Late-stage mortgage rejections on the rise

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Some lenders today are rejecting 50 percent or more of their mortgage loan applicants after the applicants have paid for an appraisal, and in some cases after they have paid a nonrefundable upfront fee to the lender. While the rejection rate varies widely from lender to lender, the overall rate is far higher than it was before the financial crisis, when rejections late in the approval process were a rare occurrence.

There are some indications that late-stage rejection rates may be highest among the largest lenders. These lenders also own, in whole or in part, the appraisal management companies (AMCs) that retain appraisers. The lender ordering an appraisal from a company in which it has a financial interest in effect receives a piece of the appraisal fee paid by a borrower the lender subsequently rejects.

There are no statistics on late-stage rejections. The statements above are based on confidential reports from professional insiders, and m...