Do draw inspections reduce construction loan defaults?

What the research found.

Amanda Heitz, Christopher Martin and Alexander Ufier, Bank Monitoring with On-Site Inspections (FDIC Center for Financial Research Working Paper 2022-09), used transaction-level records of 28,939 multiple-draw construction loans from a single large bank: when each loan was inspected, what the inspection reported and how the bank handled the draw request that followed. Three results matter here.

• Loans with more on-site inspections were less likely to default. In the authors' estimate, moving from roughly two to three inspections in a 100-day period is associated with a 3.64 percentage point lower probability of default.
• A negative inspection report raised the likelihood that the bank denied the draw. The report itself recommends nothing: the inspector assessed the project, and the bank decided.

A version of the paper was published in The Journal of Finance in 2026 (volume 81), as the FDIC's author pages list it; Tulane University's research note records its acceptance.

What it does not say.

The data come from one bank, so the finding describes that bank's book, and the paper does not prescribe a schedule for any lender. The estimate is an association the authors model, not a promise about any one loan: an inspection reports what is on site and leaves the funding decision with the lender. Inspections are one monitoring control among several, beside lien waivers, title updates and budget review. Nothing in the paper says more is always better; the cost of a visit, the size of the draw and the borrower's record decide where an extra inspection earns its place.

Why it matters for lenders.

Examiners do not ask whether inspections reduce defaults. They ask whether the lender's controls fit its lending and whether the file proves they ran. The FDIC's construction and land development examination procedures check whether inspectors are qualified and independent of the lending function, whether inspections happen on an irregular schedule and before draw requests, and whether funds go out only after management reviews written inspection reports. See how examiners review construction loan monitoring. The research gives a credit committee a reason to write the cadence down: how often draw inspections are required covers the choices, and our guide to construction loan inspection frequency turns the study into a policy.

How RAZE handles it.

RAZE documents the work line by line, with time- and location-stamped photos on every inspection linked to the draw sheet lines they support. The lender sets the cadence in its policy and funds what the documented work supports; RAZE does not approve or fund draws. Per-draw, periodic and event-driven inspections are ordered the same way in the Ordering Engine, to a RAZE Marketplace inspector at any U.S. address or to the lender's own inspector through Direct Request. RAZE averages 1.1 days from request to submission on residential draw inspections nationwide, an average rather than a promise for any one order.