Since Collateral Underwriter (Fannie Mae’s new appraisal qc tool) launched on February 26th, the industry has been waiting to see the impact on the already shaky mortgage pipeline. Before it launched, many in the industry sounded the alarm bells, thinking it would cause extreme headaches and delays. I caught up with Wes McDaniel, Chief Appraiser for United Lender Services, to get his perspective. Wes and his team has extensive first hand experience with Collateral Underwriter since they’re a leading AMC, serving lenders nationwide.
Q: Now that Collateral Underwriter (CU) has been rolled out for over a month, what have been the biggest learnings?
Wes McDaniel: A few things stand out. First, all the predictions of doom from appraisers were completely overblown. If you read the appraiser blogs, you would have thought Armageddon was upon the industry. In reality, appraisers have occasionally been asked to double-check some data, or comment more fully on some aspect of their appraisal. These are things that were already happening routinely before CU. It would be too strong to call CU a non-event, as lenders, AMC and appraisers have had to make some minor adjustments. But, overall, it has been pretty smooth sailing.
Second, as an AMC with several lender clients, we have witnessed first-hand as each lender has established policies in response to CU. As one would expect, appraisals with higher CU risk scores garner more scrutiny than appraisals with lower risk scores. That’s completely appropriate. However, lenders have been careful to recognize that a higher risk score does not automatically mean that there is something wrong with the appraisal. Appraisers, in general, would be happy to know the level of restraint being used by lenders and AMCs. If there is a clear data discrepancy or error, appraisers are being asked to address it.
Finally, Fannie Mae has done a commendable job of offering training, guidance and – where necessary – correction for lenders in connection with CU. Anyone who has not done so should check out their Collateral Underwriter webpage at https://www.fanniemae.com/singlefamily/collateral-underwriter. The fact sheets, FAQs and on-demand eLearning courses are very clear about how CU should be used – as well as how it should not be used.
Q: Has Fannie Mae responded to any initial missteps by lenders or AMCs using CU?
Wes McDaniel: Yes. Fannie Mae has been very alert for predictable misunderstandings by lenders and AMCs. The most direct and comprehensive response was in Fannie Mae Lender Letter 2015-02 (https://www.fanniemae.com/content/notification/notification-selling-lender-letter-2015-02). The key points underscored in this Lender Letter are that 1) CU does not make a credit decision, and the lender may not use CU alone to make a credit decision, and 2) although CU may be used to inform dialogue with appraisers, the lender/AMC must do so in a manner that does not interfere with the independent judgment of an appraiser.
Q: What should appraisers do to ensure a positive experience with CU?
Wes McDaniel: Two things come to mind. First and foremost, appraisers need to know their appraisal software inside and out, and make sure they always have the latest updates installed. This will ensure that any CU-related items are caught by software checks, so that most warning flags never have the opportunity to occur. When a software-check warning does fire before delivery to a lender/AMC, appraiser need to understand what the likely reaction will be if the issue is not cleared up, or adequately commented upon. If logical questions are anticipated, and briefly addressed, most reports would not require correction/amendment.
The second action that appraisers should take is to include enough information about data sources – and occasional inconsistencies between them – to help intended users of reports understand why others sources might differ from the appraisal. Gross Living Area (GLA) of comps is probably the most common example. CU has access to all the comps submitted to the Uniform Collateral Data Portal. Imagine if one appraiser quotes public-record GLA for a comp, the next uses a different GLA from the MLS listing, and a third uses the actual GLA they measured because they appraised the home when it sold. CU has no way to reconcile these; all it can do is raise a risk flag. The most responsible appraisers will not only state the source of their data (including rationale for why they deem it reliable), they will acknowledge that other common sources carry differing information (that they deemed less reliable). If an appraiser does this, a lender or AMC would never have occasion to question their data accuracy due to a CU risk flag.
Q: Any surprises so far with CU?
Wes McDaniel: There have been a couple, but nothing major. I had frankly expected lenders to ratchet up their Reconsideration requests, using the CU model-data comps to which neither AMCs or appraisers have access. That has not happened, which is another encouraging indication that lenders/underwriters are taking CU in stride. If the CU model comps are not substantially different, or demonstrably better, than the comps cited by the appraiser, lenders are not asking for follow up.
The other surprise – and it has been pleasant, too – has been how relatively few CU risk flags fire on the average appraisal. The Fannie Mae training was comprehensive, and discussed scores of possible risk flags. But in actual practice, we see an average of one or two risk flags per appraisal, and they are relatively minor. Most risk flags concern data consistency between an appraiser’s own reports, or with comps used by multiple appraisers. The lack of major concerns is both a testament to the professionalism of our panel appraisers, as well their careful use of pre-delivery software checks available to them.
Wes McDaniels is a nationally known Chief Appraiser with more than 25 years experience in the industry. At ULS, McDaniels leverages his extensive background to deliver exceptional appraisal management services to lenders nationally, using advanced technology with a customer focus. Wes can be reached at WMcDaniel@ulsnow.com.