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2015 Expert’s Guide to Defensible Workfile
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New: Collateral Underwriter Blog: Find answers, offer solutions.
Editor’s Note: Take a look inside one of the reports that Fannie Mae’s new CU system is generating. (The new print edition of Working RE is in the mail. Are you a Working RE Subscriber?)
Collateral Underwriter: First Feedback
by Richard Hagar, SRA
Here is a snippet from a Collateral Underwriter report sent to a lender (not the appraiser). Take a good look at it. Few appraisers EVER see a report like this. They just receive the request for more data or corrections.
Look at the graphic. Note that the computer indicates 19 possible comparables, each is ranked 1-19. Here’s what’s good for the appraiser in question: all of the five comparables the appraiser selected are in the list of 19 (three sales + two listings). The appraiser’s comp #2 is at the top of the list – again, a good thing.
It would be bad if the appraiser selected comparables that are NOT in the top 19. If all are out of the top 19 list, something is VERY wrong. But of course, it could be that the house has been massively remodeled, or is in really bad condition, or…there’s a million stories in the naked city.
Even better for the appraiser is if all of the comparables they selected are ranked at the top of the list. Since they are not, is it possible that the appraiser missed something? Is it possible that the appraiser knows something that the computer model does not? Is it possible that the appraiser is trying to hide something or reach a predetermined value that the lender would like?
Did the appraiser explain why his comparables are really superior to others or did he just pick some, throw them against the wall and hope nobody catches sloppy work?
The fact that something or someone is questioning appraisals is a GOOD THING. We tried the path of banks not questioning appraisals and look where it got us…$7.2 trillion in economic harm. If your are confident in your work product, there is no reason to worry.
Fannie Mae knows they can’t trust banks and history proves they must question appraisal quality. This AQM/CU system, perfect or not, is at least some type of Quality Control for banks and Fannie Mae. If the system works, it will be of benefit to all.
Jury of your Peers
Note that the CU is telling the appraiser that their data is different from others, so supply us with your proof that you are right. In other words, appraisers are being challenged to prove that they are right, or prove that the other guy is wrong. Provide the proof and move on.
(story continues below)
Does this mean more time and cost for you? Unfortunately, yes it does, as anticipated. So appraisers should improve their quality through education, back up their statements with proof and increase their fees. Learn how to make supportable adjustments and consistent condition ratings.
Learn and Grow with these On-Demand and Live Webinars
(Webinars recorded in case of scheduling conflicts.)
Top 5 Questions Asked of an Appraiser and How to Answer
Do you struggle knowing whether client requests are proper or even legal? Whether they are putting your license at risk? See the most efficient way to help clients, evaluate and reduce callbacks and avoid making mistakes that can derail your career. This class provides you with the right way to handle these common and sometimes tough questions. The right answers can help protect you and make your business life easier and more profitable. Includes tips for understanding and navigating Fannie Mae’s new Collateral Underwriter.
Don’t Miss Our February Series – Part 1 is this Thursday!
Part 1: Keeping Off Fannie Mae’s New Appraiser “Blacklist”
February 5th, 10 – 11:30 a.m. PST
Part 2: Fannie Mae’s AQM and How to Stay Out of Trouble
February 10th, 10 – 11:30 a.m. PST
Hagar covers Fannie Mae’s new requirements showing you how to appraise better and avoid trouble. Hagar unravels Fannie Mae’s new AQM system and the new Collateral Underwriter requirements. The two classes will explain the 18 “deadly sins” you must avoid plus issues related to Quality and Condition classifications. The classes are designed to help appraisers avoid being blacklisted by lenders and Fannie Mae, while supplying superior appraisals for a higher fee. These are the hot topics impacting all residential appraisers.
How to Support and Prove Your Adjustments
Part 1: March 5th, 10 – 12 p.m. PST
Part 2: March 12th, 10 – 12 p.m. PST
Updated and expanded, Hagar shows you how to properly support your adjustments- the foundation of good appraising! Regulations state that appraisal adjustments cannot be based upon an appraiser’s opinion. Failure to provide proper proof and analysis to support your adjustments means a rough road ahead: state board complaints, panel removal, lawsuits, even license revocation. Fannie Mae cites “the use of adjustments that do not reflect market reaction” as the number one reason an appraiser can be “blacklisted.” This training is critical in helping appraisers avoid catastrophic appraisal failures.
Enjoy Subscription Pricing: January, February, and March Webinars for just $149! (5 webinars listed above)
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A $400 fee? I started invoicing $400 back in 2009. I would not do a report subject to CU for only $400.-
FNMA is bankrupt! Desperate people resort to desperate measures.-
DEMAND TO SEE THE DATA !!! Not the results of the data. You have a right-
under USPAP to see the data that says your condition/quality labeling and comp selection is flawed! If appraisers refuse until underwriters supply the data CU will be worthless.
by Dave Towne
There are serious issues with the report CU’d as shown in the example report, and with the CU itself. It’s no wonder that the ‘risk score’ is 4.3, meaning it has high risk. But that could be due in part to the CU “Model” changing certain elements (the red boxes), and we have no way of knowing why it did that.
In this report, comps are non-supportive of the Subject Sale Price, except for Comp 2. However, we don’t know from this CU page what the actual appraiser’s ‘adjusted values’ were – and we of course don’t know much about the properties involved, except for a few numbers and other indicators on the page.
What I was able to deduce is the CU Model adjusted 12 of the 19 ‘CU Comps’ UP from their sale price….and this includes the first 11 which are supposed to be higher in stature in terms of acceptability per the CU process.
Yes, there probably are issues with the report, but if this is what CU does in actual practice, ‘we’ appraisers are in for major headaches.-
Don’t worry, when someone wont give out there sources, show their data and practice “transparency” as they preach to lenders, it means they don’t trust it themselves. Keep fighting back, Let them put a couple appraisers out of business who turn around and sue them and prove their findings wrong. I would use the RICO laws. They will back off. Wouldn’t FNMA be considered a monopoly.??-
Had my first requests come back based on CU review. 18-20 of them. Most of them dummy lights to the reader to make sure there is a comment in the report regarding the issue. However, what really ticked me off was three in a row indicating that I have used the same comp in another report and used a different gla !!? Same comment but indicating that I used a different Bedroom count!?!? Hard facts regarding the comp. Very disturbing. Very much a black eye with no example provided. Look out. This is typical. We go from zero oversight to WAY too much. Agreed the “you name a value” appraisers out there helped get us into this boat, but some very basic hands on review would have severely curbed this problem. Now were resorting to arguing with computers. Sad. Working hard to get out of the business asap. there is no loyalty, the AMCs will drop you in a second if you piss them off. I thought the appraisers weren’t supposed to be pressured. Yet the AMCs tell us how many orders we get, at what fee, how long we have to schedule, inspect, and return after inspection, regardless of the complexity of the assignment. Speed before quality. then run it through a computerized review and pick it apart. It wasn’t long ago that FNMA was lucky if the appraiser was using comps in the neighborhood for the brokers appraisal, now were worried about commas and spacing in the MLS # section. PRIORITIES!!-
The appraisers that helped create CU were fired when FNMA went behind their back and decided to not let appraisers use CU. Completely backwards. FNMA worships their computer consultants. They think UAD is the end of all questions and soles all problems. We were lied to when we were told that our date was not going to be mined. We were lied to when FNMA told us to use pending sales to support appraisal values back in 2005.
Appraiser independence does NOT exist. We get pressure from Realtors, Homeowners, AMC’s FNMA, HUD, VA and the buyers. Every single one of these entities can turn us into the board, ban us, blacklist us, sue us, etc. I think we need to go in the complete opposite direction . . .
NO PRESSURE FROM ANYONE ! Leave us alone. Let us determine a value. No worries about getting sued or blackmailed or blacklisted or turned in. Just have some entity that randomly reviews appraisals.
Appraisal quality would be much better. Did anyone here know that most of the fraud is appraisers trying to reach the sales price? If that pressure was removed, there would basically be no fraud. If there was some fraud, it would get caught by the random reviews.
The way politicians get us is by saying that we are making this law to get revenge on our enemies. The reason many appraisers support CU is because they think there are a bunch of skippies out there performing fraud, when in fact, about 99.99% of them are gone. FNMA has a lot of trouble finding fraud now, so they started ALPHA and CU and some other AQM program to try to keep themselves busy. There is so little fraud that they fired many reviewers at the end of last year.
Oh yeah, and if FNMA was so concerned about fraud, why are they doing 97% LOANS AND CASH OUT REFI’S ???????-
This is very helpful, thank you.-
I’ll let this stew for 24 hours before giving my full take on this article, although I’m a little put off by the immediate questions brought up by the writer. It’s a tad sensational by the tone. Simply note the differences…and move on, as you say. We’re all aware of what’s going on.-
More work more money. Yes, my fees have gone up. I still do the same work but the reporting and typing is more extensive. If I don’t see a fee above $400 it is a no go. Try it you will like it.-
When an underwriter working from CU requires to know why you labeled-
a property C5 and six other appraisers gave it a C4, demand to have her supply you with the data! They may be working off MLS data & photos supplied by incompetent real estate agents. You may have personally inspected the property. Appraisers need to stand up to CU, don’t let them bully you. If you did your due-diligence, stick your decision.
Hi all- we meant to get into the story the petition to allow appraisers access to CU data. Here it is: http://www.icapweb.org/petition.php.-
I used to work for a S & L as an in house appraiser in the early 90’s and many times my discussion about comparables and listings I didn’t use (which could be up to 5 other sales and 5 other listings) and why I didn’t use them was 3 times longer than discussion about the comparables I used. It was ludicrous, I don’t think this is the path we need to be going down. How to screen unscrupulous appraisers who select comparables based on sales price support won’t be resolved by this. Ultimately the consumer will be paying for higher priced appraisals that take longer to generate.-
On another note, I can’t help wonder if FNMA could coordinate with NAR and require Realtors to include quality and condition ratings in their listings, thereby a computer could generate an appraisal; especially if they think we caused the recent financial crisis; but aren’t we usually the scapegoat?
by Jo Ann Meyer Stratton, IFA, SRA
Excellent article Richard. You mention a point I have been attempting to make on chat rooms and personal conversations. Appraisers are worried about the up to 20 properties on a list. If the appraiser has done the appropriate research and verification prior to writing the report, those sales should already be in their work file. And the reason why they selected the most appropriate properties for their report, as well as the reason why they didn’t would already be in their workfile. And if they explain what, how, and way they did in the original report, they might not hear about the list. If they do hear, they already have the information in their work file and a few comments or paragraphs based on their work file would be their replay to the client. Research, verify and explain! Don’t panic, the sky is not falling in.-
couldnt agree with you more. Got an email from a client friday saying they were lowering our fees we were making too much money- Property interlink in colorado- seems their new managers want to make more money on our backs. Im so sick of this baloney- lost anopther client in January when they merged with LRES- bottom of the bucket client- poor fees, insane requests, you should see the review im doing on one of their appraisers- School zone sign in front yard of subject, school across four lane bz street- not a mention of obsolescence, and amazingly omited the carport in the front driveway amongst other major items. of cousrs this bozo took a $200 fee – serves them right. Yet they are going to expect us to address all this crapola for free!!! Good appraisers havent a chance anymore. You complain or call them on it and you get blacklisted – Oh I thought that was illegal – no you just get dropped in a deep hole and can starve to protect their behaviors. keep blaiming the appraisers for the poor economy or them losing their jobs or the idiot in the white house. One by one we are disappearing and im making my way towards brokerage and as far away from this 30+ year career of insanity.-
by Daniel Suib
…and there is our problem. The statement…”The banks were not checking the appraisals, and that caused the $7.2 trillion economic harm”. With that attitude…we, the appraisers get crushed, when in fact it was the banks and lending institutions that ran a muck…not the appraisers. Were there bad appraisers…sure, but can we please get away from heaping more and more on the appraisers because the banks don’t want the liability.-
Bill……my point as well.-
Good comment Kelly. :)-
Hmmmmmm……..so Richard is all about the CU, huh?
“Fannie Mae knows they can’t trust banks and history proves they must question appraisal quality. This AQM/CU system, perfect or not, is at least some type of Quality Control for banks and Fannie Mae. If the system works, it will be of benefit to all. ”
OK….Fannie Mae can’t trust banks, so they are putting all this data from appraisers in the banks hands to review (without the appraisers having access) and then give them to ability to analyze it and ask appraisers to defend their work.
So let’s just give the fox the key to the hen house. If ANYONE should have access to the data in CU for analyses, it’s APPRAISERS! We are the most qualified to analyze it as this is our JOB! I have seen comments that appraisers should not be given access as it will only make them just use the sales it lists and not do their own research.
1. You must submit a full COMPLETED appraisal to the CU in order to receive this report. So we will have ALREADY completed our appraisal BEFORE we even see the CU data.
2. We are trained to perform research and analyze sales data…from many sources. This source would be NO DIFFERENT. We would review it’s data, along with all the other market data we use, and determine what will will utilize. It’s what we do guys. We would then have the ability include any additional commentary needed to defend our report. That makes so much more sense than giving this info to lenders and AMCs.
Next…..you call the CU a “Jury of Your Peers” and say:
“Note that the CU is telling the appraiser that their data is different from others, so supply us with your proof that you are right. In other words, appraisers are being challenged to prove that they are right, or prove that the other guy is wrong. Provide the proof and move on.”
Again….WRONG. You are contradicting yourself. The full report from the CU will NOT be provided to the appraiser, remember? How can we defend our work against something we have no knowledge of?? I won’t see the data from other appraiser’s reports. All I will get from the lender is a generic ;
“Comp #2; The location adjustment is materially different from peer and model adjustments.”
That is certainly not enough information for me to be able to comment on. Prove my adjustment you say? Prove that I am right and the other appraiser is wrong? How can I with no more data that that?
Here is the truth in a nutshell…..
If the CU is a done deal (and it is) then why do we even need AMCs or box checker reviewers at the banks? Give the APPRAISER access to the CU….let US use it as a review tool OURSELVES. Then we can address any “issues” it may flag. THEN send in our report to the lender client. They can send it to the underwriter who again sends it through the CU. They can review the flagged items, review our commentary (in which we have already addressed the items) and move on.
THAT MAKES MUCH MORE SENSE.
On my soap box now….
I am getting really tired of seeing articles and comments that make out as though appraisal quality is the issue when the truth is “QUALITY LENDERS, MORTGAGE BROKERS AND APPRAISAL REVIEWERS” is the issue.
Remember……the appraiser is the ONLY INDEPENDENT PARTY INVOLVED IN THE LOAN PROCESS AND WE ARE NOT AN ADVOCATE FOR ANYONE. No one else in the process can say that. If this whole Collateral Underwriter thing is going to work, the solution is to give appraisers access.
And by the way…..when will FannieMae come up with a data base for lenders and AMCs? Put their work through an “automated reviewer” and track who is giving and closing all those “high risk” loans. And hey…..only give access to it to appraisers. :)-
The “Yes, this!” comment was meant as a reply to Mr. Anton.-
So, appraisers caused “7.2 trillion in economic harm”. Not lax underwriting standards accepted by Fannie Mae or politicians pushing for those lax underwriting standards but appraisers. Not surprising that a member of the Institute would lay it all at the feet of appraisers. I’ve never taken an Institute class that the instructor didn’t blame appraisers for all the ills of the lending world.
The appraisal profession is going the way of the dodo bird. It seems Fannie Mae’s goal is to eventually bypass the appraiser in the field and come up with their own valuation model. If field appraisers are so evil and conniving then why not just have Fannie Mae’s squeaky clean in–house staff do valuations and be done with it?-
Note that the CU comps are not ranked by actual comparable elements. The age and living area are widely distributed throughout the list. The age ranges from 13 to 93, living area from 1,000 sf to 2,520 sf and lot size from 871 sf to 2,1178 sf, and the most similar to the subject in living area and age are not grouped at the top. They must be using some other criteria such as proximity to rank them. It would also appear that the appraiser did not choose the most similar as well, choosing instead the highest sales. FNMA needs to work on the selection and ranking for the comps in the program.-
by Bill Anton
If the true concern of FNMA is obtaining the best and most reliable appraisals possible, they would allow Appraisers to have access to the physical data in their database. Since they have been able to mine data for several years through their own UAD requirements, they have compiled the most reliable database. Several State Appraiser Coalitions are making this argument on behalf of Appraisers but will have to wait to find out if they are successful. Is FNMA really interested in accurate appraisals? If so, grant access to the data!-