Custom Builders-USA (CB-USA), the company that develops and manages local buying networks of custom home builders, announced a partnership with federally chartered Chevy Chase Bank that promises to let CB-USA members make an end run around the jumbo mortgage drought. Bill Smithers, CEO of CB-USA, says the group has inked a deal with the Washington, D.C.-based bank that will enable its local groups to form entities called affiliated business arrangements (ABA) with Chevy Chase to provide market-rate mortgages to members’ custom home clients.
In a prescient move, the builder group finalized the deal a year ago, before jumbo loans dried up, in order to add services—in this case mortgage lending—that meet the unique needs of its custom builder members. Smithers said Chevy Chase was a good fit because it makes loans nationwide and it retains 96 percent of the loans it closes rather than selling them to the secondary mortgage market. What CB-USA brings to the deal is its membership of A-list custom builders who have reputations for paying their bills on time and maintaining stellar client relations. “When Chevy Chase understood that we seek only A-list builders, they thought it was a home run because [a good builder] is one of the best protections against a loan going bad,” Smithers explained.
Each local CB-USA group has the option of forming a mortgage lending LLC though CB-USA Mortgage, as the partnership is called. The builder group owns 49 percent of the entity and its members can buy ownership shares in that stake based on their volume during the past two years. This arrangement allows the builders to participate in the profits of the mortgage company while being at arm’s length from deals for RESPA purposes. Participating builders are required to disclose their relationship to the mortgage LLC to clients. Once a loan is closed, Chevy Chase Bank owns it, not the CB-USA mortgage LLC.
“This [partnership] puts our members on a footing with big builders,” said Smithers. “It’s even better because the programs we can create are specific to our clients.” One example he cited is a loan tailored to custom home clients that allows two years for completion of a project, instead of the nine months generally allowed. “This [partnership] reinforces that together we can do things that we could never do alone,” Smithers added.
The first mortgage LLC was created in Northern Virginia in October 2007 and has been actively closing loans since. It projects to make between $60 million and $100 million in mortgages this year. Smithers said more LLCs are in the works in Wilmington, N.C.; Houston; Salt Lake City; and Atlanta, with other cities to follow. To date, CB-USA has 16 local networks and 400 members whose combined annual revenue approaches $3 billion. For information on CB-USA, go to www.custombuilders-usa.com.
