Blog post by Reggora
It’s no secret that margin compression is a top concern for lenders at the moment. We’ve all read the headlines and in some form or fashion, we’ve all felt the pain. It’s a far cry from the refi boom when the industry was in growth mode to meet the wild demand. Unfortunately, we’re seeing how the inevitable change in market conditions creates such a turbulent transition.
The good news we’d like to share with this piece is that there are quite often simple, actionable steps lenders can take to reduce their cost to originate, increase margins by hundreds of dollars per loan file, and be prepared for the next time the market is primed for spikes in volume — lenders need to look no further than their appraisal process.
We recently participated in a webinar on how lenders can reduce costs and increase margins with Jennifer Fortier, principal consultant with STRATMOR Group, and Cliff Meggison, an executive leader in risk management, who was with Citizens Bank earlier in 2022.
We outlined six areas where lenders can focus their efforts to reduce their cost per loan:
- Appraisal Modernization
- Appraisal Reviews
- Appraisal Order Allocation
- Appraisal Data and Reporting
- Appraisal Status Communications
- Appraisal Payments
By using STRATMOR Group’s 2022 lender appraisal operation study as a benchmark, we can determine a cost associated in specific areas of improvement and provide a reduced cost per loan to calculate the ROI of appraisal management technology. If you’d like to evaluate how much your organization could save, contact our mortgage solutions team for a free cost per loan consultation.
Now, let’s dive into the six areas where appraisal innovation helps lenders increase margins.
1. Appraisal Modernization
Fannie Mae and Freddie Mac rolled out desktop appraisals as a solution for lenders’ appraisal process. Creating a more efficient process is key to reducing costs and we’re excited that the GSEs are embracing a technology-driven approach to appraisals. But new technology can lead to many questions, which we outlined in our deep dive on desktop appraisals, “Understanding Desktop Appraisals: Takeaways from Fannie Mae and Freddie Mac.” Fittingly, the first piece of advice Fortier and Meggison had for lenders is to partner with a vendor that is equipped to accommodate appraisal modernization.
Finding a nimble, innovative tech partner should be a comprehensive process. Meggison points out that lenders should have a plan to evaluate vendors, such as the industry best practices outlined in the “Appraisal Management Tech Buyer’s Guide for Mortgage Lenders.” This is a crucial part of achieving ROI, as Meggison says “it is critical that lenders find the right partners” to avoid bringing in a vendor that promises great results, but ultimately drives up costs.
Whether it’s desktop appraisals, hybrid appraisals, or a new form of valuation to come in the future, selecting a partner that is built to adopt new products from the GSEs and guide lenders along the way is key.
2. Appraisal Reviews
The review process for appraisals jumps out as an area where lenders can significantly reduce their cost per loan. The cost starts with the high value provided by underwriters, driven by how long it takes to review appraisals and their understandably high salary.
Since they play such a vital role in risk mitigation, underwriters should be hyper-focused on their role. Digital tools can help reduce the need for underwriters to perform basic checks and allow them to focus on ensuring delivery of high-quality reports.
“You should provide underwriters a tool that makes it easy for the reviewer to make a decision on whether the appraisal report is meeting your needs or not,” says Fortier. “Looking at how you route reports and looking at who you use to review different types of appraisals is a great first step to getting some lift.”
This is where Reggora’s partnership with Clear Capital’s ClearCollateral ReviewⓇ comes into play, reducing the review process from 45 minutes per loan down to just eight. An 82% reduction in time spent on quality control reduces a lender’s cost per loan by $81.