Mitigating the risks associated with construction loans runs thick in Brian Mingham’s blood. His company, CFSI Loan Management, is based in Los Angeles and oversees the entire process, from contractor review to project feasibility reviews, and from fund control to draw inspections. Mingham, who founded the company and serves as its chief executive officer, ensures that construction projects are completed on time, on budget, and ready for permanent financing. Although CFSI has professionals coast-to-coast, its operations center is located in Denver, Colorado.

Mingham’s company works within a niche that is particularly valuable to lenders. While lenders that originate construction loans are practiced in evaluating borrower creditworthiness, they are often not experts in assessing construction risks such as determining a general contractor’s ability to complete a project, or proper costing for labor/materials in a construction budget, or mitigating the potential of subcontractors and suppliers filing mechanic’s liens on a property. Each one of these issues can cause a construction project to default.

CFSI lends its expertise to lenders in the form of portfolio audits as well. Some lenders rely on their partners to manage the construction process from start to finish. These lenders engage CFSI to audit the documents obtained by their partners for contractor review, project feasibility and construction draws/inspections. CFSI provides a detailed analysis of the construction risk in the portfolio and offers suggestions on meeting industry best practices.

Mingham admits, however, that these core competencies stem from the team of professionals he has assembled – after a twenty-year career in the finance sector, Brian began CFSI in May of 2013. Mingham’s experience varies “from boots-on-the-ground to executive,” and he has held positions at Countrywide Home Loans, JP Morgan Chase, and NRES. Originate Report sat down with Mingham to discuss his career and the inception of CFSI.

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What brought me to begin CFSI was a long, but rewarding journey.

I’ve always been a traveling person – when I finished high school and started community college (like everyone, trying to figure out what I wanted to do,) I took a job at Citi Bank as a teller. From there I became involved with the selling aspect, and I eventually became a loan officer for home equity lines of credit. I moved to Boston to go to school and worked at a local bank as a loan officer, and when I met my wife, we moved to California.

In 2009, after 15 years in the mortgage business, I found myself out of a job in a city where that job took my family and me. We knew that we wanted to move back to Southern California, but after trying to find a job, I decided to start my own company. Initially, I started a property preservation company that supported lenders on the default side of the business, but that quickly grew into a national service provider. I used the contacts I gained in the mortgage business to contact people in different aspects of the business; this helped me begin my inspection company, asset management company, construction company, and seven years ago, CFSI. I started CFSI as the “hedge” company which would be going strong as other default businesses were waning.  My thought process was correct because we put the default business on the shelf, and have stepped on the gas the last few years and focused on growing a world class Construction Loan Risk Management company.

Even though I have brought CFSI into a space of prosperity, I felt an extreme sense of apprehension when I first decided to venture out on my own; after all, we were on the heels of a brutal recession, and I was in my mid-30’s living in Florida with my wife and young son. Being unemployed is not a pleasant experience, and today my friends and colleagues say “I can’t believe you took lemons and made lemonade.” I wouldn’t have been able to start my company without the large corporate experience I had. This experience, however, was quite draining; but even though these experiences were monotonous at times, they allowed me to gain knowledge in a litany of fields, including the mortgage sector and strategic development.

The process of creating CFSI wasn’t a solitary one, however – I wouldn’t have been able to do this without my team. Hiring the best team in the industry is always a challenging part of building a successful business.  We were fortunate to hire a couple of critical people who created a great team around them and has allowed us to grow, provide excellent customer service, and allow a work/life balance.  Our operations center is located in Denver, CO and we have a few employees scattered around the country to provide early and late coverage for our clients.  We are in the mortgage business after all, and moving vans are waiting, contractors need to get paid, and our clients rely on us to provide the same excellent service they give their customers, so they earn the repeat business.

Our company helps lenders reduce risk related to construction projects nationwide. Our high touch, customer-centric approach allows lenders to concentrate on originating construction loans while CFSI manages the construction phase from beginning to end. From reviewing project feasibility to confirming a contractor’s ability to complete a project, to managing the construction budget through the draw process, all the way until the project is complete and the loan is ready to roll to permanent financing, we are here and willing to lend our expertise in construction to residential, commercial, and multifamily properties as well as conventional, warehouse, SBA, and commercial lenders nationwide. Even though this is an incredibly multi-faceted field, our services can be broken down into a few key points.

• Contractor review: This is critical to the underwriting of a project. If you are working with an inexperienced builder who is not licensed, insured, and does not complete projects, it will be incredibly difficult to secure funding if a lender thinks, and rightfully so, that a project will be half completed. Contractors have to be carefully vetted; in many cases, borrowers use search engines to find their contractors. A few people show up, quote the borrowers, who in turn throw out the highest bid. More often than not, these borrowers end up with the wrong people for the job, which is why we take this process so seriously at CFSI.
• Project feasibility: One of the many components that can contribute to a project going wrong is its feasibility – if the bid or scope of the work is wrong, this can lead to a disaster in terms of the project’s completion. The worst scenario for a banker, in fact, is when the project is underbid, or contains vague line items and change orders from inexperienced contractors. Prior to funding deals, we make sure to evaluate the contractor and project first. If you have an unhappy borrower who may not have the funds to finish a project, the bank may have a half-finished project on their hands that they need to take back and possibly sell for a discount.
• Funds control: Now, the real work starts. We manage the “original” budget, which has the tendency to change at a moment’s notice and keep our eyes on line items. A small issue here, such as a contractor moving money between lines, can cause real issues for lenders and borrowers down the road if the project is not being actively managed. This “money moving,” changing materials, or changing the scope of a project can have a dramatic impact on the value of the project. If a borrower, for example, thinks they are getting granite countertops, but the line item is not managed closely, a development could end up with tile; this, of course, does not make too many people happy, especially if these oversights result in a depreciation of value. Situations like this are part of the reason why receipt collection is so important – even though receipt collection and lien releases are a time-consuming process, it will save you time in the long run, trust me. Many states have different forms and requirements, and if you don’t pay attention and keep funding the contractor, you may end up with a project full of liens that need to be cleared up prior to the project’s completion (they also need to be cleared up to receive a clean title.)
• Inspections: This step in the funds-control process tells the lender, by line item, what percent complete a project is – conducting inspections as a stand-alone product for us is challenging because we didn’t get the “before” look at a project during its feasibility phase. This is where the previous steps come into play and can advance or completely derail a project; if line items aren’t managed closely, you can run into a “detailed scope of work” that consists of vague categories like “plumbing – $15,000,” “kitchen – $20,000,” and so on. What do these categories consist of? Why should a lender pay $15,000 for “plumbing” if they are unsure of the quality of work? The latter steps in the process consist of an amalgamation of previous steps, which can make the work difficult at times. That’s part of the reason why CFSI is present for the entire process.

Although this process sounds laborious, and trust me it is, it is also incredibly rewarding. When I started CFSI, it was my hedge against the default business going away. I had been working in a corporate setting for quite some time, attending retreats and sitting through strategy meetings even though I knew it was not the best use of my time or resources. The upside to working in the corporate space, however, is the guarantee of a consistent paycheck, which cannot always be said when starting your own business. When CFSI was still in its infancy, one of the biggest obstacles I overcame was understanding cash flow. Every month we would have revenue and profit, but what I didn’t realize was our clients would pay us 30 or even 60 days after a transaction was completed; this was a step that I just didn’t see at the corporate level, where so much activity takes place behind closed doors. When you own your own business and are heavily involved in its day-to-day happenings, you learn a lot about things you didn’t even realize before. Some of these realizations are positive ones, and others not so much, but at the end of the day you learn something from every situation.

Because of margin compression and dwindling profits, CFSI decided to close down its default business a year ago. It was a very difficult decision to put people out of work because after all, employees do become family – but it was a decision I had to make. There was a point in time when defaulting was extremely predominant; I would sit on my couch, in fact, and watch a moving truck empty someone’s house. I had a lot of friends in the defaulting business, and what a lot of people don’t realize is just how ugly it can be. People are crying as they have to move their belongings out of a property, and the sheriff has to be there while the home is repossessed. Even though defaulting can be heart-wrenching at times, I’m glad I have that experience.

When I look at some of my competition today, they don’t have that background. Even though I closed down that aspect of my business a year ago, it always helps to have the know-how associated with taking back a property because often, it can be a painstaking process. Many people are ill-equipped to handle that process because we aren’t in a significant recession right now.

CFSI’s team is experienced and well-rounded. Even though I started this venture myself, I cannot reiterate enough the importance of surrounding yourself with brilliant, like-minded people. Unfortunately, you can never overlook the possibility of foreclosure, so in my line of work, you need people who are well-versed in the “positive” and “negative” sides of the financial sector. Ultimately, the CFSI team itself is our biggest value-add. With that being said, however, running multiple businesses does take its toll, which is another reason it is important to surround yourself with trustworthy people. Before we shut down the default segment of our business, it was common for me to start my days at 5 a.m. and get home around 8 p.m. There is always something happening, and especially in real estate, I had to remain on my toes. Whether this means staying by the phone or mitigating challenges or conflicts depends on the climate of a particular day, but there is rarely a dull moment in this line of work.

I’ve always been “on the go” (for lack of a better phrase) throughout my time in the real estate space. Over the course of my career so far, I have witnessed a major recession and a period of relative economic stability from a number of different cities. When I was working for larger companies, I found that corporate America had no problem whatsoever leaving people behind. On top of that, the work was exhausting; even though I am still incredibly busy running my own company, I feel so much healthier now. I don’t remember a specific incident that inspired me to start my own company, but I knew I could do something better.

Although it is easy to be overly critical of the pitfalls we all experience throughout our lives, these experiences have to be levied against our triumphs. Coming off the heels of a recession and starting a company may have seemed foolish to some, but I always knew CFSI would be able to grow and expertly serve its clients. As I am quoted on our website, “No man but feels more of a man in the world if he has but a bit of ground that he can call his own. However small it is on the surface, it is four thousand miles deep; and that is a very handsome property.” I firmly believe this, as do all of the professionals CFSI hires.