Fannie MAE’s New Collateral Underwriter

By A Prominent Harford County Appraiser..

With more things being added to the Harford and Baltimore County appraiser workload now comes the arrival of Fannie Mae’s newest national risk management tool known as the “Collateral Underwriter”, also referred to as CU. The CU is a computer based program that performs an automated risk assessment of appraisals submitted to the Uniform Collateral Data Portal® (UCDP) and returns a risk score, flags, and messages to the submitting lender.

Fannie Mae began compiling data from millions of appraisal reports processed through the UCDP. As a result of this initiative, the data is gathered and used to fuel analytical tools that can “score” a report and assign a risk factor. CU will provide a risk score for the appraisal of 1-5 (1 being the lowest risk and 5 being the highest).

In 2011 Fannie Mae mandated appraisers to begin using UAD codes in their reports to describe different aspects of a property being appraised. You may have read a report and thought, “Why is the appraiser saying the property is in ‘C4′ condition? What does that even mean?” Well, that is a Fannie Mae UAD code to describe a specific condition, and now that Fannie Maw has over 12 million appraisals in their system with these codes, it has allowed Fannie Mae to give birth to the CU review tool.

CU will review specific information in each appraisal such as the sales price, lot size, bathroom count, bedroom count, age, location, size of the basement, condition, quality of construction, view, and GLA (gross living area). This information and/or UAD codes are then compared to the multitude of other reports in the database to find inconsistencies and then flagged.

Comparable selection is also under heavy scrutiny. Although the appraiser is the one that ACTUALLY inspects the property and chooses the appropriate properties for comparison the lender can submit the report to CU and apparently CU will now supply “up to 20 comparables” that are “ranked by risk” to the lender and/or AMC partner based on Fannie Mae’s proprietary algorithms. They will include the appraiser’s comparables (that have each been assigned a risk rank) along with Fannie Mae’s computer generated comparables. This could only lead to additional required responses on comparable selection and further time spent on a report dissected by everyone under the sun. On top of everything else there will be cost conscious AMCs using low cost unlicensed staff to ‘review’ these computer generated comparables and ask for the originating appraiser to respond to any that have a lower ‘risk rank’ than the comparables selected by the appraiser.

Within this massive database sits all of your appraisals and your peers’ appraisals. Data about the property you have appraised and all the comparables in the report is extracted, dissected, categorized and compared to one another. If data or descriptions of the comparables are not consistent with the description provided by your peer appraisers a “data error” is noted and the credibility of the report is in question. When an appraiser uses the same comparable property in multiple appraisal reports the description and data should be consistent and not vary: this will also cause errors and/or messages. This system is used to provide a risk score to the lender regarding quality appraisal reports.

As if this was not a big enough hurdle already, the CU has no standardized method to determine neighborhood boundaries. So Fannie Mae’s solution is to break down market areas by what the US Government calls ‘Census Block Groups’. Unfortunately, Census Block Groups do not align well with actual neighborhood boundaries causing further issues with neighborhood trends and market analysis within an appraisal report.

5 Things to know about Fannie Mae’s Collateral Underwriter:

  • Fannie Mae loans only: CU is only used for loans geared toward Fannie Mae. The CU is not used on divorce appraisals, 2-4 unit properties, “drive-by” appraisals or any other private appraisals.
  • Not FHA/VA: CU is not used for FHA and VA loans
  • Commentary: The CU tool does not read any of the commentary by the appraiser, which can be key to understanding comp selection, adjustments and the final value.
  • Neighborhood boundaries: CU uses census block groups for data analysis instead of specific neighborhood boundaries that may be readily understood in the market. Pulling data from the right neighborhood can make a HUGE difference in a valuation.
  • Adjustments & comps: Fannie Mae has heaps of data to compare to any new appraisals that come into the system. Not only do they know about sales in the neighborhood, but they also know which comps other appraisers have used and even value adjustments given by other appraisers. CU knows if an appraiser says a comp is in good condition (C3) in one report, but then says it is in fair condition (C5) in a different report. CU will pay special attention to comp selection, adjustments and the final reconciliation of value.

CU has wormed its’ way into the lives of the Harford County appraiser, the Baltimore County/City appraiser and appraisers nationwide, whether we like it or not it is here for the duration. The best advice anyone can give is provide a credible and accurate report on a consistent basis. There will be growing pains within this period of adjustment and only time will tell if this will have a positive or negative effect on the appraisal industry.

Our local appraisal group consisting of Harford County appraisers, Baltimore County/City appraisers, and Howard County appraisers have excelled in the face of adversity with quality reports, this will be another obstacle to conquer.
Coincidentally, since the surgence of the “CU” our particular company has seen an emergent of past management company clients (that we have not heard from in years) requesting appraisals. Could it be these management companies, whom we do not perform reports for due to fees (as low as $265 for a full report) are on the hunt for “quality appraisers” due to error filled reports? That their pool of “low cost appraisers” are turning out to be just that?  Like the old saying goes….you get what you pay for!

Lender Letter 2/2015