As a mortgage underwriter, if I see something happen enough, it can become a trend.

One thing I've noticed lately is appraisers are firing back against Fannie Mae's Collateral Underwriter.

It is no secret that Fannie Mae has developed a tool that provides similar comparable sales and market data for lenders to more effectively underwrite an appraisal report. Appraisers are being challenged on every comparable used. Adjustments, condition or quality ratings, gross living area, effective age, and which comparables are selected as the top three closed sales are all susceptible to criticism by lenders using this tool. Collateral Underwriter is an "automated risk assessment of an appraisal report to support proactive management of appraisal quality."

But foremost and quickly, what are the mortgage lender benefits of using this tool?

Fannie Mae promotes many features and benefits of using this underwriting tool. Among them, "leveraging unparalleled depth of data and nationwide coverage, CU results are model-derived and market specific unlike traditional, (less-effective) rules-based approaches. Comparable sales data, mapping, aerial imagery, public records, local market trends and more, all in one free application, and lenders see what we (FNMA) see – Fannie Mae uses CU in post-delivery quality control -lenders can use CU to proactively identify and manage appraisal risks prior to loan delivery." Read further benefits here.

How does Fannie Mae's Collateral Underwriter work?

If a loan transaction requires an appraisal and a Property Inspection Waiver is not granted and or agreed upon by the borrower, the appraisal is then completed and submitted by the Appraisal Management Company to Fannie Mae or Freddie Mac's Uniform Collateral Data Portal that is a shared database by both agencies. This portal was designed as a part of the larger effort known as the Uniform Mortgage Data Program. This program "is an effort undertaken jointly by Fannie Mae and Freddie Mac at the direction of their regulator, the Federal Housing Finance Agency, to enhance data quality and standardization." Fannie notes, "The CU risk score, flags, and messages are provided in real time after an appraisal is submitted to Fannie Mae through the Uniform Collateral Data Portal® on the Fannie Mae tab and the UCDP Submission Summary Report."

This means that Fannie Mae will see the same property used multiple times by different appraisers across the United States.

They are able to show discrepancies and sometimes those discrepancies, less often than not, may influence the final value of a property. However, this is not what Fannie Mae claims the tool is for, it isn't supposed to pressure the appraiser to change the value or their judgment. 

Fannie Mae's tool is for use by lenders and not third parties. Fannie explicitly states, "lenders and Lender Agents acting on lenders’ behalf are prohibited from distributing the CU Print Report or the SSR, making demands of, or providing instruction to AMCs/appraisers based solely on the CU automated output, or using CU to interfere with the independent judgment of the appraiser." Although CU is not available to appraisers, I would argue that many have already seen this report and either have had direct access to the report multiple times or have begun to develop experience on the details of the report from underwriters and their conditions.

Appraisers offer their criticism of this report, and this is what they are saying; Many appraisers are now specifically mentioning CU in their appraisal report and providing a response ahead of the lender's underwriter to discourage the lender from even using the CU report to request corrections or to question the appraiser's knowledge of the market.

One appraiser offers their opinion: "any adjustments applied by this appraiser are market derived and/or supported by multi-variable regression" ... "the appraiser is not privileged to nor has access to or knowledge of quality and condition ratings that other appraisers may have indicated for the subject property"  ... "this appraiser does not have knowledge of or information obtainable regarding the adjustment methods utilized by other appraisers" ... "any dissimilarities resulting from information rendered or by another appraiser regarding the subject property cannot be commented upon or analyzed after delivery of this report, the appraiser is not privy to this information." 

Appraisers seem to have a good case for responding this way and they need to be heard.

After all, their livelihood depends upon their work. Why should the appraiser be held accountable for other appraisers' knowledge or judgments of a given market area? Why should they be held accountable for discrepancies? Or another way to put it, why should the burden of discrepancies be used against them? Is it fair to have ten different appraiser's reports on a property and then for the lender to use that knowledge against an individual appraiser and question their ability to provide an accurate report? Appraisers seem to think it is unfair or perhaps altogether irrelevant.

What may this mean for the future of appraisal valuation?

For some time now mortgage professionals, including appraisers, have been wondering about the future of appraisal practice. Will appraisal valuation be automated? Will there be a need for appraisers? Will the principles of the Uniform Standards for Professional Appraisal Practice apply any longer? USPAP seems to apply more to persons and ethics than to an automated system or artificial intelligence. Of course, there would be rules to govern such a practice similar to that of USPAP. Others believe that appraisers will remain but perhaps in short supply as the years continue. Yet others argue that appraisers will increase for years to come. Fannie Mae's goal for using Collateral Underwriter is to help the lender mitigate collateral risk and to better understand the subject property's market. They argue that the lender should not be "using CU to interfere with the independent judgment of the appraiser." This may be Fannie Mae's intention, but is this what lenders are doing or not? I think it is possible and probable that many appraisers have felt pressured by CU's analysis. It is important to remember that even though CU offers many comparable properties and market data, it is mostly based upon other appraiser's work, therefore, it isn't really CU versus an appraiser but appraiser versus appraiser. CU is showing lenders nationwide how many discrepancies appraisers may have. How will this data continued to be used? How will this data affect future appraisers? I am not sure, but it is certainly interesting to discuss!