Here’s some earth-shattering news for you: companies make money by earning more than they spend. To improve their bottom line, lenders can either earn more or spend less, or some combination thereof.
We mention this because recently STRATMOR examined one area of expenses: appraisals. Revenue leakage from appraisal fee collection is an oft-overlooked problem, but as purses are tightening in the present market, lenders are seeking out any cost-cutting measures that don’t involve reducing more staff, and appraisal fee collection is an area of great promise. Though the dollar amount per transaction may in some cases be small (e.g., credit card processing fees), they become very significant at scale.
STRATMOR’s research found that each of the three areas of its focus (absorbing the entire fee due to attrition, absorbing the escalation fee and absorbing the credit card fees) holds major cost-savings potential for lenders and can be aided by SaaS products that automate fee collecting early in the process and make it seamless / second nature to pass fees along to borrowers. STRATMOR’s article, “The Next Big Mortgage Technology Change: Appraisals” explains how appraisal software might be the next tech frontier to add value and cost-savings to the mortgage industry, and this article is onto something.
Reggora, an appraisal software company, requested assistance from STRATMOR Group to conduct a lender-based survey focused on appraisal fee collection and gather quantitative data around revenue leakage pertaining to appraisal fee collection. Along the way, the survey learned about the lenders’ relationships and frustrations with AMCs and with the appraisal process in general. STRATMOR’s survey results included both AMC and “Panel” or a combination of the two.
Broadly speaking, lenders showed a lukewarm/poor overall feel for AMC relationships…NPS of -2 (scale -100 to 100). “Geographic Coverage” and “Turn Times” topped the rankings for AMC selection criteria, followed by the perception of quality (both in service and in the final delivered reports). Next were “Easy User Interface” and some other convenience features like integration capability and automation of payment collection and appraisal delivery. And lenders appear willing to sacrifice AMC service quality to keep their production staff happy.
One in eight appraisal fees are being absorbed by lenders. Let’s repeat that. The survey showed that one in eight appraisal fees are paid for by lenders! Nearly one in five lenders (18 percent) said that they are eating the appraisal fees at least 20 percent of the time, with one in eight lenders citing a 30 percent or greater occurrence rate. Lenders have the potential to save many thousands of dollars with increased diligence and/or using automated payment collection procedures through partnerships with appraisal software vendors.
For purchases, four in ten lenders collect appraisal fees when the loan funds. The occurrence rate is even more pronounced (50 percent) for depository institutions, meaning one in two depositories could potentially save tens of thousands of dollars (if not hundreds of thousands) by evaluating the timing and tools they use for appraisal fee collection.
The survey discovered that one in seven loans have escalation fees being paid for by lenders. While the majority (69 percent) of respondents said the occurrence rate was less than 10 percent of loans, 24 percent of respondents put the occurrence rate at 20 percent or higher and 7 percent cited an alarming 50 percent or higher occurrence. This presents a second opportunity for significant lender cost savings via appraisal SaaS providers like Reggora.
More than half of lenders (53%) are paying credit card processing fees. This is a third area where lenders could access significant scaled cost savings by either passing these costs along directly or using an appraisal software vendor which makes it easier to pass credit card fees along to borrowers.
So why are lenders hesitant about collecting fees, or waiting to collect them until the loan closes? The survey showed that avoiding loan officer or borrower grousing was the primary reason. Nearly half (46 percent) of respondents cited the fact that waiting to collect fees until the closing reduces friction for the LO/borrower relationship, while an additional 24 percent of respondents cited “Cultural reasons (customer/member experience).” STRATMOR encourages lenders to look at appraisal software vendors who offer flexibility with collection options based on location/branch or employee.
Roughly speaking, the residential loans that lenders, big and small, produce are valued and sold at the same price. So, lenders are tasked with both becoming more efficient in producing those loans or looking for ways of improving or increasing their fee income. The article above examines only the appraisal fees that lenders deal with daily. If the same scrutiny is applied to the other fees that exist in a mortgage transaction, and action is taken, many lenders may see their bottom-line income improve without increasing volume or making more difficult cuts. What do you have to lose?
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