I have received a fair number of requests from appraisers across the country asking me to address the upcoming Collateral Underwriting (CU) from Fannie Mae. After all, it all begins in just a few weeks. Are you ready? Are you like most appraisers in that you still have a lot of questions? We hit this hard on my All Star Team webmeeting this week, but only paid subscribers have access to that information. I saw an article from Richard Heyn, SRA and Dawn Molitor-Gennrich, SRA on the ACI Blog a few weeks back that, with permission from ACI, have reprinted below. I thought this article answered a lot of the questions that we appraisers have. This article originally appeared on the ACI Blog HERE.
Collateral Underwriter and Chicken Little
DECEMBER 18, 2014
By RICHARD HEYN, SRA and DAWN MOLITOR-GENNRICH, SRA"My oh my, the sky is falling. I must run and tell the others," said Chicken Little.
Apparently, a recent announcement by Fannie Mae has some appraisers thinking like Chicken Little. In October of this year Fannie Mae announced the release of Collateral Underwriter, a "proprietary appraisal risk assessment application developed by Fannie Mae to support proactive management of appraisal quality." Essentially, Collateral Underwriter (CU) is a software tool that will allow lenders to evaluate appraisal reports using the same analytics used by Fannie Mae. CU will make its debut on January 26, 2015.
When the Uniform Appraisal Dataset (UAD) and Uniform Collateral Data Portal (UCDP) were instituted in late 2011, Fannie Mae began aggregating data from millions of appraisal reports processed through the UCDP. As a result of this initiative, the data is harvested and used to fuel analytical tools that can "score" a report and assign a risk factor.
Initially, the UCDP was "rules-based" in that it simply compared the report data against a set of rules and identified omissions and inconsistencies within the appraisal report. Over time and as the amount of data grew, Fannie
Mae was able to develop a "model-based" analysis that evaluates the reports for, in their words "data integrity, comparable selection, adjustments, and reconciliation."
So there is no really big news here so far. Fannie Mae is doing just what they said they intended to do when they developed the UAD and UCDP – use technology to improve the quality of appraisal reports submitted to them. The big news here is that Fannie Mae will be sharing this technology with their lender clients, allowing them to submit reports to CU for evaluation and risk scoring. Appraisers will not be given access to CU.
So you are probably wondering what this all means to you. The short answer is that it’s simply too early to tell, and that anything you hear other than what’s been published by Fannie Mae, is speculation. If CU flags issues in a report, it seems likely that at least in some cases, the appraiser will be contacted and asked to resolve the flagged items. However, that’s not a given. Other than 21 defined "fatal edits," CU messages do not have to "pass" before Fannie Mae will purchase the loan. As stated by Fannie Mae, CU messages are designed to "simply highlight aspects of the appraisal that may require further attention." That’s Fannie Mae’s way of saying, "lender – please read the appraisal report in those sections flagged to ensure comments or explanations are provided by the appraiser per the standards in our Selling Guide."
There is a substantial amount of information about CU on Fannie Mae’s website, which we would encourage you to review and get the right information rather than relying on hearsay or speculation.
As you go through the information, keep in mind this information is written for lenders and that there is quite a bit of verbiage that does not apply to appraisers. There are also two on-demand e-learning courses that we highly encourage you to take.
While CU does have the potential of generating increased callbacks and “stips,” especially when first introduced, these should decline over time. And yes, your data and adjustments will be compared against what other appraisers (including you) used on prior reports. Fannie plans to initially focus on adjustments and material differences for key property characteristics and ratings for Quality, Condition, View and Location. Focus on what you need to do to provide a credible and compliant appraisal reports that demonstrate logic, reasoning and evidence for your opinions and conclusions.
Here are 6 things to make sure you are doing as a best practice:
Review and stick to appraisal fundamentals; brush up on your techniques.
Derive supportable adjustments from market data rather than using a list handed down to you from your grandfather who was an appraiser 50 years ago.
Develop and explain how you derived your GLA adjustments; don’t use the same $35/sf adjustment for your $50,000 properties and your $500,000 properties, unless you can truly support it with market evidence. Yes, they check all of your reports for patterns like that.
Double check your subject and comparable data and if it differs from MLS, public records data, or any other data source on which you relied, provide an explanation from your research.
Be consistent between reports with ratings for quality, condition, view, location. If you have good reason to change a rating from one report to another, document it properly in the appraisal report. If you have reason to believe your information is better and that your opinion may differ from that of other appraisers be prepared to support it.
Be cognizant of your adjustment factors and include support for your opinions and conclusions as they might differ from other appraisers or an automated valuation model.
Finally, don’t worry about things that may not happen. Fear-mongering and doomsday predictions seem to accompany many major announcements from Fannie Mae. Appraisers have been predicting the demise of the profession and dire consequences for all of the years that we have been appraising. If you are doing work that is credible you’ll live through this event as you have the others.
As an object lesson, do you remember what happened to Chicken Little and her doomsayer friends? They got eaten by the Fox.
For information on what ACI is doing in response to CU, click here.
Rich Heyn, SRA and Dawn Molitor-Gennrich, SRA are co-owners of Heyn, Molitor-Gennrich, LLC. Both are AQB certified USPAP instructors and experienced appraisal education developers with extensive speaking and teaching experience. Dawn is a former member of the Appraisal Standards Board; and both Rich and Dawn are Certified Distance Education Instructors.
My thanks to Rich, Dawn, and ACI for allowing me the reprint of this excellent article. What do the rest of you think about CU? Please comment below.
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For more information on this subject, please listen to The Appraiser Coach Podcast Episode:
