How lenders are using Willow's software to streamline construction servicing

Despite the efforts of home builders, the housing supply gap has widened over the past decade.

The limited supply of homes for sale has led to increased competition among buyers, driving up prices and making it challenging for many individuals and families to find affordable housing. Per ycharts.com, the US existing home months supply is at 2.9 months as of April 30th, 2023. Home months supply is defined as the number of months it would take for the current inventory of homes on the market to sell given the current sales pace. Experts agree that a 5-6 months of housing supply is healthy for moderate home price appreciation.

Due to the lack of housing supply and rising interest rates, a potential solution for buyers could be to build their own home with the assistance of a construction loan. A construction loan is a specialized type of financing that provides funds specifically for the new construction of a property. It is typically used by individuals, developers, or builders to cover the costs associated with constructing new homes.

By leveraging Willow's loan servicing solution for construction loans, lenders can simplify and automate various aspected of their operations.

Willow Servicing's loan servicing solution for construction loans can play a crucial role in supporting the management and administration of construction loan portfolios. We understand the complexities of construction loans and have created automated solutions to help lenders navigate construction loan servicing.

Construction Draws

As a construction loan reaches certain milestones, the customer will need to draw additional funds to continue their project. Willow supports recording draws and automatically calculates the updated payment due moving forward. The remaining amount available to draw against is always accessible to both lenders and borrowers, allowing both parties to monitor remaining funds and plan for future draws accordingly.

Interest Reserve Accounts

Interest reserve funds are part of a financial account that is used to cover monthly interest payments on a construction loan. Willow has automated the payment process for both lenders and borrowers by withdrawing funds from the interest reserve account and applying them towards a customer’s payment each month until the account balance is depleted.

Interest Only & Dutch Interest Calculations

Construction loans typically have specific terms regarding interest payments during the construction period. Two commonly used interest calculation methods are referred to as “traditional” and “dutch”. Traditional loan terms calculate the interest due based on the amount of funds drawn down on a loan while a dutch loan calculates interest due based on the entire amount of the loan regardless of what has been actively drawn down. Willow supports both interest calculation methods resulting in compliant and clear payment calculations for the borrower.

Maturity Date Extensions

Construction loans have a set maturity date in which both parties have agreed that the project will be completed by. If a construction project extends past the contractual maturity date, Willow supports extending the loan and offers the ability to add optional fees associated with this approved extension.

Corporate Advances

Willow Servicing offers flexibility when it comes to handling unexpected expenses which can result in advancing funds on behalf of the borrower. A lender can choose to bill and collect the advance funds owed immediately or defer the amount due until the loan’s payoff date. Willow also supports the option to charge a daily interest rate on top of the advance amount owed.

By leveraging Willow's loan servicing solution for construction loans, lenders can simplify and automate various aspects of their operations. Our lenders experience improved efficiency, reduced manual efforts, and additional risk management. This, in turn, enhances the overall experience for both lenders and borrowers, making the construction servicing process streamlined and transparent.

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