TRANSACTIONS on the previous page. Only Transaction Codes that apply to the payment of interest can be entered.

    The Loan Payoff Entry Screen Display:




Loan Payoff Entry Screen Display (02.06)


07. Pseudo Post - Audit


This function is the most UNIQUE feature of the MC Construction package. This feature safeguards over disbursement of funds from the wrong loan or wrong craft, etc.


    This is a what if or pseudo posting of the disbursement amounts. This will show what will the account look like IF the funds are disbursed.

    This reports the craft balances, percentage disbursed to date, and remaining total funds as they will appear AFTER the disbursements entered in 04. DISBURSEMENT TRANSACTIONS have been updated.

    This permits the loan disbursement officers to verify the disbursement and how the account will look, prior to actual disbursement and updating of the loan file.

08. Balance Proof - Modify

    Disbursements held in scratch pad can be corrected, changed, or modified if necessary. After the loan disbursements are modified, selections 6 and 7 can be repeated.

09. Update Transactions

    This function applies the disbursement and updates the transaction history. The transaction register is printed similar to the printout in 07. PRINT DISB/BORROWER AUDIT, only this time the disbursement has been applied to the History File.

10. Print Trans Register

    The transaction register is retained until another update has taken place. This permits an operator to print many copies, or to reprint if the paper jams. Each sheet of the transaction register is serially numbered for auditing purposes.

11. Checking Functions

    After disbursement has been entered, proofed, and the history updated, checks can be written. The data is stored so all checks are produced at one time.

12. Compute Interest Accrual

    This selection computes interest on disbursements from last accrual month to the current month. Choose this function and enter the month through which interest is to be computed. The program will compute interest on all loans using the appropriate Interest Pay Code. Those loans with an Interest Pay Code of 0 (No Action) will not qualify to compute interest. Interest will be computed from the Note Date or In Process Date through the end of the month.

13. Bill Interest Statement

    After the interest for the month has been computed, the billing statements can be printed. The selection criteria for billing the borrower, builder, or deduct from the loan proceeds is based upon the code in the Master Record.

    If interest is to be paid from loan funds or borrower funds, a transaction is created at this time and will be posted the next time the transaction register is printed.

    It is suggested that after producing the Billing Statement, the transaction register be run to update those loans where interest will be paid from the loan or borrower funds.

14. Inspection Data Input

    Field Inspection of the improvements are entered through this selection.

    The Inspection Data Input Screen Display:




Inspection Data Input Screen Display (02.14)


  • Inspection number.
  • Name of the inspector.
  • Percentage of completion at inspection time.
  • Date of inspection.
  • Fee, if any, paid to the inspector.
  • If fee is to be disbursed from loan proceeds, indicate Y and a Transaction Code is automatically created.

15. Freeze Loan

    This selection is used to freeze a loan so no transactions or disbursements can be made.

16. Quote Loan Payoff

    This selection provides a Loan Payoff to the date entered by the operator. The operator enters the loan number and the date to which interest is to be collected.



Loan Payoff Screen Display (02.16)


17. Document Follow

    This selection is for tracking of documents which were not enclosed with the loan at time of closing or documents needed during disbursement of the Construction Funds.

18. Reports

    Various report programs are available through this function.

    • 04. Exceptions Report
    • 05. Stacked Reports (select several and print at one time)

      Vendor Master
      Loan Code
      Disbursement Codes
      Quality of Construction
      Interest Pay Codes
      Insurance Agent Code
      Investor Codes
      Employee Codes
      Mail Codes
      Craft Percent File
      Loan Master
      Disbursement Transactions
      Interest Transaction Register
      Suspense Register
      Loan Payoff - Transaction History
      Disbursement Balance Proof
      Interest Accrual
      Loan Analysis Summary
      Trial Balance
      Interest Yield and Maturity
      Builder Summary
      Loan Type Summary
      Expiration Tickler FHA/PMI
      Expiration Tickler Fire Insurance
      Maturity Tickler
      Bank Reconciliation
      Construction Control Data Field Names
      Items Not Received
      Profile/Cost Breakdown
      Interest Rate Changes      		 Loan Type Summary
      Loan Officers
      Community Code
      Property Class
      Billing Codes
      Bonding Agent Code
      Builder Codes
      Status Codes
      Check List Master
      Builder Master
      Cost Breakdown
      Borrower Funds Transaction Register
      Payoff Transaction Register
      Loan Payoff - Loan Master Record
      Loan Payoff - Cost Breakdown Summary
      Disbursement Borrower Audit
      Transaction History
      Loan Payoff
      Management Summary
      Management Exception
      Location Summary
      Loan Code Summary
      Expiration Tickler Investor
      Inspection Tickler
      Comparison Input
      Audit Trial
      Document Tracking Exceptions
      Profile/Cost Descriptions
      Enter Info for Active Loans

19. Custom Reports

    Reports can be customized if requested and will be listed here.

20. Comparison Input

    This selection provides a means of entering the data for a proposed build job and compare the craft disbursement ratios to the comparison ratios. This can be performed prior to the data for a loan being entered in the program.

    The data is entered and printed out by craft and square footage costs. The data is not stored and is deleted when printed.

21. New Loan

    There are 85 fields in the Construction Loan Master Record. The Master Record is set up by entering each field and pressing <NL> after Field 85. The data for Investor or Participant is entered at this time.

    This selection provides fields for building the cost breakdown for an individual loan. The cost breakdown consists of 77 separate crafts. 68 crafts are hard costs and 9 crafts are soft costs.

    The data entered in Mortgage Banker's loan application can be transferred over to Construction and received into the Construction package.

    New Loan Setup Screen Display:




New Loan Setup Screen Display (02.21)


22. Modify Loan

    After the Master Record has been set up, it can be modified through this selection. To modify, enter the loan number and the field number to be modified. The individual cost breakdown can be modified with this selection. An update password is required.

23. Maintenance

    The Maintenance menu screen appears, displaying the option to set up various codes and tables to speed entry.




Maintenance Main Menu (02.23)

Updated February 18, 2005 at 1:10 p.m.