This series of articles is designed to help sellers & correspondents understand how Fannie Mae Collateral Underwriter (CU) can be paired with independent appraisal quality reports to address buyback risks before delivery, and how to be prepared if they receive appraisal repurchase requests.
Increases in repurchase activity throughout 2023 have highlighted for lenders the need to fully address appraisal-related CU findings and flags before delivery – the delays and additional costs associated with revisions, secondary products and even re-ordering an appraisal are far less than the financial consequences of a repurchase request.
As we’ll address in the series, if a lender is dissatisfied with an appraisal report and the risk associated with collateral they can seek a series of escalated remedies. CU helps users determine which risks exist and the appropriate remedies. You can read the first article in the series here.
Fannie Mae Collateral Underwriter (CU)
As discussed, CU is the de facto industry standard for appraisal QC – lenders submit appraisals to UCDP and receive SSR reports that include a Collateral Underwriter score and flags that highlight overvaluation, undervaluation, appraisal quality, property eligibility, and appraisal compliance.
In addition lenders can access the CU web tool to review the appraisal and associated comparable sales data, mapping & aerial imagery, market trends, public records, dynamic local market conditions and analytics provided by CU. Remember that CU flags are designed to highlight risk, and are not necessarily indicating whether an appraisal is good or bad. Lastly, CU does not model or account for all property characteristics (e.g. adjustments for pools) and is reliant on the accuracy of the data in MLS and public records. Fannie Mae gives examples where overvaluation flags are a results of gaps in the data and CU model and can be resolved without needing to seek clarification from the appraiser.
Leading causes of repurchase requests from collateral underwriter
The three main reasons for appraisal repurchase requests are:
- Failure to use comparable property sales that are locationally and physically similar to the subject, including (a) inappropriate selection due to GLA, location, site character & age, (b) inadequate adjustments to comparable sales, and ultimately (c) failure of the adjusted comparable to support the appraised value.
- Misrepresentation of the physical characteristics of the subject property, improvements & comparables.
- Failure to comment on negative factors in neighborhood, subject property or proximity of adverse influences.
You could summarize this as… make sure the appropriate comparable properties are selected, adjusted correctly, and support the value conclusion. Then check the property characteristics and condition for accuracy, and look for any external obsolescence.
Tips to investigate and address the leading causes of repurchase requests
Fannie Mae provides a comprehensive set of self-guided resources to help users be effective with CU. These include quick start & user guides, training videos, job aids, review examples, FAQs and message explanations.
You can access Collateral Underwriter and find the appraisal using the Doc File ID, address or loan application. The five tabs in CU are laid out in a logical manner of how you should approach a review, and align well with the leading causes of repurchase requests:
- Overview – with risk score & flags, data discrepancies and reconciliations
- Overvaluation Messages: These help users to investigate the probable reason for a ‘There is a heightened risk of overvaluation’ flag; there is often further direction on the next step in CU for further information.
- Undervaluation Messages: As with overvaluation, CU has 16 overvaluation messages that help users to investigate the probable reason for the ‘There is a heightened risk of undervaluation’ flag.
- Comparables
- Map Overlays: Use the map overlays, such as the median price per Gross Living Area (GLA), to provide additional visual cues into reasons for apparent comparable and adjustment discrepancies. Other Data Layers include median Age, median Days on Market (6 and 12 months), median GLA, median Lot Size, median Sales Price and several others. This section also has ‘Eagle View’ with tools for checking GLAs.
- MLS Search Options: Use the search filters (including new geographic and property characteristics), distance radius from property and define region/boundary to create the criteria to generate a custom MLS report – at both a summary listing level, and detailed per property report. This includes photos for condition plus the recent listing history.
- Based on the comparables you select, you can re-run the CU model and evaluate the results.
- Adjustments
- Model Adjustments: subject and comparable properties and adjustments, CU provides comparisons of the ‘Appraisal Adjustments’ from the appraiser versus the ‘Model Adjustments’ from CU automated analysis.
- Sales History
- This provides detailed information on prior sales for the subject and comparable properties.
- Market Trend
- This allows you to review the Home Price Index (HPI) over a date range, and see the HPI at a specific point in time for the subject property and selected comparables.
Conclusion
To wrap up this article:
- We know Collateral Underwriter is the de facto standard for collateral risk analysis for lenders and correspondents, but Fannie Mae stresses to lenders that automated analysis in CU (and any tool) has limitations, and should not take precedence over well-informed human judgment; collateral reviewers and underwriters should be well-trained.
- CU provides everything a trained professional needs to evaluate collateral risk, including comparable sales data, mapping & aerial imagery, market trends, public records, dynamic local market conditions and analytics
- Lenders can use CU to evaluate the risk profile of the collateral and then decide on the appropriate remedy – from no further action needed, to requesting clarifications from the appraiser, requesting revisions to the appraisal, ordering an independent QC report, appraisal risk review or appraisal field review, and finally re-ordering a subject property appraisal if the initial report is flawed and cannot be used reliably
- Fannie Mae prohibits lenders from sharing CU findings and the CU web tool with appraisers and AMCs – this ensures an entirely independent appraiser opinion of value, and is a pillar of effective risk management
Coming soon… the remaining three articles will address:
- How to provide effective feedback to appraisers where there are concerns regarding appraisal repurchase risk
- What to do next if appraisers are unable to address those concerns
- How to effectively document the ‘well-informed human risk analysis’ and action taken prior to loan delivery
If you need to find out more sooner please…. Contact us