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.

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

  1. Mark Buhler says:

    As an appraiser, lets just say I am not anxious to be subjected to Fannies new computer underwriting and the increased workload that is is sure to produce for me. As far as getting paid more for the extra work- yes we deserve it but I doubt that the AMCs and lenders agree. How about this: Fannie picks the comps, inspects the house via drone and infrared technology produces the report and takes full responsibility for the value in the case of default. If things don’t work out they can always get another bailout.

    • Tracy Schmitz says:

      Mark — is it illegal for appraisers to use spec homes as comps for a re-fi appraisal? Situ: the only true comps in my neighborhood are spec homes — the builder sold the home to a family and the sale price is listed on the auditor’s site. My lender told me it was illegal to use spec homes for comparison purposes even though there are no true comps in my neighborhood that are non-spec homes. Your feedback would be appreciated. Thank you.

      • Mike says:

        The sale must meet the test of ‘arm’s length transaction’ before it can be considered a ‘comparable’. A private developer sale might not meet this test. MLS listed sales with no concessions general do meet this test. Just because it’s listed on the auditors site does not make a transaction a legitimate sale. For example, if I was rich I could pay cash for a property and pay twice market value. It would record at that sale price but it’s not considered an arm’s length sale and would not be a comparable. So using a spec house as a comparable may or may not meet the test. I don’t know enough about the sale to say.

  2. Bill Bostedo says:

    We are coming upon an interesting time. As an appraiser, I can see a few things happening. 1) One way or another, the cost to the consumer will rise for getting a mortgage. 2) Appreciation in a home could be the thing of the past due to the new bogus CU program. 3) The CU program only increases the risk of a consumer being ‘Red Lined’. 4) Considering 70% of our economy is consumer based – well, as far as collapsing markets & economies, I don’t think we have seen anything yet.

    While some may say CU will clean up the mortgage industry and possibly get rid of the appraisers that shouldn’t be appraising in the first place, but at what cost? At this point, only time will tell. If this grand experiment goes south and people are hoping Congress will step in, well, I think we know what will happen there.

    As the owner of an appraisal office I can tell you, after the 1st report comes back from an AMC loaded with ‘Busy Work’ that has no real bearing on the report or subject property, fees WILL be rsised. If the AMC doesn’t like it and goes with ‘CHEAP’ appraisers, consumer beware. ‘You Get What You Pay For’ and the poor consumer will have no idea.


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