Fannie Mae to treat Appraisal Management Company as “Whipping Boy”


Collateral Underwriter is Fannie Mae’s new proprietary ‘risk management’ software tool they are releasing to lenders and their business partners (AMCs) on January 26, 2015. They claim it is NOT an AVM (Automated Valuation Model) because it does not produce a proscribed value.

This just keeps getting better and better. According to a national AMC (Appraisal Management Company) much of the information produced by Collateral Underwriter’s proprietary “risk rank” algorithm will be available to lenders but not their agents (AMCs).

Here is a clip taken from a broadcast email sent by the national AMC 12/30/2014:

Clip from a national AMC

Clip from a national AMC

What does this mean? The AMC will demand the appraiser respond to something akin to: “You did something wrong, we have only limited information and have no idea if CU is correct or not, but you need to fix it immediately”

Here is an example of what a Lender will see (this ‘landing page’ clip is taken from the CU training):

CU Landing Page

CU Landing Page

However, AMCs and appraisers will only get a subset of this data. See the “Message Center” box on the slide above? It appears that only these messages will get passed along to the AMC, then to the appraiser, with a demand for a response. They have no way to determine if the request is appropriate or not because the underlying data will not be made available to them. CU, which is potentially based on a flawed data set, (see my previous blog on neighborhood boundaries vs. “CBGs”) will be spitting out up to 20 comparables and who knows how many “Message Center” requests.

What do you think? Am I “Chicken Little” or is this new process worth a little public scrutiny?




Fannie Mae to pick ‘Lowest Risk’ comparables for appraisers.

cuCollateral Underwriter is Fannie Mae’s (and Freddie MAC) new proprietary ‘risk management’ software tool they are releasing to lenders and their business partners, Appraisal Management Companies (AMCs), on January 26, 2015. Fannie Mae claims it is NOT an AVM (Automated Valuation Model) because it does not produce a proscribed value.

However, I just sat through the ‘Introduction to Collateral Underwriter” webinar publicly available at: https://www.fanniemae.com/singlefamily/collateral-underwriter

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.

Risk Rank

Risk  Rank is the column on the far right.

Any Realtors or Appraisers work with a lender/AMC that has a process for ‘value reconsideration’ in place already?  Most of you? I thought so… Now consider that not only are appraisers required to respond to these additional comparable requests but will also be expected to respond to reviewer supplied CU risk rated comparables. Most lenders and their AMC partners currently do not have ready access to local data.  As of January 26, 2015 they both will as a routine course of business. It is a sure bet that many cost conscious AMCs will use 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.

That’s just the tip of the iceberg. In the webinar the trainer specifically states that there is no standardized way for CU to determine neighborhood boundaries. So Fannie Mae’s solution is to break down market areas by what the US Government calls ‘Census Block Groups’. They abbreviate this as “CBG”. Watch out for this acronym. It’s an arbitrary and silent killer. Why? Because in many cases CBGs do not align well with actual neighborhood boundaries. Further, the trainer specifically states that Market Conditions and trends will also be calculated using, in part, CBGs.  This is in stark contrast to Fannie Mae’s own Market Conditions Addenda. This is a form that appraisers are required to fill out (and submit as part of the report) using only neighborhood data. Appraisers will most likely be expected to reconcile any market trend differences between Fannie Mae’s somewhat arbitrary CBG based ‘trends’ and the neighborhood trends as defined by the appraiser in the Market Conditions addenda.

What do you think?  Am I jumping to conclusions? Any chance appraisers get to raise fees to cover the extra work involved in reconciling Fannie Mae’s computer generated comparables with their own?  Anyone think NAR will be up in arms once they find out that Fannie Mae’s computer generated ‘low risk’ comparables are killing Realtor’s deals?
Turner’s Appraisal Services helps people make informed property valuation decisions by providing easy to understand yet comprehensive real estate appraisal reports. I am IRS Qualified and a California State Certified Real Estate Appraiser with local expertise in the Los Angeles neighborhoods. To discuss Los Angeles Area property values please feel free to call me anytime.

Turner’s Appraisal Services
Los Angeles Best Home Appraiser
Los Angeles, CA
Phone: (818) 384-6869

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Realtors: Will CU affect your income in 2015?

cu”CU” is Fannie Mae’s in-house tool for examining credit risk. They are rolling it out to Lenders and, indirectly, to their AMC partners in January 2015. Their objective is to distribute CU to support more proactive management of appraisal quality by empowering lenders to address potential appraisal issues prior to loan delivery.

  • Starting in January 2015, the CU risk score, risk flags and messages will be available to all lenders and their lender agents.
  • Collateral Underwriter is a proprietary appraisal review application developed by Fannie Mae that performs an automated analysis of appraisals.
  • CU’s purpose is to identify appraisals with heightened risk of property eligibility or policy compliance violations, overvaluation, and appraisal quality issues.

Here are a two key slides from a November, 2014 Fannie Mae Collateral Underwriting training that outline the Considerations For Use and an Overview Recap.




Fannie Mae’s aim is to provide additional transparency and certainty to lenders by giving them access to the same appraisal data and analytics that they use in their own internal quality control framework, including their post-acquisition loan review process and their Appraiser Quality Monitoring initiative.

Fannie Mae has been working for several years on the development of more advanced appraisal analytics, which led to the creation of Collateral Underwriter. Now, they are able to perform a more comprehensive analysis of the appraisal, focusing on things like data integrity, comparable selection, adjustments, and value reconciliation, by leveraging an expansive database of market data collected through UCDP and proprietary analytical models. Rather than rely on generic, rules-based guidelines, CU produces model-derived, market-specific results that treat each subject property and each market differently.

CU does not provide an estimate of value. CU is intended to be an appraisal review utility and is not an automated valuation model, or AVM. Lenders will be alerted to appraisals with potential overvaluation, but will not receive a value or a range of values.

Starting in January 2015, the CU risk score, risk flags, and messages will be available to all lenders and their lender agents. In summary, Fannie Mae’s objective is to distribute CU to support more proactive management of appraisal quality by empowering lenders to address potential appraisal issues prior to loan delivery.

What do you think? How will this affect the loan process? Will it ‘clean up’ bad appraisals or will it kill deals? Will this affect your income or is this just something that only lenders and appraisers need to worry about? Are there any ‘unintended consequences’, such as delayed loan closing, that you see?As Featured On EzineArticles

Are Diamonds a Realtors best friend?

DiamondIn the world of diamonds (many married men reading this will have some experience here), there are the four C’s – Cut, Color, Clarity and Carat (weight). Each of the four Cs is broken down into ratings. Color has five categories: Colorless, Near Colorless; Faint Color, Very Light Color and Light Color. Every gemologist in the world can put every diamond they ever see into one of these five categories. The ratings have nothing to do with any other diamond, only the one being rated. This is called an “absolute rating”.

In the world of real estate (according to Fannie Mae and Freddie Mac) there are six C’s:

  • C1: The improvements have been recently constructed and have not been previously occupied.
  • C2: The improvements feature no deferred maintenance, little or no physical depreciation, and require no repairs. Virtually all building components are new or have been recently repaired, refinished, or rehabilitated.
  • C3: The improvements are well maintained and feature limited physical depreciation due to normal wear and tear. Some components, but not every major building component, may be updated or recently rehabilitated.
  • C4: The improvements feature some minor deferred maintenance and physical deterioration due to normal wear and tear.
  • C5: The improvements feature obvious deferred maintenance and are in need of some significant repairs.
  • C6: The improvements have substantial damage or deferred maintenance with deficiencies or defects that are severe enough to affect the safety, soundness, or structural integrity of the improvements.

*Please note that the above definitions have been abbreviated for this article to improve readability. The complete descriptions can be found in the addenda of most appraisal reports.

The appraiser must select the one rating that best describes the overall condition of the subject property. And only one selection is permitted. The condition rating must describe the physical condition of the subject property on an absolute basis, not on a relative basis or how the property relates to other properties in the neighborhood.

Think about that for a moment. Real Estate agents are often asked to compare one property to another. Yet according to Fannie Mae and Freddie Mac appraisers must rate properties on an absolute basis and not as compared to the subject property!

How, you may ask, does this affect you? That requires a brief explanation. Are you familiar with UAD? If you have heard of it but haven’t examined specific details don’t worry – you are in the majority. I was invited to speaking to the Real Estate Networking Group (https://www.linkedin.com/pub/bud-mauro/15/318/315) this past week. During the question-and-answer period I asked for a show of hands to see if anybody knew about the six C’s. There were over 40 real estate professionals in the room and not one hand went up. This was surprising to me as the UAD mandate has been in place since late 2011.

Here is an overview:

  • The Uniform Appraisal Dataset (UAD) is a component of the Uniform Mortgage Data Program® (UMDP®), jointly established by Fannie Mae and Freddie Mac …..
  • According to Fannie Mae and Freddie Mac the purpose of the Uniform Appraisal Dataset (UAD) is: “To improve the quality and consistency of appraisal data for loans delivered to the government-sponsored enterprises (GSEs), Fannie Mae and Freddie Mac…”
  • Among other things UAD provides for “Standardized ratings and definitions for the “Condition” and “Quality” of the property…”

In other words big brother is collecting standardized data from tens of thousands of appraisal reports. This is the very definition of data mining. (http://en.wikipedia.org/wiki/Data_mining) Has the quality and consistency of the appraisals improved as a result of these standardized ratings? Probably, but at what price? Are appraisal reports harder to understand if you are a Realtor or borrower? In my opinion, yes! Take a look at the UAD addenda in any appraisal report. There are literally dozens of abbreviations and definitions. It is more difficult to contest a poor quality appraisal if you cannot readily translate all of the abbreviations and jargon that have been introduced under UAD. Hopefully this short article has given you a reason to learn more about UAD and how it affects you. As always, please feel free to contact me if I can provide further clarification or assistance.

Realities and Myths about Real Estate Appraisals and Appraisers

Real Estate Reality CheckMyth: Appraisers use a series of formulas or predetermined adjustment factors, such as a specific price per square foot, to figure out the value of a home.

Reality: Appraisers make a market supported analysis of major factors pertaining to the value of a home including its location, size, condition, quality and how those compare to the recent sale prices of comparable properties.

Myth: Assessed value should equal market value.

Reality: While many states hold that assessed value approximates estimated market value, often this is not the case.  Some examples include when interior remodeling has occurred and the assessor is unaware of the improvements, or when neighborhood properties have not been reassessed after a period of market corrections.

Myth: The appraised value of will vary depending on whether the appraisal is conducted for the buyer or the seller.

Reality: The appraiser cannot have a vested interest in the outcome of the appraisal.  It is conducted with independence, objectivity and impartiality – no matter for whom the appraisal is conducted.

Myth: Market value should approximate construction cost.

Reality: Market value is based on what a willing buyer likely would pay a willing seller for a particular property. Replacement (construction) cost is the dollar amount required to reconstruct a property in-kind.

Myth: When the sales price of homes in a given area are reported to be rising by a particular percentage the value of individual properties in the area can be expected to appreciate by that same percentage.

Reality: Value changes of a property must be determined on an individual basis, factoring in data on comparable properties and other relevant considerations.

Myth: You can tell what a property is worth simply by looking at the outside.

Reality: Property value is determined by several factors, including improvements, amenities, condition, location, and market trends.

Myth: Because a borrower pays for the appraisal when applying a loan to purchase or refinance real estate they own their appraisal and the appraiser should provide a copy of the report.

Reality: The appraisal is legally owned by the client who ordered it, in most cases this is the lender. However, borrower must be given a copy of the appraisal report prior to the loan closing, giving them adequate time to review it.

Myth: Borrowers need not be concerned with what is in the appraisal document so long as it satisfies the needs of their lending institution.

Reality: Only if borrowers read a copy of their appraisal can they ensure the accuracy of the result. It is also a valuable record for future reference, containing revealing and useful information such as the physical and legal description of the property, home size measurements and a narrative of current real-estate activity and/or market trends in the vicinity.

Myth: An appraiser is hired only to estimate real estate property values involving mortgage lending transactions.

Reality: Appraisers can and do provide a variety of services, including advice for estate planning, dispute resolution, zoning and tax assessment review and a wide range of other services.

Myth: An Appraisal is similar to a home inspection.

Reality: The Appraiser forms an opinion of value and reports these findings to the client, typically the lender or property owner. A home inspector determines the condition of the home and reports these findings to the client, typically the buyer or property owner.