The number of single-family building permits rose 14 percent between June 2003
and June 2004, according to the National Association of Home Builders. June's
sales were the second strongest ever at an annualized rate of 1.826 million units,
according to the Commerce Department.
Home builders are responding to a favorable interest rate environment by rushing
to secure funding before rates increase. Current conditions provide new opportunities
for credit unions seeking to enter or expand their construction-lending program
to capture market share and build lasting member relationships.
A construction loan provides a member with financing to build a house or small
business on previously-owned property. The loan has a typical maturity of six
to nine months and the opportunity to be rolled over into a permanent mortgage.
"There is a low attrition rate of members going elsewhere for the permanent
mortgage," said Rory Jones, COO of High Desert FCU in California ($120m).
Credit unions also can build strategic relationships with the building community.
Air Academy FCU in Colorado ($263m) helped builders advertise through its "Prime
Partner" program. In exchange, they asked builders recommend clients pursue
financing through the credit union. The program was successful and many builders
now use Air Academy for all member-financing needs.
Construction loans are more work intensive than other loan types, but the added
steps provide more security to a member requesting a construction loan. Appraisers
must verify the completion of certain tasks and directly communicate with the
builder and member. Most credit unions require builders to fill out an application
and agree to a background check. The application typically includes a resume,
available lines of credit, and references.
Credit Unions can benefit from this regular communication, according to Doug
Welle, a real estate loan officer at Central Minnesota CU ($295m). The credit
unions can cross-sell products after learning the interests of the member through
casual conversation. Thus, construction loans create an opportunity for the
credit union to become the sole financial institution for the member.