Inside Access to Fannie Mae's Complaint Process


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Inside Access to Fannie Mae’s Complaint Process
by Isaac Peck, Publisher

For the last three years, there’s been plenty of rumors and anecdotal reporting about the flood of state board complaints filed against appraisers by Fannie Mae and Freddie Mac.

Finally, we have an inside look (and some hard numbers) at how Fannie’s complaint process works and how many complaints these Government Sponsored Enterprises (GSEs) are actually filing against appraisers.

In their September 2023 newsletter, Fannie Mae included a section titled “How State Tips Work,” which explains its reporting process. Instead of referring to them as state board complaints, Fannie calls them “tips,” writing that they “occasionally provide tips to state regulatory agencies” when they identify appraisals with “severe deficiencies.”

Fannie reports that it filed 1,083 state board tips (complaints) against appraisers associated with its 2022 loan production—for just one year. Although we don’t have the hard data from Freddie Mac, if we assume a similar proportion and procedure, this means the GSEs combined are filing in the neighborhood of 2,000 state board complaints against appraisers every year. (Freddie’s loan volume is roughly 90 percent of Fannie’s; $684 Billion in loan acquisitions for Fannie and $614 Billion for Freddie. In fairness to Freddie, perhaps they don’t complain about appraisers with the same fervor as Fannie.)

That’s a lot of state board complaints! Here are some of the key details about Fannie’s process and what it means for real estate appraisers.

Not Automated
Fannie indicates that it never files its tips in an automated fashion and (1) every complaint is reviewed manually, and (2) every complaint is issued as part of a loan buyback demand with the lender.

This is new information for many industry stakeholders who have been watching this issue closely. It has long been assumed that Fannie’s Collateral Underwriter® (CU®) system was filing complaints in an automated manner (due to the large volume of complaints).

Fannie explicitly makes this point: “LQC [Loan Quality Center] reviews are not automated. Our expert analysts validate the appraisal results by asking questions like ‘Do the comparable sale selections make sense?’ ‘Is the data accurate?’ ‘Did the appraiser make appropriate adjustments?’ and ‘Are we getting the most probable value?’ in the context of a comprehensive database of property characteristics and market transactions,” writes Fannie.

Buybacks First
One of the illuminating things about Fannie’s explanation is that it indicates Fannie is pushing a significant number of buyback demands on lenders relating to appraisal deficiencies. In other words, every state “tip” Fannie is sending has been preceded by a buyback of the loan in question. This means that Fannie must have forced a buyback of a minimum of 1,083 loans specifically for appraisal deficiencies (for 2022 alone). (Appraisers who are closer to the AMC/lender review process tell Working RE that this number is actually on the low end in terms of buybacks due to appraisals.)

A “buyback” in this context is when Fannie Mae or Freddie Mac force the lender to buy back the loan because of a deficiency noted in the appraisal. Buybacks also occur due to errors in underwriting, borrower income or credit, and so on. However, for the purposes of this analysis, Fannie is specifically telegraphing that it pushed 1,083 loan buybacks specifically because of appraisal deficiencies, and then filed a state board complaint.

In the GSEs’ buyback process, the lender is typically given three chances to rebut the GSEs’ critique of the appraisal. Oftentimes, the appraiser is looped into the discussion and offered the opportunity to defend their work, but not always.

“Lenders then have a rebuttal period followed by an appeals process. If the lender is unable to resolve the concern by providing additional evidence in support of the appraisal, they ultimately remedy the situation either through a loan repurchase or a repurchase alternative, and only then do we notify the state of our concern,” Fannie writes.

If you are an appraiser and one of your lender or AMC clients reaches out to you regarding a GSE buyback resolution request, take it seriously. Appraisers are advised to work closely with their client’s appraisal review team (if they have one) as well as consult with an experienced local appraiser or USPAP expert when writing their rebuttal.

Common Deficiencies
In the work we do with appraisers, we serve over 10,000 appraisers and we see a board complaint filed by the GSEs against one of OREP’s appraisers almost every week.

Here is a short list of the most common issues identified by Fannie Mae as justification for buyback demands and subsequently reported to state regulators:

  • Failure to Adjust Comparables
  • Inadequate Comparable Adjustment(s)
  • Adjusted Value of Comparable Sale(s) Failed to Support Appraised Value
  • Inappropriate Comparable Sale(s) Selection – Dated Comparable Sale(s)
  • Inappropriate Comparable Sale(s) – Selection Due to Location
  • Use of Physically Dissimilar Comparable Sale(s) – Gross Living Area
  • Use of Dissimilar Comparable Sale(s) Due to Site Characteristics
  • Use of Physically Dissimilar Comparable Sale(s) – Physical Features Reported Inaccurately
  • Subject Physical Features Reported Inaccurately – Condition/Quality of Construction
  • Comparable Sale(s) – Gross Living Area

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State Responses Vary
How individual state appraisal boards or regulatory agencies choose to respond to the GSEs’ tsunami of appraisal complaints varies widely by state. “State regulators have complete discretion on what to do with our tips. A tip may lead the state to investigate and can result in disciplinary action. We have seen many cases where the state required the appraiser to obtain additional education or mentorship as a result of the investigation,” writes Fannie.

Some states require a complainant to sign the complaint. When Fannie was still developing its complaint process a few years ago, it was customary not to have an individual employee at Fannie sign the complaint. Even today, letters that Fannie sends are traditionally signed “Sincerely, Loan Quality Center Fannie Mae.”

In some states, like California, this technicality meant that, at least in the early days of Fannie’s complaint reporting, some of Fannie’s complaints were categorically dismissed and not pursued further.

Joe Lynch, an appraiser in California, says his understanding of the Bureau of Real Estate Appraisers (BREA) complaint process in California is that there needs to be an individual’s name associated with the complaint. The REA 4001 California Complaint form requests a Certification Statement at the bottom of the form that reads: “(Must be signed and dated to validate the complaint.)”

However, Fannie has lately been taking a more rigorous approach to state board complaints. Instead of simply sending an email signed by the “Loan Quality Center,” in many cases, a Fannie Mae employee is filling out the complaint form and signing it individually. (In some states, the state board will redact the Fannie employee’s name before forwarding it to the appraiser.)

One question that comes to mind is, why are the GSEs filing so many complaints against appraisers?

Fannie takes this question head on. “Through this process, we aim to be responsible members of society, helping protect the public trust by giving appraisers and regulators feedback about deficient appraisals impacting the secondary mortgage market. Too often the competitive pressures on appraisers focus on turn time or price. With state tips, we hope to incentivize competition for superior quality,” Fannie writes.

Here, Fannie openly acknowledges the fee and turn-time pressure that appraisers are facing and makes an argument for quality. In other words, appraisers that are just focusing on doing quick work, or on competing for the lowest fees, still have to produce quality work—or face the wrath of the GSEs and the state board. Or so Fannie seems to suggest.

In this respect, Fannie seems to position itself as an equalizer—their quality review and “tips” will force competition around quality, not just fees and turn-time. This is welcome news to appraisers who are being undercut on fees by their competitors, but likely provides no comfort to appraisers who are on the receiving end of a GSE “tip”—whether justified or not.

Claim Exposure
There is longer-tail, larger claim potential here that goes beyond the filing of a state board complaint by a GSE. If Fannie or Freddie successfully forces a buyback of a loan due to an appraisal deficiency, the lender may then need to hold that loan on its own books until maturity or it might sell the loan for a discount on the secondary market.

Either way, the lender might then bring a claim against the appraiser to recover any losses associated with the loan buyback. These types of claims do not occur on every buyback, but they do happen. The demands for these claims typically center around $50,000-$60,000 but can exceed $100,000.

The percentage of buybacks that turn into lawsuits or demands is relatively small, according to our internal numbers—but some do.

What’s an Appraiser To Do?
From a risk management perspective, there are a number of steps appraisers can take to protect themselves and minimize their exposure to these issues.

  1. Take Note of GSE Requirements
    To their credit, the GSEs actively engage with appraisers at both state and national conferences. Lyle Radke, Senior Director of  Collateral Policy, and Scott Reuter, Chief Appraiser and Director of Valuation at Freddie Mac frequently give presentations live at appraisal conferences and via online webinars on the most common red flags they see and what to do instead. If you’re an appraiser who is doing residential mortgage work, it pays to understand what the GSEs are looking for. Making appropriate adjustments, providing support for those adjustments, and selecting appropriate comparables appear to be high-priority issues for the GSEs. Focusing on professional development and taking classes centered on these particular topics may be a good way to ensure your protection.
  2. Ensure Coverage for Disciplinary Proceedings:
    Not all E&O insurance carriers provide coverage for disciplinary proceedings. A number of “insur-tech” and generalist appraiser E&O providers are offering policies without key coverages that appraisers need (like Discrimination Claim Coverage!). This can be a costly mistake. It’s not uncommon for appraisers to realize their policy doesn’t cover regulatory or disciplinary proceedings until they receive a letter from their state board and reach out to their E&O provider. It pays to make sure your policy covers board complaints and other regulatory investigations.
  3. Get Professional Support:
    Too often, appraisers tend to go it alone. If you do end up facing a buy-back inquiry from your lender client or you’re defending against a state board complaint, it pays to get professional support and representation. Even if you are an expert writer and hands-down the best appraiser in your area, it pays to have a second set of eyes on your response. You want to consult with folks who are intricately familiar with the high-stakes process you are likely experiencing for the first time. Working with another experienced appraiser, USPAP expert, and/or an attorney (depending on the circumstances) is the best way to protect your reputation and your business. OREP offers a free one-hour consultation with trial attorney Craig Capilla for all OREP Members facing regulatory complaints, as well as a free consultation with either Bob Keith, Former Executive Director of the Oregon Appraisal Board or Joshua Walitt of Walitt Solutions if the state board comes knocking.

Stay safe out there!

About the Author
Isaac Peck is the Publisher of Working RE magazine and the President of OREP, a leading provider of E&O insurance for real estate professionals. OREP serves over 10,000 appraisers with comprehensive E&O coverage, competitive rates, and 14 hours of free CE for OREP Members (CE not approved in IL, MN, GA). Visit to learn more. Reach Isaac at or (888) 347-5273. CA License #4116465.

Working RE Magazine

OREP Insurance Services, LLC. Calif. License #0K99465

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Comments (9)

  1. by ThatRoofHasASmile

    Prior to becoming an appraiser I was a realtor who had the blessing of sitting in on one of our weekly meetings where a local lenders came to say to us realtors “ appraisers have us bent over a barel at their mercy “ … I then had the honor to walk up to him at the end of his presentation , shake his hand and say “ hey thanks for joining us today , I’m becoming an appraiser “ … from that point on my eyes were opened to the corruption of lending … They want to get paid and that is the most important thing . This guy in particular gets a trip to Hawaii at the end of the year if he can produce enough loans … I had another lender call me on the phone angry and say “ you are screwing up my deal “ then proceed to tell me I had no business checking the county records for a permit on a suspect illegal addition to a manufactured home. I had to report him and made it clear he was not to call me again . Nobody wants to be the guy that points out dead rats in a crawl space that have chewed the foundation of the home ( yesterday ) , or deteriorated decks that were built over an old swimming pool full of algae water that have become a safety issue ( last week ) . They’ve now released documents as part of the purchase and sale agreement that states the seller is not to receive the inspection report from the buyer without written consent … why do you think that is ? Because the seller would have to then admit to knowing his own house has defects on the form 17 ! The knowledge I’ve obtained from on the job training over the last 5 years can’t be duplicated or taught in a one month or one year course . When your brought in you become more valuable than you realize to someone you don’t even know that your saving from potential disasters , and whether or not that is appreciated we will still be here working when people decide to get divorced , or when a family member dies and an appraisal is needed for the estate . Theres a lot more to our job then just establishing value . I know my worth and I certify that I will not be completing hybrid appraisals or anything of the sort . It feels good to be the unbiased party to the salesmen trying to make a deal , and I’m proud to be out here making a difference protecting consumers even if it pisses a few people off . Lastly appraisers are the least paid party in the real estate transaction but arguably the most important . The lender and realtors take a big piece of the pie while the appraiser gets the crumbs . Let that one sink in .

    - Reply
    • Having done appraisals for over 40 years, I never train a person to be an appraiser unless they have been a Realtor for several years. An appraiser is a Market Reporter. If you have not actively helped a buyer and / or a seller locate, purchase and finance a house, how can you report the actions of a buyer / seller market participant. Non Realtors just don’t know the concerns of the buyer / seller clients. This means that the non Realtor appraiser does not know the concerns of the the mortgage holding client and / or ultimate appraisal user.

      - Reply
  2. In the past when doing REO work, Fannie Mae would not allow the word, Mold in the report, it was to be noted as discolorization, this way they could market these bad REO properties with no documentation. They now hold all the cards and want to use unlicensed, property inspectors to do there deed. This new system will streamline us all out our livelyhood. This is a nightmare, the inspectors and A1 will soon replace all of us. We as appraisers need to stand strong and voice our fury.

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  3. Appraiser’s should not earn less with the new process, because we still have to take the time reviewing all of the work and documents, which more than likely will take more time. If anything, Appraiser’s should earn more with the amount of education and time it takes to become Certified and remained certified. There has not been COLA adjustments or inflation adjustments within our industry, like the built-in adjustments realtors have with the increase of housing costs. It takes years to become an appraiser, which equates to the same time it takes to get your Masters, and that should be rewarded and recognized. We are truly the only unbiased party to the transactions and should be held in a position of respect because we protect the integrity of the real estate transaction process.

    - Reply
  4. What do you think will happen when Fannie Mae disagrees with the comparables selected by the data collector? That process will be pressured by selecting their own comparables from Collateral Underwriter. Is anyone naive enough to think that splitting up the process among additional people promotes efficiency? It promotes corruption. Fannie Mae has attempted to undermine the independent appraisal process for decades and even caused a global recession. The best technology is useless when it is not administered by a disinterested party. This very concept of valuation should keep Fannie Mae in receivership or disbanded and reorganized altogether.

    - Reply
  5. Appraiser’s determine the scope of the assignment not the GSE’s and not this clown Radke.  Bifurcation is a money making scam! This is what happens when you allow a bunch of non-appraiser and appraiser’s who have no real world appraisal experience determine how to manage risk. There is no shortage of appraiser’s just a shortage of appraiser’s willing to be scammed out of their fees. This bifurcation process is just an other attempt for the lender and AMC to retain as much of the appraisal fee as possible while paying the appraiser below market rates. Consumers, investors and tax payers beware this process will undermine the entire Real Estate industry and the entire hosing market. Is this Radke clown willing to go to prison once the housing market fails? The GSE’s, AMCs and lenders continue to dumb down the entire appraisal process in an attempt to secure more loans and retain as much of the appraisal fee as possible. This is all drive by greed! The government needs to step in and put an end to this. There is not 1 single reason an appraiser should not complete the entire appraisal process from start to finish. Like I said Bifurcation is a money making scam which only benefits the AMC, lender and GSE. Nobody else benefits from bifurcation. The public trust is being significantly harmed. Appraiser’s are sounding the alarm yet the government fails to step in and put an end to this scam, lies and deception! It is time to practice basic common sense in the lending world!  Bifurcation is a money making scam dont be fooled! Appraiser’s stand up to these clowns! Radke is not the spokes person for the appraisal profession. He is a corporate clown pushing false data purely based on corporate greed! Biforcation needs to go and common sense needs to return! Good bye bifurcation!

    - Reply
  6. More than enough has been written by informed expert practitioners of real estate appraisal to refute the validity and ethical, if not legal propriety of performing so-called third part (bifurcated) appraisals.

    FNMA (once they are released from government oversight) can generally do what they want in terms of undermining investor confidence in the security of investments sold by them. They do not have the right to undermine an entire profession simply because they drank the technology kool-aid.

    The American Guild of Appraisers urges their members not to perform either hybrid inspections or appraisals. The best possible outcome is that they undermine their own profession.

    A more probable outcome is that on top of the best-case scenario, they also lose their licenses, incur heavy fines, and suffer diminished reputations professionally among their peers.

    - Reply

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