Mortgage shops should turn their attention to revenue leakage from appraisal fee collection, a blog from Stratmor Group argues.
Though footing the bill for an appraisal may seem minor, it can add up to be "very significant at scale," writes Rob Chrisman, a senior advisor to STRATMOR Group's Capital Markets advisory team.
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One in eight appraisal fees are covered by lenders, according to the report, which had about 90 participants.
Nearly one in five lenders are eating the appraisal fees at least 20% of the time, while one in eight lenders cited a 30% or greater occurrence rate, Stratmor stated.
Meanwhile, about one in seven loans have escalation fees being paid for by lenders and more than half (53%) of the lenders who participated in the consulting firm's survey are paying credit card processing fees.
Lenders wait to collect appraisal-related fees until after the loan funds instead of getting the fees in front of the borrower immediately, which is partly the reason why some get saddled with covering the cost, Chrisman said.
Forty-six percent of respondents said they wait to collect fees until closing to reduce potential friction in the loan officer and borrower relationship, while 24% cited that they did so for "cultural reasons."
A way to bypass a lender getting stuck with additional costs that can hurt their bottom line, while also preserving an amicable relationship with the borrower, is to use a software vendor to pass credit fees along to potential homebuyers, Chrisman said.
By doing so "lenders could access significant scaled cost savings by either passing these costs along directly," he added.
Stratmor's survey also found lenders that participated had a "lukewarm or poor overall feel" for appraisal management companies. Factors such as slow turnaround times and not being able to find an appraiser to cover specific geographic areas were contributors to the sentiment.
