Portland Area Real Estate Appraisal Discussion

Four Reasons Real Estate Appraisers Fear Fannie Mae CU
December 10th, 2014 3:15 PM

Appraisers Fear Fannie Mae Collateral Underwriter

In January 2015, Fannie Mae will release Collateral Underwriter (CU), a statistical tool for lenders that assesses an individual appraisal’s risk and quality using the uniformly coded data (known to appraisers as Uniform Appraisal Dataset (UAD)) from other appraisals.  If the CU program works as intended, it could make appraisers more accountable, improve appraisal quality, and help lenders access loan risk more effectively. 

Appraisers are put off by the pending change because the trend has been that increased oversight usually results in more work and liability for appraisers without increased compensation.  With CU, appraisers will be compared to their peers and to statistical models on every assignment.  Both comparisons could be wrong, but either could lead to an appraiser being asked for numerous clarification revisions, being listed as high risk appraiser, being placed on a do not use list without due process, and ultimately result in a loss of business.

Here is an example output from Collateral Underwriter obtained from Fannie Mae’s online Introduction to Collateral Underwriter Course and four issues that cause appraisers anxiety.  (Please excuse the poor visual quality of the example; it is the best resolution of a screen capture that we can manage.)

Collateral Underwriter Example Appraisal Message

  1. In the example above, the appraiser has used a condition adjustment that is “…smaller than peer and model adjustments.” In our office, we attempt to interview as many agents as possible to find out the true condition of our comparables and other insight that only the agent knows. It is common that when talking to an agent, we find out that a property is presented one way in the Realtor’s multiple listing, but is really something completely different. Our fear is that appraisers, like us, who are doing more due diligence than our peers could be harassed by Underwriters (more than now) or worse yet, could be placed on secret do not use lists. Could it be that a system like CU could further incentivize appraisers doing lender work to not do more thorough research than their peers?


  2. In the example, the appraiser provided comparables that are “…materially different than the model-selected comparables.” This warning is something that is deeply disturbing to many residential appraisers. In recent years, appraisers have become accustomed to banks submitting large lists of comparables that are selected by an automated valuation model (or AVM) and asked to comment on each. Those lists of comparables tend to be useless because they typically omit very important features that the market participants are focusing on. For instance, I received a list of sales produced by an AVM from a bank. All of the properties were located near the subject property in Portland’s West Hills, but none of the AVM comparable sales included panoramic views like the subject property. Importantly, all of the comparable sales that I had originally analyzed in the report did include views (the focus of the typical buyer).


    Appraisers often spend hours researching and commenting on lists of AVM comparables, without any additional compensation, because responding to lender stipulations is required when accepting the assignments. Admittedly, CU should have better comparable data than most AVMs, because the data comes from actual appraisals and includes things like condition, quality, basement finish, and view. However, the typical appraiser has had bad experiences with past AVM data making them nervous about CU’s implementation.


  3. The example includes a warning that, “The appraiser’s reported GLA is different than the GLA reported by other appraisers.” For me and other conscientious appraisers, this is concerning because we often find things about properties that may lead many other appraisers to measure incorrectly or to analyze incorrectly. Experienced appraisers are left with the following questions:


    1. What if I am the only appraiser who is taking the time to exclude areas of finished attic below five feet in height from the GLA, remove two story foyers, or include staircases in above and below areas, when other appraisers might exclude these areas mistakenly or carelessly?


    2. What if I am the only appraiser who is cross-checking the comparable GLA in the multiple listing service with county records and subtracting out areas that the Listing Agent might have advertised as area, but should not be included because of lessor quality, detached areas, or unpermitted areas?


    3. Could I be punished for doing the right thing?


    4. Should I do what I think my peers are doing and try “fly under the radar?” Many appraisers already try to fly under the radar of constant lender stipulations. One example of appraisers avoiding notice is that many make small adjustments for a particular feature (when a larger adjustment might be warranted) because a smaller adjustment will raise fewer red flags by the lender client. In our company, we use statistical analysis to support many adjustments and the result is that our adjustments are sometimes much higher than our peers and this sometimes results in our appraisals getting greater scrutiny from reviewers.


  4. Last, the example shows that the appraiser has reported “…materially different…” quality and condition for one of the comparable sales “…in one or more appraisal reports.” For instance, the appraiser used one specific comparable sale before and called it a C4 condition but now calls the same address property a C3 condition. This is an easy mistake for a conscientious appraiser to make and does not mean that the value opinion is wrong. Many properties fall on the border between one condition rating and another. The gray area is particularly large between C3 and C4. The important thing is that the appraiser makes the appropriate size and direction adjustment to the comparable as the market data suggests. Most software for appraisers has not caught up with this issue of reusing a comparable sale and does not warn appraisers about contradictions with data presented in past reports.

All of the above issues touch on the anxiety that appraisers currently feel about the implementation of Fannie Mae’s CU.  These examples are based around the fact that data is being used by Fannie Mae and lender clients to judge an appraiser’s work, without the appraiser having access to similar information during the appraisal process.  If Fannie Mae truly wants to improve appraisal quality, the agency should work to find a way to provide CU information or warnings to appraisers during the appraisal process so that appraisers can work to improve the quality of their work before submitting a finished product, and/or address issues that the automated system will flag.

Did I leave anything out or do you want to join in the conversation?  Let me know in the comments below.

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Posted by Gary Kristensen on December 10th, 2014 3:15 PMPost a Comment

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This is a big deal. I'm curious to see how it all unfolds. It's a good idea to think about creating more uniformity in the way appraisals are reported, but I'm concerned for how this data is going to be used. The irony is that increased uniformity does not necessarily lead to increased quality.

Posted by Ryan Lundquist on December 10th, 2014 3:29 PM
Well said Ryan. It will be interesting to see how it all unfolds. I do not see this as being a good thing for appraisers who do lender work.

Posted by Gary Kristensen on December 10th, 2014 3:44 PM
Gary, as an appraiser myself I totally agree with all of your statements. I also see a lot of ares where this will be a problem for appraisers. thanks for sharing your thoughts.

Posted by Mike Brandlin on December 10th, 2014 5:20 PM
I couldn't have said it better myself. Additionally, I noted that on the CU training video they mentioned that this will role out to all Fannie sellers in January and then to NON FANNIE MAE SELLERS later (I think they said April). Are they then going to attempt to monetize this by selling access to Joe Blow investor looking at a property or John Smith home seller looking to do a FSBO? Yikes

Posted by Paul Rowe on December 10th, 2014 5:47 PM
Thank you Mike and Paul for your comments. Yes Paul, that is a big yikes. However, I think if Fannie is not selling this data, others are. Some of the large AMCs are skimming UAD data from appraisals that they process and using it to build AVMs. I heard that Streetlinks is doing this.

Posted by Gary Kristensen on December 10th, 2014 6:19 PM
Gary, you make some very valid points that appraisers should be concerned about. One thing that I worry about is that if you are a very good appraiser and doing everything you should but the CU compares you to appraisers that are not, then you may be assumed to be wrong. I believe this is going to unfairly target appraisers and subject us to more revisions with no increase in compensation, as you said.

Posted by Tom Horn on December 11th, 2014 7:52 AM
Thank you Tom for your comments. I really don't know if appraisers should be concerned about Collateral Underwriter, but I am concerned and I know other appraisers are too.

Posted by Gary Kristensen on December 11th, 2014 9:27 AM
Your points were succinct, it will be interesting to see how things play out in the new year.

Posted by John Tsiaousis on December 12th, 2014 7:29 PM
Thank you John. You're correct, it will be interesting to see how Fannie Mae's Collateral Underwriter plays out. I hope it turns out to be positive for the appraisal profession. Maybe it will make all appraisers a little better.

Posted by Gary Kristensen on December 13th, 2014 12:23 AM
This is very timely, and helpful. Be that as it may, I believe the only fair way for Appraisers to be judged by Fannie Mae using the CU is to let the Appraisers know what the rules they are being judged by are- and also provide us with the data that our peers use in adustments. I think this will eliminate a lot of the fear Appraises now have, as well as provide more credible reports. And then everyone wins:) Thank you for the blog!

Posted by Matt Frentheway on December 14th, 2014 1:43 PM
Thank you for your comment Matt. I agree, Fannie Mae needs to be open about Collateral Underwriter and that would make the fear go away for real estate appraisers. At least let appraisers run CU for themselves prior to completing the report and see what red flags that their appraisal is receiving so that they can be addressed within the report. That would make the appraisals better and life easier for Fannie Mae. I can also see how Fannie does not want appraisers to change their opinion of value based on what the system says. Therefore, the warnings that relate to value might need to be hidden from appraisers.

Posted by Gary Kristensen on December 14th, 2014 2:17 PM
I was looking for live courses in Portland & wondered if you know of anywhere to look besides NAIFA, Appraisal Institute, or Mckissock? I actually come over from Hermiston. Armbrust seems to not be offering education & they don't answer email. Is Brad OK???

Posted by Valerie Rose on August 16th, 2015 2:06 PM


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