On January 21, Fannie Mae introduced her security Underwriter, and Freddie Mac will launch the same program in March. Veterans Affairs is already using Core Logic AVM to assess grades and it is almost certain that the Federal Housing Administration will follow suit.
For those who are unfamiliar with Collateral Underwriter, this is a computer generated valuation review using data provided to Fannie Mae by appraisers since 2010. To date, they claim they have 40 million sales in their database, with 40,000 added monthly. The aim of the program is to review each assessment presented for accuracy, consistency, the use of “appropriate” comparative data, and possible overstatements and undervaluations. The grade will be verified before the loan is made and will be rated from 1 to 5, with 5 being “high risk”. The program will include a series of “hard downtime” that will automatically reject the quote, and also generate a list of 20 comparable “low risk” items that the borrower can use to ask the appraiser, thus extending the process assessment time.
The Underwater Underwriter Security Program is a very sophisticated automatic valuation program that will choose what it describes as the “best comparison” using their database, which determines the neighborhood based on its census (s), and therefore concludes that the appraiser should use census treaties population for comparable searches. Gone are the days of competition within one mile; no more than 10% “position” or 15% net and 25% gross adjustments and comparable can be used with sales dates up to one year. The lowest risk values are those with the most similar characteristics, such as size, number of bedrooms and bathrooms, age, lot size and amenities features. Conditions and quality are determined by the assessor assigned the “condition and quality” rating, which is subjective at best, but considered by CU to be “absolute”.
Another issue is the mandatory use of Fannie’s market conditions analysis form, which is fundamentally flawed because it will take 3-6 months to recognize a trend, though positive or negative. In a growing and / or shrinking market, adjustments of time / market conditions will not be supported and therefore will not be used, which will further dampen value in an upward trend market. Because of CU, any adjustment to the appraiser’s comparison must be supported by facts using “paired data” and / or regression analysis.
Each assessment will be submitted to the appraiser’s license number, and if there is a template for “high risk” appraisals assigned to the appraiser, he will receive a “warning letter”, and if Fannie Mae believes that the quality of the appraisal does not improve, the appraiser will be placed on a 100% review and / or does not use the list, which will result in the loss of the profession, all without explanation from Fannie Mae, whether or what measures the appraiser must defend the assessment (s).
A “senior” and experienced appraiser who properly uses the scope of work and has knowledge of “paired data” and “regression analysis and market trends” will not have problems with CU. He is a less experienced appraiser who “shortens the corners” who will face serious CU problems. The latter perform the vast majority of lenders through valuation management companies that pay “piston” fees, forcing the appraiser to “shorten the corners” and produce a inferior product. If the truth is known, AMCs are guilty of inferior quality work, despite insisting that they carefully evaluate the rating and guarantee the client in exchange for 35% to 50% of the “usual and reasonable” appraiser to be codified by Dodd-Frank. I have too many examples of crowded offers, but let me share only one. One of the “big five” banks has its own AMC. Their appraisal fee schedule is $ 305, but they charge the customer $ 550, and the difference becomes a “profit center” for the bank.
Now that GSEs have the ability to immediately review each submitted assessment and inform the lender of its accuracy, it comes to my mind that assessment management companies are no longer needed. The individual lender just needs to maintain his own independent fee assessment panel and ensure that orders are randomly allocated. Fannie will deal with “bad grades / appraisers”, and appraisers can re-earn a salary proportional to their education, background and experience.
I am very disappointed that Fannie did not take the time to properly educate appraisers about CU. When they announced Form 1004 Market Conditions, they had special online and classroom education, but with CU nothing.