Rating Number Game Threatening Appraiser Independence

Rating Number Game Threatening Appraiser Independence

CU rating number magically moved lower on the scale…


While it’s presently a tad bit slow for order volume, this is a good time to evaluate a potentially troubling item instituted by Fannie Mae in conjunction with their Collateral Underwriter (CU) review process for appraisal reports. This has the ability to be abused by lenders and AMC’s. Hope you will take time to peruse this message and the podcasts.

Unfortunately, we need to get a bit deep into the weeds here so that you get a grasp on potential challenges some ‘intended users’ may have with your reports.

I just found out about this from listening to two recent Phil Crawford podcasts on his Voice of Appraisal web site.

One of the key attractions for lenders to use CU is their avoidance of loan buy-backs if a mortgage loan defaults. But to absolve a lender of buy back responsibility, the CU report ‘rating’ number must be 2.5 or lower. Remember, in CU the low number is good, and the high number (5 max) is considered to be risky.

They claim that this is a rating of the report data only pertaining to a specific property and is not a judgment of the appraiser. But human nature being what it is, a ‘high’ numerical rating probably will negatively impact the appraiser to some degree. Especially if a particular appraiser consistently submits reports that result in ratings of 3+.

Through contacts with other appraisers, Phil has learned that FNMA has established a THRESHOLD RATING NUMBER whereby a lender can avoid the buy-back responsibility under the ‘Reps and Warranties’ process when loans are sold to FNMA. That rating number is 2.5.

Aparticular AMC has issued information about this to vendor appraisers so that they know this policy is in place. The podcast has examples of this AMC’s attempt to get the rating number lower from what CU originally reported, by asking appraisers to ‘modify’ a previously submitted report.

Some of the manipulation appears to involve use of additional comparable sales (not necessarily ‘comps’) which are closer to the subject than the original comp properties. When additional properties closer to the subject are added to the report, the CU rating number magically moved lower on the scale. A report can be submitted to CU as often as any change to the report is made.

This distance issue appears, to me, to be contrary to FNMA’s explanations when they first implemented the CU. They claimed then that they were not going to place significant weight on their old distance guidelines based on Urban, Suburban and Rural subject locations, which is the way countless appraisers have been trained. When CU came out, they said “just give us the best comps based on characteristics, regardless of how far from the subject they are.” I’m now thinking they have quietly reverted to their old policy where distance is critical to obtaining a low rating number. It’s done via the “black box” algorithm FNMA uses in their CU, which they refuse to allow appraisers to fully understand.

The point of this message is to be a warning to appraisers. You might start getting ‘correction notices’ from your clients to add new properties into a report that have a ‘crow flight’ distance less than the existing comps have. The example Phil related was the AMC said “just use any property, even though it’s not a true comparable.”

Another possible way to lower the CU rating number is to change the reported Q or C number for the subject. A point made in the podcasts is some reviewers may ask appraisers to modify that number based on the reviewer’s opinion of Quality or Condition from looking at the subject photos in the report.

This can become the real challenge to, and violation of, appraiser independence, manipulating data just to appease a lender who wants to fly under the 2.5 rating number threshold any way possible.

Now that you know the background, take a listen to the Voice of the Appraisal podcasts E137 and E138 below:

E137 Chucky has a Girlfriend!!! 1/22/2017

E138 Manipulating Chucky and Alexis Craig!!! 1/28/2017

If any of you encounter this situation henceforth forward from any client, please provide the details to me. We need to know who is doing this, and what is being requested.

By Dave Towne, AGA, MAA Owner / Educator
Towne Appraisals, Mount Vernon, WA
Dave Towne in e-AppraisersDirectory.com

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Image credit flickr - Tom Woodward

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18 Responses

  1. chris says:

    And the games continue !  SAD !


  2. Jack Of All Trades says:

    I am so glad that I’m on my way out !


  3. Raymond says:

    lol……lol……what a royal joke.

    Now, can anyone tell me what ever happen to impartial, objective and unbais appraisal reports prepared without outside influence.


    • Baggins - licensed inspections only! Baggins - licensed inspections only! says:

      Let’s ask the new apprentice appraiser guy.  He’s supposedly adequately experienced to inspect alone, regardless of not having an actual license his or her self yet.  Pretty sure that cost saving options like that are not available to me as a consumer when I use any other state licensed service; plumbing, legal, electric, construction, medical, just to name a few.  But in real estate, it’s apparently just fine to put peoples largest investments in the hands of the new guys whom are not even licensed yet.  No inspection necessary will come next, and in short order, mark my words.


  4. Retired Appraiser Retired Appraiser says:

    This weeks ratings:

    Appraisers: 0

    AMCs: 10


  5. Rick Rubin says:

    Just for kicks, lets write a Definition of Market Value, per Fannie Mae? When I get some time I’ll start us off within this thread, or if someone thinks the idea is novel and wants to get a head start, we can all amend or add to it.

    From a previous post to this blog a couple weeks ago, Ive asked every Realtor Ive met with over the past several days if they know what CU entails, or is. Not one. So Im going to lower my 5% approximation of CU knowledgeable Realtors to 1%.

    Back to the definition of market value. Is it unreasonable to suggest FNMA/FHLMC change their definition of Market Value to incorporate their guidelines imposed upon the “experts in the field”?


  6. Charles Thomas says:

    Yep, they have been doing this type of manipulation for years. I continually get sent “other comps” to analyze and consider. I put their requests on a separate return comments page and include: “Additional Sales:” When the client requests “additional sales” outside of normal search parameters: Please read the 1004MC addendum for the parameters of search. The most appropriate sales have been included. To go into different “market areas”, as you have clearly requested, other than those stated, and “extending” the search can be construed as attempting to “find” a value, which would be a direct USPAP violation of “predetermined value”. You will note, the search for comparables sales does NOT include a parameter for value.

    The “SALE” you have suggested is not considered a “comparable”. It is in an entirely different market area (or state whatever is different).

    “Suggestions” of sales to utilize within the report could be construed as attempting to “find a value”. And more particularly if they are from an entity not licensed within the state, party to the transaction, or not geographically competent. You must identify the source of any party suggesting these additional “comps”. If any party is stating that a “sale” is a “comp”, they should be licensed and qualified to make value judgements in my geographic area. Yes, I talk back! I suppose I have been removed from a lot of lists for that. Let the revolution begin. Join your local coalition. If we don’t stand up for honesty and integrity, the public and this country are headed for economic turmoil again. Dodd Frank which was supposed to protect the appraiser from undue pressure has had the opposite effect. AMCs who are supposed to be a buffer between appraisers and lenders are heeding instructions and requests from the lenders, advocating for lenders and pressuring appraisers. Bring back a modern Glass-Steagal.


    • Raymond says:

      a few years ago,  a lender/amc requested that i bracket a value estimate by using another comp of their selection. They did not contest the value estimate, just sought an additional comp.  It was a poor selection because it was from a different development and higher quality, etc. I included their selection as an additional comp (that required a huge adjustment) and stated “the additional comp is presented at the request of the client, although it was not consider the most appropriated comp”. The amc/lender replied with a request to delete my comment. I’ll state it again, amc, lenders and lender interest groups control the lending appraisal process. Appraisers are to comply or they are blacklisted.  Whatever, happened to objective, unbais and impartial appraisals that are unduly influenced???


    • LDP says:

      “Talking back” is a great idea and I have been for twenty five years. I make sure I have my facts straight (guidelines, standards, zoning, etc) BEFORE I talk back as I truly wish underwriting would. On the flip side I have seen many appraisers who automatically change or add whatever their gravy train AMC requests and move along to the next batch of form filling nonsense. There is ZERO light at the end of that tunnel because the lenders require constant flow of loans to ensure profitability, AMC’s require lenders to ensure profitability. None of which are paying any retirement and or fee’s for an appraiser who “Talks back”. Sad but true – Find a great client(s) who do care and keep them happy or move along to another career because this circle will never change.


  7. Rick Rubin says:

    Quick thought. When sending in revisions to a Lender/AMC -be careful with the word “comparable”. If a Lender (or even worse, an AMC) comes back at me with “comparables” to address why I didn’t use w/in my report. First off, I have a cigarette to calm my nerves (yes, a bad habit). But after finding my inner-peace I write back and state why I did not use their suggested “SALES”. I’m very careful to avoid using the word “comparables/comps” w/in their Revision Requests. Unless they offer a true “comparable” -then I’d explain the rationale (if it already wasn’t addressed w/in the original and they missed it).

    “Sales” or “Properties” are good substitutes. Ohhh, a +1 up to Charles Thomas for the Glass-Steagal mention. I could not agree with you more sir!


  8. Rick Rubin says:

    Sorry to hi-jack this post! I see CT already addressed the comp / sale distinction. Sorry for redundant post. Good lookin out CT!


    • Charles Thomas says:

      No problem Rick, creative productive thought always appreciated.

      we’re all in this boat together.. let’s row like hell to try to get thru the next upcoming tidal wave of “regulation”..there’s got to be a peaceful beach somewhere for us.. AMCs trying to push the idea that there is a lack of appraisers… no, just a lack of appraisers who will kowtow and possibly lose their license. Like someone else said, cultivate the good clients that want a true honest opinion of value. Unfortunately the little banks and credits unions who really care about the bottom line and making good loans have been driven out or gobbled up by the “too big to fail” banks that already failed and are at it again. Glass-Steagall kept those in line who would play with retirees and investor funds and it kept our economy legit and solvent for a very long time. The repeal of Glass-Steagall opened the flood gates for those those that like to play with OUR money. Look what happened.

      I am very excited and pleased with the recent up welling of appraisers who care about our profession, speaking out and joining together to shine a light on the current problems and provide potential solutions.


  9. Wayne Courtney says:

    Dear Dave Towne, I like you very much but you are being treated like a silly chump as far as our appraisal profession is concerned. You are their stuge!


  10. Wayne Courtney says:

    Has anyone noticed the silly “icon” that is posted with any of my remarks??? Are you smart enough to know what that that is trying to say about my remarks? Please understand….


  11. Wayne Courtney says:

    Seems to be no such thing as an honest expression of your opinion. You agree or your remarks are deleted. Duh…this is beginning to be common in our world? Who are these people that know more that us?


  12. WayneCourtney says:

    So many people that I respect in the appraisal profession. I will be making a presentation to the local Board of Realtors tomorrow at 11:15. Many of these are new Realtors and seeking education…what should I tell these newbys?


  13. Tom C says:

    “CU rating number magically moved lower on the scale…”

    it seems we are no longer appraisers but magicians!



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