If a lender is dissatisfied with an appraisal report and the associated collateral risk they typically follow an appraisal escalation path to seek a remedy. CU helps users determine which risks exist, and AURA assists with engaging the appraiser with clarification and revision requests – these steps are outlined in the first, second and third articles in the series.
This series of articles is to help sellers & correspondents understand how Fannie Mae Collateral Underwriter (CU) can be paired with AURA appraisal QC reports to address buyback risks before delivery, and how to be prepared if they receive appraisal repurchase requests.
Appraisal revision process
Appraisal management systems like LenderX typically have great support for the appraisal revision process and for reconsiderations of value, including the following:
- Add revision requests, with supporting documents quickly and easily
- Define and save approved revision request language for easy and compliant re-use
- Control who has access add, forward and view revisions and reconsiderations of value
- Store supporting documents and appraisal versions in one place for audit purposes.
However, in cases where an appraisal is not revised, or the revisions still do not satisfy underwriting and credit risk, a lender has to consider other options.
Appraisal escalation process (when a lender believes an appraisal is defective)
Loan investors will specify the escalation path for collateral in cases where the lender and underwriter believes the original appraisal is flawed or deficient, or otherwise defective. Lenders document these requirements in the their selling guides, and these guides will be different for agency and non-agency loans, and for non-delegated and delegated correspondent sellers.
An underwriter may order certain products according to internal policy to assist with their collateral analysis. However, lenders should refer to the relevant investor selling guide to order valuations that will be in compliance with the acceptable appraisal standards. The internal and external products are typically as follows:
Internal products
These are typically specified in internal lender policies and procedures, and are ordered at the discretion of the underwriter and/or chief appraiser. These products can be used to provide additional feedback on the reliability of the original appraisal. Depending on the CU score, loan amount, CLTV and other characteristics, underwriter may decide to order an AVM or an appraisal risk review
- Automated Valuation Model (AVM)
- A ‘fully supported’ AVM report will provide a valuation and associated confidence score to compare with the appraisal
- AVMs are typically $10-20 per hit, can be ordered immediately and the results viewed in a few seconds in the form of a PDF deliverable
- A fully supported AVM includes a valuation, value range, confidence score, FSD, subject property characteristics, sales history, market data & comparable properties and home price index historical and future trends
- This can be paired with an appraiser review and on-site property inspection, depending on the loan borrower, type, amount and purpose
- Desk reviews
- These products will be completed by an appraiser, and provide an assessment of value, commentary and the positive/negative variance from the original appraisal value
- If the variance exceed 10%, positive or negative, this may help the underwriter to conclude the appraisal is defective
- Desk reviews are typically $75-125 per appraisal, can be ordered immediately and the results returned in 1-2 days
- There are several proprietary desktop appraisal and appraisal risk reviews offered in the market, but the following are more typically used when there are concerns with an appraisal:
- Appraisal risk reviews – including Clear Capital Collateral Desktop Analysis (CDA), Stewart Valuation, formerly Pro Teck, Appraisal Risk Review (ARRs) and Spectrum Valuation Report (SVR)
- The agency desk review form that can be completed by an appraiser or trained collateral reviewer
- 1 unit appraisal desk review report – Freddie Mac Form 1033
- These products will be completed by an appraiser, and provide an assessment of value, commentary and the positive/negative variance from the original appraisal value
External products
These are typically specified in the selling guides as formal steps that can be taken when a correspondent lender believes an appraisal may be defective. A lender may utilize a field review with the original appraisal, or order a second appraisal when they have already determined the original appraisal to be defective:
- Field review
- The lender should provide the original appraisal, UCDP/EAD Submission Summary Reports (SSRs) and field review as documentation when delivering the loan
- The agency field reviews that can be used are:
- 1 unit appraisal field review report – Freddie Mac Form 1032/Fannie Mae Form 2000
- 2-4 unit appraisal field review report – Freddie Mac Form 1072/Fannie Mae Form 2000A
- New appraisal
- The second new appraisal is ordered and used to determine the new valuation and for borrower CLTV/LTV calculations
- The original appraisal is now considered defective and may not be used. This remains the case even if the original appraisal valuation is higher, or the second appraisal is also later deemed to be defective
- The common agency appraisal forms and addenda include:
- Uniform Residential Appraisal Report – Fannie Mae 1004/Freddie Mac Form 70
- Individual Condominium Unit – Fannie Mae 1073/Freddie Mac 465
- Small Residential Income Property – Fannie Mae 1025/Freddie Mac 72
- Single-Family Comparable Rent Schedule – Fannie Mae Form 1007/Freddie Mac Form 1000
- Appraisal Update and/or Completion Report – Fannie Mae 1004D/Freddie Mac Form 442
Conclusion
To wrap up this article on appraisal escalation:
- When an underwriter runs CU and decides that they need to contact an appraiser for clarification and/or revisions, they can utilize the AURA QC report to check their findings and share some or all of the AURA appraisal QC report with the appraiser and/or AMC who completed the assignment
- Additionally, lenders may allow their underwriters to order an AVM or appraisal desk report to provide additional information
- If after engaging the appraiser for clarification and/or revisions, the underwriter believes the appraisal report is defective they may order a field review or a new appraisal from a different appraiser. At this point the original appraisal is now deemed to be defective, and may no longer be used or considered in the loan origination process.
- The second appraisal is now submitted to UCDP and the appraisal QC and collateral risk review is started again – only this second appraisal can now provide an opinion of value and to calculate CLTV/LTV
- If a second appraisal is subsequently deemed to be defective, many investors will no longer accept the loan for delivery
The last article will address:
- How to effectively document the ‘well-informed human risk analysis’ and action taken before loan delivery
If you need to find out more sooner please…. Contact us