Will Fannie Mae’s roll out this year of Collateral Underwriter (CU), its proprietary automated appraisal risk assessment tool, reduce appraisers to be nothing more than servants of a computerized tool? Or is it “just another tool that is reviewing appraisers just as other processes have all along.” as a Fannie spokesperson put it?
Will it meld underwriting and appraisal into one operation, providing both borrower and lender faster and more accurate answers” Is it the newest Big Data arrow in the GSE’s quiver to reduce lender risk and prevent fraud and help appraisers deliver more accurate valuations? Or will the appraisal process become subject to the same inflexibility that created the credit box and to bureaucratic decision-making that keeps Fannie two generations behind in the use of the latest FICO models?
Collateral Underwriter leverages an extensive database of property records, market data, and proprietary analytical models to analyze key components of each appraisal, including data integrity, comparable selection, adjustments, and reconciliation. Coverage may vary slightly from market to market, but it is able to score approximately 97% of appraisal submissions nationwide. It has been used internally at the GSE for years. Now the decision has been made that it is ready for prime time.
Effective earlier this week, on January 26, 2015, Fannie Mae introduced an appraisal risk score, flags, and new messages from Collateral Underwriter into its Uniform Collateral Data Portal (UCDP). Lenders can voluntarily submit appraisals and receive feedback; submissions are voluntary—at least for now—lenders are sell to Fannie are “strongly encouraged” to use the system. CU will provide a numerical risk score from 1.0 to 5.0, with 1 indicating the lowest risk and 5 indicating the highest risk. Twenty-one Risk flags will identify appraisals with heightened risk of quality issues, overvaluation, and property eligibility or policy compliance violations and messages identify risk factors and specific aspects of the appraisal that may require further attention.
The jury is out on how CU will impact residential real estate, but one thing is clear. It will be much more than a backstop for lenders to check up on whether an appraisal could cause them future problems when the time comes to sell a loan to Fannie. Fannie has already announced plans to will make it available to lenders to “support proactive management of appraisal quality and help lenders more effectively and efficiently identify issues with appraisals.
There’s no doubt CU will become, as its name says, and underwriting tool for property for lenders just as DU is a tool for underwriting the loan. “CU will be integrated with DU® (Desktop Underwriter) in the first half of 2015 to give lenders a holistic view of risk. This will provide a foundation for future waiver of representations and warranties on value, and we are working with our regulator, FHFA, on timing and details,” Fannie says in its FAQ.
Appraisers will not have access to CU, which among other things will keep track of the quality of work conducted by individual appraisers and appraisal companies. However, Fannie spokespersons told Housing Wire that that CU “is not a decisioning engine; it doesn’t approve or deny an appraisal or loan and lenders will have some level of review process,” though it is also described in the GSE’s FAQ as “a new proprietary appraisal risk assessment application … to support proactive management of appraisal quality.”
Appraisers once were largely independent professionals committed the best possible valuation whose professional judgment or killed a deal. The rise of the appraisal management companies changed their business model. Now Fannie Mae, with the power of technology, Big Data and massive control of the mortgage marketplace behind it, will reduce their role even more, to that of a home inspector and data gatherer.
For most consumers, it will mean greater uniformity, consistent quality standards, reduced fraud, and more mortgage rejections when sales exceed CU guidelines and reduce the chance of successfully challenging a low appraisal.