Fannie Mae: The Innovator

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Russ-HarausIf you are in the business of mortgage lending by now you have had some exposure to Fannie Mae’s new Collateral Underwriter system more commonly known as CU. Fannie Mae rolled out this new appraisal evaluation and risk management assessment tool on January 26, 2015 to the great anticipation of the lending and appraisal communities. The CU system uses a proprietary model driven analysis tool developed by Fannie Mae to provide a real time risk assessment of an appraisal report.

While automated risk assessment tools have been around and in use for many years CU is different in that it is the first time that this new technology in supercomputing can analyze vast amounts of data stored in all the appraisal reports submitted to Fannie Mae on a daily basis in real time. The artificial intelligence models can compare thousands of report submissions against any individual appraisal report submitted through the Uniform Collateral Data Portal (UCDP) and receive “real time” analysis within minutes of submission. That is real time ground breaking technology at use! These are extremely exciting times in the appraisal and lending process in general. The innovative ideas and concepts identified long ago in the internet technology research departments and universities across the country are just now lifting the veil off new ideas and computer generated artificial intelligence in many practical ways which are fast becoming necessary to all aspects of business in all industries.

From the mortgage lending prospective, submitted appraisal reports receive results and ratings which include warnings that identify some differences between either earlier report submissions on the subject property, earlier report characteristics which were noted by other “peers” in the market commonly known as other appraisers and Fannie Mae’s Collateral Underwriter artificial intelligence model adjustments.

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By and large the lending and appraisal communities have adopted a “wait and see” attitude toward the new CU system. From the lender’s perspective, the new CU system requires a much more “hands on” approach in their Quality Control and Underwriting Departments than ever before.

The error messages and warnings need to be addressed on many reports submitted. Therefore, the “process flow” needs to be refined to maximize efficiency in the delivery of the revised appraisal reports. From the appraiser’s perspective, most are skeptical that CU will actually improve the quality of their reports but rather the additional comments and revisions just add to the time to complete that appraisal report. In general both groups have adjusted their procedures to try and accommodate Fannie Mae in the Collateral Underwriter effort.

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In the short term the negative effect of CU will lengthen the average turnaround time for an appraisal to receive a successful submission with few warnings to Fannie Mae through the UCDP portal. Preliminary indications vary between 1 to 2 days depending on the number of revisions required to each appraisal report and the availability of data needed by the appraisers to revise their report adequately. Another concern is that since the appraisers are required by most state regulating authorities to note any changes in the appraisal report between versions in the addendum, that the consumer will feel that the report has been amended to the point of less relevance to real estate value since many consumers are already confused by the appraisal process. The consumer may mistakenly feel that the report is not a good reflection of current market value and will lead to less confidence in the loan application process.

Collateral Underwriter or CU as we know it will go though a few revisions, as any new system must be tested and refined to achieve maximum efficiency. One major improvement would be to allow appraisers to submit a “preliminary upload” to the UCDP to obtain the “preliminary results” directly prior to official submission to the lender. This will allow the appraiser to make corrections and address concerns in their report as a means of strengthening the final appraisal product. Once the report had received a high rating and few, if any, warnings, then the appraiser can submit the reports to the lender. However, I suspect that the leading companies in software and data management will fill the void with “preliminary upload” products in short order.

Another very important change is in the area of “information and guidance.” Because there is allot of misinformation for all parties involved in the lending process and mistrust of lenders, appraisers, realtors and processors Fannie Mae should launch a national speaker’s educational and training tour which explains the multitude of benefits that the new CU system brings to the residential lending market. While their website is packed with very informative and helpful information lenders always like to hear about industry changes in person. All of the mortgage bankers’ association’s would welcome Fannie Mae Representatives with open arms to discuss the benefits, changes and potential of Collateral Underwriter.

The last suggestion is for Fannie Mae to open a “Data Portal” for appraisers. Access to verified and accurate sold records is critical to accurate appraising. Fannie Mae has amassed one of the largest reliable uniform national databases of sold properties in history. If an appraiser has the necessary professional credentials to complete an appraisal report they should be able to access the national CU database to search for the best available sales comparables which will strengthen their report. Even in today’s technology driven market there are still some states in the country which do not have a complete computerized database of current or recent comparable sales in their market.

In conclusion, Fannie Mae’s Collateral Underwriter (CU) has certainly changed the first impression of the appraisal process now and into the future. It is an exceptional risk management tool, which used properly, will strengthen appraisal process by incorporating new technology, artificial intelligence, supercomputers, data management and exceptionally talented people on an innovative and exciting path of home valuation now and into the future.

About The Author

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Russ Haraus is President & CEO of First Look Appraisals, LLC an national appraisal management company licensed in all 50 state plus the District of Columbia. As CEO of a startup and national company, he is familiar with nation trends and leading economic indicators which affect the real estate market and economic growth. He has assembled and trained junior to senior executives in project and team management and has been involved with senior management, mortgage banking, residential appraising and operations management for more than 25 years.