STRATMOR Insights Report: Borrower Retention Can Increase Value of Servicing By Up To 3X; Appraisal Fees and Turn
- Successful borrower retention efforts can increase the servicing value of a new mortgage by one-and-a-half to three times
- Increases in servicing value can be used to fund price concessions, which can improve overall competitiveness, further increasing the probability of retention and the ability to fund even greater price concessions
- On average, appraisal fees increased by nearly 16 percent since TRID went into effect; turn-times are up 79 and 81 percent for purchase loans and refinances, respectively
- STRATMOR notes that neither increase is likely wholly attributable to TRID itself, but also reflect sharply increased origination volumes and a shortage of qualified appraisers
- Data shows that proactive borrower contact during the origination process increases satisfaction dramatically
GREENWOOD VILLAGE, CO. — October 20, 2016 — Today, STRATMOR Group, a leading mortgage industry consultancy, released its latest STRATMOR Insights report. In this month’s STRATMOR Insights,Senior Partner Dr. Matt Lind presents an analysis that seeks to quantify the impact borrower retention has on the economic value of mortgage servicing rights. As Dr. Lind explains, successful borrower retention efforts are as important to lenders’ increasing and retaining a competitive pricing edge as are more tangible factors such as low back office expenses.
“When people in the mortgage business speak of being competitive, it’s almost always about reducing costs,” said Lind. “What this analysis shows, though, it that increasing customer retention can actually create something of a positive feedback loop that increases a lender’s ability compete on price at least as much as cost cutting ever could. In fact, the two should go hand in hand. By increasing the value of servicing, lenders can use that value to price loans more aggressively. A better price advantage over the competition further improves the probability of retention, which in turn increases the value of servicing, and so on – it’s the best kind of positive spiral.”
This month’s report also features findings from STRATMOR’s recent Appraisal Process and Turn-Times Spotlight Survey, particularly looking at how things have changed since the TILA-RESPA Integrated Disclosure (TRID) rule went into effect last year. As Dr. Lind explained, however, while both appraisal costs and turn-times are up, it would be a mistake to attribute the cause of these increases to TRID alone.
“While STRATMOR’s survey data does show that, on average, post-TRID appraisal costs have risen by nearly 16 percent, we would caution that these turn-time increases may not just be a consequence of TRID,” said Lind. “Likewise for appraisal turn-times, which increased by 5.74 days for purchase loans and 6.28 days for refinances – which corresponds to increases of 79 and 81 percent, respectively, over pre-TRID turn-times. Rather, it seems likely that both of these increases are also a result of sharply increased origination volumes in 2016 Q2 and Q3, coupled with a lack of qualified appraisers.”
Data from STRATMOR’s MortgageSAT Borrower Satisfaction Program also revealed that the ways in which mortgage lenders stay in touch with borrowers throughout origination plays a large role in determining satisfaction. When borrowers have to take the initiative, calling the lender for status updates, satisfaction falls precipitously – to a score of 61 out of 100, the lowest among all of the communication methods polled. Logging into a website, which also requires the borrower to take the initiative, also scored relatively low (84 out of 100). The highest level of satisfaction (95 out of 100) is seen when the lender calls the borrower, which keeps the contact both proactive and personal on the part of the lender. Email communication – the most frequent method of borrower contact according to respondents – also scored high (90), and quite likely at a much lower cost to the lender than individual telephone calls. Notably, the second highest level of satisfaction (93) was given to lenders’ Mobile Apps, but relatively few borrowers (just 0.13 percent) cited this as their method of contact. Regardless, the high level of satisfaction associated with mobile apps should alert lenders to their growing significance and potential. Finally, despite being proactive, the traditional method of physical letters mailed to the home received the second lowest score (82 out of 100); a sign of the times.
About STRATMOR Group
STRATMOR Group is a mortgage industry advisory firm that offers a range of products and services designed to provide lender CEOs and senior executives in sales, marketing, technology and operations with comprehensive data and key insights across a full spectrum of consulting services. The firm serves more than 250 companies operating in the sector and provides consulting on strategies and actions clients should implement to improve growth and profitability, reduce risk or position themselves to make an acquisition or sell the company. It is well known across the industry for its financial models and its collaboration with the Mortgage Bankers Association in conducting the PGR: MBA and STRATMOR Peer Group Roundtables program. The company prides itself on a proven ability to bring an unwavering commitment to objectivity to every client engagement.
Matt Lind October 20, 2016