New DC Appraisal Tool


A new tool for mortgage underwriting giant Fannie Mae rolled out in 2015, designed to reduce risk for lenders. So what does that do to your appraisal?

“Collateral Underwriter” is the new software tool released to lenders and AMCs (Appraisal Management Companies) in late January. A sort of “second guessing” model for appraisal comparables, it is designed to reduce risk for the underwriter, AMCs and lenders.

CU reviews comparables, generates review requests for additional comparables and assigns them a risk value. The question is, will the tool pressure AMCs and lenders to routinely downgrade appraisal values?

From Fannie Mae’s Fact Sheet

How to Use CU Risk Scores and Messages

  • Lenders may use the CU risk score to segment appraisals by risk profile, resulting in more efficient resource allocation, workflow management, and collateral risk management processes.
  • Risk flags identify appraisals with heightened risk of quality issues, overvaluation, and property eligibility or policy compliance violations.
  • Detailed messaging directs reviewers to specific aspects of the appraisal report that may warrant further attention.
  • Perform in-depth analysis using CU’s dynamic web-based interface that includes comparable sales data, market trends, mapping, aerial photography, public records, and other functionality to assist with manual review of the appraisal.

Is it an AVM?

Fannie Mae denies the tool is an Automated Valuation Model, arguing that it doesn’t produce a  recommended value. Instead, it provides up to 20 comparables “ranked by risk” by Fannie’s proprietary algorithms. The list includes the appraiser’s comparables, which are assigned a risk value. Appraisers must respond to lower risk comparables generated by the CU. As of January 26, 2015, appraisers and lenders were given access to local data to aid in their computations.

AMCs are likely to hire unlicensed staff to manager the CU-generated data, while licensed appraisers create the original appraisal and respond to requests by the CU. Will the CU tool affect a significant percentage of appraisal values in a negative way and increase the cost of appraisals? Too early to tell for certain, but a lot depends on the structure of the algorithm and accuracy of the data.

If designed as a support tool for originating appraisal accuracy, it will reassure buyers. If designed solely to reduce appraisal risk by shaving value, we worry about the formula’s impact on appraisers who know DC’s neighborhoods and rapidly-changing values, and on the DC real estate market in general, which in many respects is unique in the nation.

Neighborhood Values, CBGs and the CU

Our understanding is that the tool was released without standardized neighborhood boundary definition ability. In the absence of this, Fannie Mae will define market areas by Census Block Groups. As far as we can tell, this is true for the structure of the mapping capability, as well. The problem we see with this is that CBGs are typically dated and don’t reflect the District’s real-time, oft-changing unofficial neighborhood boundaries, which are the key determining factor in value of homes in many locations.


CBG DC Examples (Partial)

Block Group 007809-1 Blocks

Block Group 000901-3 Blocks

DC’s micro-neighborhoods and their associated market data can not be defined by CBGs or zip codes. This came up in appraisals pre-CU, too. For example, we often saw Mount Pleasant, which has extremely high neighborhood single family home values and whose zip code is shared by micro-neighborhoods with much lower market values, downgraded when CBGs and zip code rather than micro-neighborhood mapped data is utilized.

We rely on the expertise of experienced and DC-knowledgable appraisers to use comparables that reflect the location value of the property in question. Pre-CU, Fannie Mae provided appraisers with a Market Conditions Addenda form appraisers added to their report utilizing only neighborhood data for market trends. It’s not clear to us how appraisers generated this data.

We applaud providing appraisers with access to better data such as the type we purchase for DC micro-neighborhoods from RBI. Unfortunately, CU isn’t using a micro-neighborhood mapping tool or data. Will the absence of micro-neighborhood data and tools generate lower comps from dissimilar micro-neighborhoods the appraiser will then have to argue against, creating a greater workload for already time-strapped appraisers, and without additional pay (we’re guessing)? This could lead to appraisers simply folding in CU’s lower comps. It should be noted that Fannie Mae has an ‘approved appraisers’ list.

It’s optional

While the program is available to lenders and AVMs it is optional at this time. That could change as time goes on. Is your lender and AVM using CU? Ask before making a lender choice.

CU Later, Appraisers?

Will the CU eventually replace appraisers altogether? If that’s possible, it’s probably a long-term concern, but a valid one. Certainly this tool has the potential to become a “Zestimate” in the appraisal realm if data, micro-neighborhood tools, and weight given to licensed appraiser opinion aren’t what they should be.

DC Realtor of the future

You’re not alone, appraisers. It’s possible that some day agents will be replaced by ZillowBots.

NAR Statement

The National Association of Realtors wrote:

At the end of January 2015, Fannie Mae will make Collateral Underwriter (CU), an appraisal risk-assessment tool, available to lenders.  CU is an optional, free tool that lenders can use to assign a risk score to appraisals and identify aspects of the appraisal that may require further attention.  The tool can provide the lender a list of additional comps for possible appraiser review.  NAR members are concerned that this could add time to the appraisal process and force appraisers to use lower-value, lower-quality comps—a tool that appears to encourage lower-value appraisals.  Fannie Mae, however, hopes that the tool will be superior to current lender check-lists and engagement letters and feels it will prevent some of the call-backs appraisers receive from underwriters for additional or lower comps.

NAR is proactively working with Fannie Mae on this issue.  NAR held a conference call with Fannie Mae in November 2014 and NAR’s Real Property Valuation Committee and Conventional Financing and Policy Committee are actively engaged in the policy discussion about CU.  NAR asked Fannie to update its on-line FAQ to address appraiser questions, which is updated and posted on Fannie’s website.  At the end of December 2014, a video circulated that referred to CU as an “appraisal time bomb” and renewed concerns among NAR members about the implementation of CU.  NAR has brought these concerns to Fannie Mae’s attention and will work to dispel myths and communicate facts about CU in 2015.

NAR is watching the roll-out of CU closely and have asked members to give us feedback as soon as the tool is available and used by lenders at the end of January.  CU is a Fannie Mae product and not currently being offered by Freddie Mac.

Want to know more about CU?

Comments by appraisers on HousingWire January 27 2015 article on CU

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*Robot image Creative Commons

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