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Only a few days into the release of the Fannie Mae Collateral Underwriter and my prediction of this being the biggest process change in the appraisal industry since the HVCC is becoming a reality for the field appraiser.
Appraisers and lenders are flabbergasted about what to do with the recent findings and feedback that CU has provided regarding appraisers' work.
The appraisal community blogs and forums are packed full of questions regarding how to handle CU and how to properly defend appraisal reports as well as who’s responsible for review this information.
Fannie Mae’s guidance that the lenders are responsible for reviewing and interpreting the CU findings has turned into some lenders sending all the findings to the appraiser to comment on with no interpretation or guidance.
The biggest surprises have been the level of detail that CU is going into as well as the specifics of the findings and ultimately the lenders responsibility to certify that the comments and narrative provided by the appraiser is adequate and supportive of the original report.
An example from a recent CU flag from some appraisers are below:
"The appraiser is applying a $20 per SQFT adjustment (GLA). What method was used to determine this rate of adjustment? Please provide the method and show the calculations in the addendum. Factoring out the site value and other improvements, as well as factoring in the deprecation, the adjustment seems to be nominal based on the price per SQFT of GLA. Please address the adjustment and show adequate market based support."
** UNDERWRITER REVISIONS **
Message - Comparable 3 (Collateral Underwriter)
The condition rating for comparable #3 is materially different than what has been reported by other appraisers. Please provide supporting commentary for your data on this condition.
Message - Comparable 3 (Collateral Underwriter)
The quality rating for comparable #3 is materially different than what has been reported by ot her appraisers. Please provide supporting commentary for your data on this condition.
Message - Comparable 2 (Collateral Underwriter)
The quality rating for comparable #2 is materially different than what has been reported by other appraisers. Please provide supporting commentary for your data on this condition.
When you look at these messages, the appraiser can make comments regarding this, but ultimately Fannie Mae has different data that it is not sharing that contradicts the appraisers report.
Even if the appraiser questioned his own work they would be left wondering what the other reports say.
This alone directly goes against Fannie's own selling guidelines that the appraiser must have “Any and all information about the subject property that the lender is aware of must be disclosed to the appraiser….” And the appraiser must certify that “I am aware of, and have access to, the necessary and appropriate public and private data sources...”
This puts the appraiser in a very tough situation because without access to the full database, appraisers and lenders will have no idea of what they are missing and what conflicting data really says.
Even being proactive and commenting on the variances and providing supporting documentary leaves the appraiser wondering if they dug themselves deeper into a whole of supporting what they saw but having unknown conflicting information somewhere in Fannie Mae’s database.
CU was never designed to tell the lender or appraiser what to do but rather provide some insight into other data Fannie Mae has.
Fannie Mae has even clearly said there will be frequent situations in which CU warnings are wrong and findings are incorrect.
The examples above show that most of the CU findings will be left up for interpretation and the problem with this is everyone is interpreting the appraiser is wrong, not that Fannie's information is wrong or that it’s a misfire.
This has caused a title wave of revision requests from lenders for things appraisers don’t have any reason to comment on — other then there appears to be some differences in FNMA database that no one can see.
But rather then being just reactive I put together 5 tips that lenders should follow to help them get through the change and effectively handle CU.
Here are 4 ways to effectively deal with CU:
1. Have appraisal skill set on staff
Most of the CU findings are left up to interpretation. Even with detailed explanations regarding a finding, a lender will be in a position in which they will need to override the findings and certify that they are okay with them. As a result, having an appraiser-based skill set on staff will greatly help lenders make decisions on what to override and what to get a review or order a new appraisal. CU does not provide insight into what level of risk a lender should assume before ordering a review or second appraisal. So the examples above could warrant an explanation and a simple revision, a field or desk review to compare information or a full blown second appraisal because of the difference of information. This interpretation will ultimately be up to the lender and having the staff on site to be able to make the call is essential as a lender could easily miss information that's vitally important.
2. Appraisers are unable to clear flags
Appraisers are only able to provide clarification on what they saw, did and how they arrived at the results. They are unable to clear flags. When CU has a finding on a report, the appraiser can provide commentary but the lender will be responsible for clearing the flag and properly assessing the risk. CU will not change a flag if an appraiser provides commentary.
3. CU findings will be wrong
Fannie Mae emphasized through the roll out that CU's findings will very often be wrong. Knowing this could be helpful in situations to which the appraiser is certain about aspects of their report.
4. Appraisers are going to want more money
Appraisal fee's have been squeezed during the past few years and with CU's rollout, there seems to be a tremendous amount of additional work that is going to be needed on appraisal reports to address flags. Appraisers will want compensation for this additional work. It's a little too early to tell but it appears appraisal fee's will be on the rise and rightfully so.
Overall, CU will be a positive for the industry as it will streamline the way appraisals are reviewed and will provide a level of accountability across the industry by contextually reviewing appraisals against their peers as well as the lenders quality of appraisals against other lenders.
The next few months are going to be tough as the industry makes the transition to a new way of managing appraisals and appraisal review.
Ultimately, I feel lenders are going to need appraiser talent on staff to be able to effectively address CU and its findings.