The market has shifted and achieving growth has become much more difficult, but not if you offer what borrowers expect. That includes a number of things, but high on the list is a fast close on a new home loan. Speed requires efficiency and many of the lender’s current processes simply are not efficient enough. One, in particular, is costing lenders, on average, 19 days to complete. That’s far too long, and as research shows, is costing both time and money.
While borrowers also want a seamless experience that doesn’t send them away from the lender’s platform to a number of partner solutions, speed to close allows lenders to hit closing dates, removing stress from home buyers and saving deals for real estate agent business referral partners. This results in satisfied business referral partners who send more business. A better experience also drives more referral business from satisfied borrowers.
And let’s not forget the potentially huge impact a more efficient process has to the lender’s bottom line. A more efficient loan origination process will save the lender money. But where can lenders look now to streamline loan production and achieve these goals?
Reggora recently collaborated with industry research leader STRATMOR Group to explore mortgage lenders’ greatest pain points in the appraisal operations process. The data show that from the moment the lender realizes they need an appraisal to the moment they receive a complete report is nearly 20 days! Every day the loan is in process costs the lender more money, annoys loan officers and makes it less likely that borrowers will refer new business.
A faster, more efficient appraisal process is the key to reducing lender costs, retaining the best loan officers, and growing the lender’s business. This result paints a vivid picture explaining why appraisal optimization should be a top lender priority now.
Below, we’ll show how this process, once thought to be broken beyond repair, is actually a huge opportunity for lenders, a lighter lift than they think and the subject of a number of existing success stories.
Where lenders are feeling the pain now
Appraisal operations are considered the slowest part of the overall loan production process. In fact, the chokepoints common to appraisal operations often negate many of the gains won by optimizing other phases of the process. In our survey of the industry, 36% of respondents advised us that the appraisal report is actually late more than 20% of the time.
The result: 1 in 8 closings are delayed because of the appraisal. When closings are delayed, lenders can lose business. When you consider that two-thirds of the lenders who participated in the study were ordering more than 100 appraisals per month, that’s a lot of potential lost business.
This is bad in a refinance market as the word will surely spread that lenders take too long to close, but in a purchase money market, it’s deadly. If the lender misses a closing date, that agent will not send more business her way.
Lenders know this is a serious problem and they know what it will take to fix it. A Fannie Mae study released in the first quarter of 2022 showed that 94% of lenders surveyed believed “appraisal modernization is valuable, and 61% think it’s very valuable.”
But fixing the problem requires us to fully understand it.
Why the appraisal process takes so long
The data revealed through our study with STRATMOR showed that handling appraisal-related functions manually was taking lenders too much time. Survey respondents told us that 52% of appraisal-related lender time is spent on scheduling and follow-up. That’s not efficient.
Even worse, respondents to the survey said it takes an average of 7 days to find an appraiser and get the appraiser’s visit scheduled with the borrower. And that’s for a routine appraisal. Complex properties take even longer to place with the right appraiser.
Study participants who responded to our survey told us that they have two top appraisal priorities:
- Achieving on-time report delivery (38%)
- Improving report quality (35%)
This is a challenge for them because 1 in 4 appraisals triggers a revision request and 1 in 5 is delivered late. When the department does request a revision, it takes at least 4 days to complete.
All of this is costing the lender too much money. How much? STRATMOR provided the benchmarks and when Reggora pulled data from existing customers and analyzed the results, we found that by optimizing the appraisal process, lenders could reduce their cost to originate by up to $258 per loan!
Creating a more efficient appraisal process
What will it take to solve the problems in the appraisal department, speed up the lender’s loan origination process and win more business? Better automation. The lender cannot continue to operate manually and hope to be efficient enough to close on time every time. This has been an accepted conclusion in every other department in the lending enterprise and now it’s time for the news to reach the appraisal department.
An appraisal innovation platform is a software system built specifically for use in the lender’s appraisal department. It solves the problems that lead to inefficiency by automating several of the functions that lenders are currently handling manually, including:
- Appraiser panel management
- Appraisal order placement
- Payment processing
- Communication tracking
- Appraisal Report Review
- Vendor scorecards
- Full reporting
The benefits are significant
There is no other department in the lending enterprise that can offer as many benefits for optimizing now. First, the other departments are already more automated. Second, nothing takes more time in the current process than the appraisal.
The biggest benefit to a lender is a reduced cost per loan. The total value Reggora found it provides lenders is $286 per loan file, which includes a top-line benefit from an increase in referrals thanks to a better borrower experience. Going back to the findings that Reggora reduces the cost per loan by $256 for lenders, it’s clear where an efficient appraisal process most improves margins. The reduced cost per loan is tabulated by several value drivers:
According to a recent Fannie Mae study, 38% of lenders said the biggest single benefit of appraisal modernization is shortening loan cycle times. Time in our industry is more than just money. It’s borrower satisfaction and that’s future business.
With streamlined revenue collection, remittance capabilities, bidirectional integration with the LOS, and the ease of use that comes with a modern appraisal innovation platform, lenders can avoid the uncollected appraisal fees that come from transactions for applicants who ultimately choose another lender.
Larger institutions that operate large wholesale or branch networks often find that decentralizing the appraisal function can lead to problems. But pulling it all in-house isn’t possible with a manual process. With the right software, central control can be restored and efficiencies gained.
Finally, freeing up staff to move away from the appraisal desk and into higher impact roles can be the biggest benefit in a purchase money market where customer service can win more deals.
Achieving all of these benefits requires an integrated solution that can seamlessly connect directly into the lender’s LOS. Fortunately, such software systems are available to lenders today. Download our white paper on why lenders should prioritize their appraisal process to learn more.
Related blog posts
STRATMOR and Freddie Mac Data Reveal the ROI of Appraisal Innovation
Industry research indicates a better appraisal process saves lenders over $250 per loan and takes at least two days off the loan origination process.
6 Areas Where Appraisal Automation Increases Lenders' Margins
It’s more than just desktop appraisals and an online platform to accept appraisal orders — appraisal automation reduces a lender’s cost per loan by $258 and Brian Zitin outlines six areas of the process where lenders can adjust their operation to see these gains.