Why was it taking so long to get the Contractors paid?
A few years ago it was literally taking months for Contractors to get paid on Streamline 203Ks and Full 203Ks. There were several reasons for this. Primarily, it was the result of the major suppliers for these products underestimating the demand for them. Their employees that were reviewing these files and processing the draws were not familiar with these products and they are relatively complicated. The packages they were getting in were very poorly put together because the Loan Officers and Processors were new to doing them. All of this created an extreme backlog to be reviewed.
It is important that I point out that unlike the EEM where the funds are typically held at the Escrow Company (unless the EEM is being done in conjunction with a Full or Streamline 203K), the funds on the 203K products are forwarded to the Servicer. When the loan is closed, we no longer have control of these funds.
Just as they finally got this under control and we started seeing the payments being processed faster, a major player in this arena was shut down by HUD over some accounting and reporting issues. They were actually the 3rd largest FHA Lender in the nation at the time. All of the files they had been working on were either cancelled or sent to another company to be completed. These were at various stages in the process but all had to be very carefully and comprehensively reviewed by the bank they were assigned to because they were taking the responsibility for those files just as if they had sought that business out.
The closing of Taylor, Bean and Whitaker created one of the most frustrating and uncomfortable periods in my career, bar none. When it started taking months to get the Contractors paid I was very clear about this with everyone that I spoke with. When this finally started to get better and we were seeing the turn times for payments getting back to a more reasonable processing time of around a month I let the Contractors know that. There was no way to foresee the TB&W fiasco but it still created a situation where the Contractors I had reassured that the turn times where back under control ended up waiting months to get their payments again.
I can completely understand where some of the Contractors decided that they did not want to be involved in these transactions anymore. We did everything possible to intervene and expedite this process for them but it still took a lot longer to get them paid than was reasonable on any level.
These issues seem to have been worked out now. We are typically seeing the second payment released approximately 15 to 30 days after the work has been completed. It has been a very long time since I have seen it take longer than this unless there was some other issue that came up.
That said, it is important that you realize that even though the guidelines and the some of the people who present this program indicate that you will receive the second payment when the work is completed, there will be a processing period on this payment. Count on 30 days from the point of work completion and don’t be too surprised if it takes a little longer sometimes. That way, if it gets to you in a couple of weeks everyone is happy. If it takes a little longer everyone is prepared.
To the Loan Officers that are reading this; just be honest with the Contractors about this point. Waiting for money they know is coming is frustrating. Not receiving it when they were led to believe they would, can put them in a very difficult position. I have not had a Contractor yet that turned a job away because they were going to have to wait on that payment but I would prefer that one does to putting them in a bad position when the expected payment does not arrive and they are unable to fulfill commitments they made as a result.
Sacramento 1st DBA Comstock Mortgage – Lic : 01390474
Kevin Nunn – NMLS 305826 / DRE 01158674
