STRATMOR and Freddie Mac Data Reveal the ROI of Appraisal Innovation

A recent white paper produced by Reggora draws upon research performed in conjunction with the STRATMOR Group, along with GSE research and multiple case studies to delve into the business challenges upon which to build an accurate ROI for appraisal technology. The resulting benefits for Reggora users include a reduction in the average cost per mortgage loan of up to $258.

The white paper specifically reviews several appraisal process challenges mortgage lenders have addressed with technology, including:

• The actual time it takes to get an appraisal done
• The actual time it takes to review a completed appraisal report
• The fees paid to appraisers for loans that never end up closing
• The excess fees charged by appraisers after the borrower fee has been disclosed
• The actual time it takes to handle appraisal payments, billing, and accounting
• The time it takes to manage appraisal orders for every loan without adding headcount
• The cost of poor appraisal management to loan officers
• The cost of poor appraisal management to borrowers

The white paper also details the results of several other real-life examples. This article summarizes some of the most intriguing conclusions the data suggest by focusing on several of the problems lenders can use in their own ROI analysis.

Problem: It takes too long to get an appraisal done

In 2022, STRATMOR surveyed a wide range of mortgage lenders regarding their views/experiences with valuation and appraisal and found that the biggest time-waster is the order placement.

Reggora’s order management solution reduces a lender’s cycle time by two days. Freddie Mac’s 2022 Cost to Originate Survey shows that the cost of funds for each day a loan was in process daily cost of funds (hedging costs & carrying funds costs) corresponded to 0.075 basis points. Assuming an average loan amount of $285,000, one day of a lender’s cycle time costs the average lender about $21, and Freddie Mac’s 2019 pre-pandemic closing cycle time research showed an average cycle time of 40 days.

A privately-held regional bank in the southwest that the company highlighted in a recent customer story is a great example. The lender wanted to reduce cycle times but did not want to add people to its appraisal department. After implementing new technology, the bank was able to reallocate FTEs in the department to revenue-driving activities, but still was able to manage order allocation so effectively that it reduced its cycle time.

That same southwestern-based regional bank reduced the time it takes to manage an appraisal order and appraisal billing by 20%, saving $100,000 in FTE overhead.

Problem: It takes too long to review an appraisal

Regulators require the lender to review each appraisal report before using it to underwrite a new mortgage loan, but this takes time. Research indicates again and again it’s taking lenders far too long.

Reggora’s appraisal quality control solution reduces a lender’s review time by 82%. On average, across Reggora’s customer base, quality control took 45 minutes per appraisal prior to using their review solution.

‍Freddie Mac’s 2022 Cost to Originate Survey shows that the fully-loaded hourly cost of personnel (total comp + benefits + space/tech/corporate overhead allocation) associated with processing and underwriting, assuming 75% of each hour is productive, an hour of quality control costs the average lender $132.

Problem: Lost revenue as the result of uncollected appraisal fees

Lenders have found that loan fallout contributes to higher costs when appraisal fees cannot be collected from borrowers who walk away from a transaction or cannot complete it. This is happening more often as consumers complete applications with more lenders and then choose one to close with. The disappointing result is significant amounts of uncaptured revenue.

In the case of one prominent regional bank, technology that enabled seamless payment collection at the ITP saved the bank $125,000 annually, eliminating revenue leakage from uncollected appraisal fees.

Problem: Revenue loss resulting from appraisers raising their fees

When lenders disclose fees to the borrower and then later find that their appraiser has escalated the fee, they have the option of redisclosing the Change of Circumstance to the borrower and collecting the higher fee. But in 26% of transactions, appraisers issue a fee increase that doesn't qualify for a Change of Circumstance. In these cases, the lender is completely stuck with the escalated fee, which costs $181 per loan on average. If you apply these industry averages to a lender whose volume is 10,000 loans per year, the result is $470,600 in losses, or $47 per loan file.

However, the white paper shares case studies indicating that the implementation of Reggora technology resulted in a reduction of revenue leakage from fee escalations by 65% without the need to issue a Change of Circumstance or increasing the risk of fallout. With 26% of appraisals impacted, that trims the impacted files down to 9.1% of total volume.

Problem: It takes too long to handle appraisal payments, billing, and accounting

Lenders are finding that they can easily cut the time it takes to manage invoicing/payment collection/accounting/vendor payment in half with appraisal management technology. This reduces costs and the number of FTEs required to perform these slow, expensive manual tasks. By redistributing this function, lenders are empowered to, in turn, reposition those FTEs for more productive, sales-related tasks. Let’s take a look at what that looks like in numbers.

Reggora’s appraisal billing solution reduces a lender’s review time by 50%. On average, across their lender customer base, employees spent 1 hour on billing activities per order prior to using their payment processing solution. Freddie Mac’s research shows that the fully loaded hourly cost of personnel (total comp + benefits + space/tech/corporate overhead allocation) associated with billing, assuming 75% of each hour is productive, an hour of appraisal billing costs the average lender $69.

A privately-held independent mortgage company located on the west coast reduced the time it takes to manage an appraisal order and billing by 50% and reduced its cost per loan by $192. Another southwestern regional bank previously referenced shaved 20% off the time it takes to manage an appraisal order and to invoice and saved $100,000 in FTE overhead.

Problem: It takes too long to manage appraisal orders

The STRATMOR/Reggora data clearly showed that utilizing human resources in the appraisal process is time-consuming, under-productive and expensive. Time spent on order creation, order allocation, payment, and status updates makes it harder for staff to solve real problems or put more time into more complex sales-related or production-related tasks.

However, lenders deploying Reggora’s order management solution saw a reduction in time managing appraisals of 33%. On average, across Reggora’s customer base, it took 1 hour to manage one appraisal order prior to using the new platform. Freddie Mac’s 2022 Cost to Originate Survey shows that the fully loaded hourly cost of personnel (total comp + benefits + space/tech/corporate overhead allocation) associated with processing and underwriting, assuming 75% of each hour is productive, an hour of appraisal billing costs the average lender $132.

Problem: Loan Officers (LOs) don’t have visibility into the status of appraisals on their loans

When the LO can’t answer the borrower’s questions about the status of the appraisal, the borrowers lose faith in their trusted advisors. The result can eventually become loan fallout.

The implementation of new technology, however, brought about improved borrower experience, reduction of fallout, increased profitability, and improved retention rate for the best loan officers. Eliminating the constant calls, texts, and emails from LOs hunting status updates both improves operations team efficiency and creates a better employee experience. Fixing a long-standing pain point in mortgage — the appraisal — has helped lenders improve LO recruitment and retention.

It’s not just end users who feel a lift. Borrowers have a better experience when there is less uncertainty in the process. When LOs and loan processors can quickly answer their questions about the status of their appraisal report, it improves their experience and increases referral rates.

This is exactly what both North Easton Savings Bank and PRMG experienced when comprehensive data views within their appraisal management platform gave them the power to routinely share good news with LOs and referral centers about each appraisal.

“One of the great benefits of using the Reggora system is the communication piece,” said Jim Dell’Anno, Vice-President and Sales Director for North Easton Savings Bank. “We've seen instantaneous pickup from the loan officer being able to see all through the transaction, what's going on with the appraisal, from the moment it gets ordered to the day that the appraiser accepts, to the inspection date, to when the appraiser sends it in. My loan officers have given me nothing but positive feedback.”

Problem: Getting an appraisal done frustrates borrowers and isn’t a fast, convenient part of your digital mortgage

Turn times are incredibly important to all stakeholders in the mortgage process. While it is possible to measure turn times, and the full white paper does so, the less tangible benefits delivered by a faster process may be harder to measure — but they’re no less important.

The use of appropriate technology, however, has helped numerous lenders achieve higher borrower satisfaction scores, which increases repeat and referral business, retains top LOs, and strengthens relationships with business referral partners.

Lenders that reduce borrower frustration reap many benefits. Just ask Assurance Financial, a lender that used Reggora’s appraisal management technology to reduce appraisal turn times by 7 days! Or Neat Loans, another lender that benefitted from shorter turn times and higher borrower satisfaction by routinely closing loans in just 15 days.

The results of an optimized appraisal process

• ‍Appraisal billing — Resources spent managing invoicing, payment collection, and financial tasks related to collecting appraisal payments & paying appraisal vendors, $34 savings per file
• Cycle time — A faster mortgage cycle time and reduced carrying and hedging funds costs, $43 savings per file
• Appraisal fees — Reduced revenue leakage due to appraisal fees not collected by the borrower (i.e., deal is lost or a fee escalation without a change of circumstance), $56 savings per file
• Appraisal order management — resources spent managing the appraisal order (ordering, communication, receiving & follow-up), $44 savings per file
• Quality control — Resources spent QCing each appraisal, $81 savings per file

That’s a $258 reduction in cost per loan. But that’s not all that the data revealed. Lenders also earned an additional $28 per loan from a 5% increase in referral business.

Total ROI: $286 per loan file

We’ve laid out the details of how lenders are able to reduce their cost per loan file and all the pain points appraisal management technology alleviates in our white paper.

While every institution is different in its specific calculations, the exact ROI a lender will experience is reliant on the realities of their operation. Lenders ready to calculate how much their organization could save can contact the Reggora mortgage solutions team for a free cost per loan consultation. This is step one to lenders looking to increase margins and lowering the cost to originate with appraisal management technology.