Dreaded FNMA Letter RE Condition Ratings

Dreaded Fannie Mae Certified Letter Regarding Condition Ratings

Certified Letter From Fannie Mae Regarding Condition Ratings

And then it happens, the moment we all know is coming – the dreaded certified letter from Fannie Mae. My door bell rings and the mailman is standing on my porch with pen in hand.  Now don’t get me wrong, we have all been warned. They have the super computer comparing all of us and if you are the outlier you’re getting notified!  If a majority of Appraisers give a specific house a certain rating and you disagree, you must be wrong – BOOM – letter.  I assume this is the case as I take the letter opener and slice through the very thick “Certified Mail” label. I remove and open the letter. Much to my dismay it does not say I have disagreed with my peers. Instead of attaching the entire letter to this article I will give you the highlights and a few quotes.  It went something like this:

Dear Appraiser: (real personal right)

Fannie Mae reviews appraisals it receives for data quality… We recently performed a review of appraisals performed by you… That review revealed certain inadequacies in the data. (I’m choking up at this point thinking OMG what the heck happened! I try my very best to do A+++ work every time. How can this be? Inadequate!!) You’re going to love this part…

In every appraisal outlined in the following addendum you rated the subject and all of the sales comparables C3. This seems highly unlikely as most neighborhoods consist of properties that vary in condition. The C3 rating is VERY SPECIFIC to the following:

Here they give me the verbatim definition of C3 with the newer note for clarity.

I seriously got a letter from Fannie Mae for selecting the comparables that best represent my subject property!!!! Did I miss a memo? Are we supposed to go find transactions that involved improvements that were in substantially better or worse condition than the subject? Is it now necessary to make substantial adjustments for condition on every report?

First and foremost, rating all of them C3 does NOT mean they are in the same condition; it only means the very ambiguous definitions provided best fit the subject or comparables. There may have been condition adjustments made on these properties but that is not addressed. The supercomputer just reads your C and Q info and generates a letter – a letter saying your comparables are TOO comparable. The letter goes on to say it is important to provide clear, accurate, and reliable information. Apparently this is done by finding comparables less like my subject?!

I did send a rebuttal to a provided e mail address. There is no name or signature on the letter (I assume a robot stuffed it in the envelope). My rebuttal explained that by reading Fannie’s definition of C3 it is actually VERY LIKELY that 80% of slightly older improvements are C3. C4 dictates “Chronological and Effective age are relatively close”. So a house built in 1980 would have an effective age of +/-35 to be a C4. I had this discussion in my last class with the instructor and after 2 days convinced him he needed to go back and relook at the work in their office. I also explained the C3 rating on all does NOT mean they are all in the same condition. If adjustments are made within the C3 parameters an explanation is given. I also disagreed that any of the C ratings are “Very specific” but that is a discussion for another time. I also asked them to have an actual human call me to discuss this further – we’ll see how that goes. Maybe the computer will call me.

So – are there any other Appraisers out there that have the same C rating on the subject and comparables? If so raise your hand. While it’s up there, wave at the mailman.

“The Appraisal Guy” has been appraising Real Estate for over 22 years and owned and operated his own company for that entire time. He has performed reports for many clients including Law firms, Municipalities, Trust companies and of course mortgage lenders. His work includes but is not limited to FHA, VA, USDA, ERC, REO and Conventional reports. He is currently contemplating his next career after this craziness.

Author requested the use of a pseudonym to avoid potential retribution.

Photo Credit flickr - Mehta12

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32 Responses

  1. Avatar Tom D says:

    i was asked to bracket a 70 year old house. duh, maybe they are all 70 years old in the neighborhood.  of course i manned up, and changed the ages slightly.  even the city doesn’t always have the ages written down.  stop complaining about doing the right appraisal.  follow the asylum’s rules.  at least i can remember when appraising was a great life choice.

    • Avatar Bryan Trenholm says:

      I thought the entire idea of UAD was to limit appraiser’s subjective opinions. It appears subjective letters will be the response from big data.

  2. Avatar Bill Johnson says:

    I have a duel platform company that I work with (AMC / Software as a Service – SAS) and within their viewable documents for the property, I’m able to see the reports generated by the CU system (limited info). As part of this system the report is given a score of between 1 to 5 with the higher number reflecting what I think is a possible higher risk loan. Although I believe I read this score will not be used to judge an appraiser, if they are going after issues as stated in this article, I’m sure its just a matter of time before we all get letters. I’ve had scores between 1 and 2 with the CU platform offering no explanation to the varying scores. If their own system judges properties to be at a higher risk (increased liability to the appraiser) then why are lenders able to have set fees in advance with TRID (zero tolerance)? The scoring matrix is of course not on display for all to review, but what do they consider? Lenders like to think complexity is related to GLA, 2+ acres, ocean front, etc., but I would bet the score being generated takes into account many issues. Is the appraiser and or property at a higher risk with lower down payments? Is the property an investor flip with recent value increases of 20% or more? Do the characteristics place the property at the top or bottom of the scale for the area? Does the property have an existing CU file that the current appraisal will be compared to? If the property does have a rating on file, could the lender access this data and provide increased fees based on past scores (complexity / increased liability / risk / scores of 1.5 or higher)? The CU scoring system needs transparency otherwise we are all just pissing in the wind.

    • Mike Ford Mike Ford says:

      Bill, I read the original FNMA patent application for CU prior to it’s implementation in January 2015. The system was designed by seven folks that did not have one active appraiser license among them thugh it appeared three had expired less than certified licenses previously.

      When  CU was first foisted on the lending and appraising world FNMA made absolute denials that the system was intended to do anything other than rate collateral risk. A 1-4 system was established where a 1 had the lowest suitability risk and 5 had the greatest risk.

      As originally used, scores over 3.5 were treated as “dead stops” by lenders, though FNMA claimed they would still accept a 4 with adequate explanation. When no lender recourse programs were established for scores of 2.5 or below, lender pressure on appraisers was greatly increased to make sure the score were kep low. This could be done by modifying data to include  one or more of the FNMA ‘suggested’ model com parables…though those com parables may have been much larger or smaller or even as old as two years prior to the effective date. Modifying certain adjustments to ‘fit’ within the so called (but non existent) “peer range” of market adjustments could also produce a lower score. ( I say non existent peer adjustments because FNMA also admitted in February 2015 that adjustments up to then had been driven by their own guidelines rather than market perceptions (See FNMA LL 02-2015).

      In completing a recent course by Richard Hagar on avoiding FNMA Fails, I learned many new iterations of FNMA have since been developed. Iterations with greatly expanded uses and measurable factors…including appraiser performance.

      Previously unknown, FNMA loans now have a 100% appraisal review rate. That’s right. Virtually ALL FNMA appraisals undergo Quality Control reviews. Most are fully automated ‘reviews’ with those considered grossly out of range referred for human review or at least screening. The reviewer has all prior appraisals performed for loans on that property (we believe since 2011 when the database was purportedly originated). They also have access to all the appraisals or at least scores for all the appraisals done by the appraiser. (From a former insider, FNMA Reviewer). While the thrust is to ‘make the loan’ for reviews conducted proximate to the loan being processed, post purchase audit reviews take on a different slant and focus altogether. THESE are the reviews that may result in forced buy backs.

      In the newer, updated CU system, if 10 other appraisers have rated a property ‘C4’ and you are at C3 (perhaps due to a recent renovation) the computer will see you as the outlier. There are also cases where the same comp has been used multiple times by the same appraiser and other people in his or her office and may be incorrectly listed as C2. You come along and competently analyze and rate it as C3. Again, YOU are the outlier and may get the letter.

      THIS is why it is absolutely critical to respond to every single one of these letters. Whether generated by computer or not, you need to push back and go on record as objecting to the alleged ‘deficiencies’ being attributed to your work.

      FNMA shouldn’t be sending such letters in the first place, without a human review, but regulators or conservators sadly have been notoriously lax when it comes to retiring GSEs act in either a professional OR competent manner where appraisals are concerned.

  3. bubba jay / Retired Appraiser II bubba jay / Retired Appraiser II says:

    i received a similar letter late last year. i tried to call and explain myself and get some clarification on a couple of items, but of course nobody was willing to do that. i guess its a lot less stressful to not talk to anyone and be a spineless worm, and sit behind a desk critiquing appraisers over nit picky stupid stuff, and send out these types of letters. the letter quickly went into the burn pile where it belonged.

    this “profession” has absolutely lost its mind. you name it – fees, AMC’s, new FHA requirements, certified letters, USCRAP, 4-year degrees, it never ends. i dont know of any other “profession” that is so mucked up.

    lets look at a licensed plumber as an example.

    after a licensed plumber gets done plumbing a new house, does he ever get a certified letter like this ^^^ in the mail? not that i am aware of.

    how about USCRAP? does he have to deal with something like that? not that i am aware of.

    how about this scenario – after he gets done plumbing a new house, does he get a revision request from (someone) that says, “10 of your peers have plumbed these similar homes differently. here are the addresses of those houses. please explain in detail why each one of those houses were plumbed differently and submit.”? not that i am aware of.

    how about this – the homeowner disagreed with the way he plumbed the house, and has filed a complaint with the state. even though the state has no clue if anything was done wrong or not, they decided to prosecute anyway because there are absolutely no consequences for them if they break their own rules/laws or for malicious prosecution. so besides paying through the nose for unnecessary legal fees, the plumber will have to pay for and take a two-day day ethics class and some other all day class that also wont be given any CE credit. does this happen?  not that i am aware of.

    how about this – we know your expenses have gone up in everything over the last 10 years mr plumber, but a third party who has almost total control of your business, has still decided again this year to continue the freeze what you can charge your customers. does this happen? not that i am aware of

    really? all this is normal to anyone?

    and we wonder why people are leaving? i know, i forgot – its because everyone is getting OLDER.

    the bleeding continues . . . . .

    • Retired Appraiser Retired Appraiser says:

      Great illustrations Bubba.  I couldn’t have said it better myself.  I’m not sure if the 89,999 appraisers who remain in the business are independently wealthy or if they self medicate to get through each day.

  4. Elizabeth Morse Rhodes on Facebook Elizabeth Morse Rhodes on Facebook says:

    Well I guess now I better not answer the door!

  5. Avatar Wayne says:

    Thanks for a great post. I was reading on the appraisers forum a comment that said “without FNMA most residential appraisers would be gone in a heartbeat”. Gee…I looked again at my general certification and all that was printed on it. NOWHERE did I see Fannie Mae! Check your license/certification….maybe they have issued yours!

    It may come as a SHOCK to some of my fellow appraisers but be aware that there is a He!! of a lot of money to be earned in the selling, building, lending, insuring, etc. of real estate. FNMA earns billions of dollars (a lot goes to our government)….FHA, VA, etc. all have a stake in this process. What would happen if ALL of the residential appraisers took a month off? We could have an extended convention in Cancun. Do you think anyone would notice? Maybe no one would pay for a silly appraiser coach, maybe no news letters, magazine subscriptions, Appraisal organizations dues, NO MONEY FOR THE AMC PARASITES!

    Oh well, a fellow can dream!

  6. Avatar Divedude says:

    Does anyone know where Donald Trump stands on Dodd/Frank, AMCs’, FNMA, open & free market, etc?  He’s obnoxious but I’d love to hear his take on the stupidity.

    • bubba jay / Retired Appraiser II bubba jay / Retired Appraiser II says:

      with almost 100% certainty, i would say the conversation would go something like this:

      Appraiser: So Donald, where do you stand on Dodd/Frank AMC’s, FNMA, open & free market, etc.?”

      Donald: “I do know a little bit about it. Who runs it?”

      Appraiser: “It was put in place by the government.”

      Donald: “Then its probably a disaster, and is being run by incompetent people.”

      . . . and as usual, he would be right.

      choose either (a) or (b):

      a. [  ] agree

      b. [  ] agree


      the bleeding continues . . . . .

  7. Avatar BC says:

    I adjust within the same rating and explain in the addendum, that while the rating may have been a C3 it was considered a lower end/or higher end C3 etc, (as the kitchen/baths cosmetics were not as updated etc) When UAD came out FNMA had langue to the effect that no 2 homes are the same and it is acceptable to have adjustments within the same rating. As long as you refer to your MLS data and verify with broker’s and the interior photos if available for the comparable’s you should be OK. I think what they are saying is “How can everything be the same all the time” Just my take on it. Good luck out there.

    • Avatar Bryan Trenholm says:

      Per the article that is what this Appraiser was doing. The computer doesn’t take into consideration your narrative.

  8. Avatar Koma says:

    And they wonder why this is happening. Per AI: 2015 actual number of appraisers in the US 78,500 with an annual decrease of 3%. An estimated 20% left the field since 2007. Broader analysis suggests the recent average annual rate of decrease could continue for the next 5-to-10 years due to retirements, fewer new people entering the appraisal profession, economic factors, government regulation, and greater use of data analysis technologies.

    No one will care until it hits the lenders in the face (wallets). The first loan that is approved without a physical appraisal is the end of our economy! Count down til retirement!

  9. Retired Appraiser Retired Appraiser says:



    1:23 to 2:33 sums it up for residential appraisers quite well.  Thank you Larry The Liquidator for your summary of the profession.

  10. Hi there! If you are currently a Total A La Mode user, our software Appraiser Genie is currently available. Our software allows you to use regression analysis, matched pairs, allocation, and extraction. We also fill out the 1004mc for you and much more. Check out the new “How To” video today and start calculating!

    • bubba jay / Retired Appraiser II bubba jay / Retired Appraiser II says:

      so, does this program actually work, or is it another hyped up piece of junk like Smart Address? always love it when you Alamode guys put out something new that doesnt have all the bugs worked out, and we are stuck many months after its release hearing nothing but excuses about why it isnt fixed yet.

      • Avatar Koma says:

        So, if I use this product then get called in front of my state board and they start asking me a ton of questions about my 1004mc data which filters into the rest of my report. Is someone from A la Mode going to be there with me? lol This is like a Desktop where my signature relies on some unknown to provide me with information I can’t verify (don’t do them anyway). Also, where are they getting the info when the local MLS can not obtain most of it and the county, by law, does not give it out to the public? And if they say our appraisals well I’ll say we have a lot of cash sales with no appraisals being completed. So, again where is the information coming from?

        NO THANKS! My signature is worth more to me than saving <15 mins of my time.

        • My state expects that your report can be replicated from your work file AND that all the conclusions and elements be supported by the data in the work file.

          I suspect workfile requirements would not find an explanation that the adjustment is based on Corelamodes new analytics program that MAY or may not have used regression, paired sales or voodoo for any specific adjustment to be adequate.

          In fairness though the retired idiot that used to be the former Head of Enforcement in my state also wrote that asking two local brokers (named with telephone numbers) their cited opinions of current market trends in a specific sub market, was inappropriate procedure and technique…so what they find acceptable or not is anybody’s guess!

          Your expectations of your state regulators should not be overly high. Almost NONE are actual peers; some aren’t even appraisers, and many like my state’s morons still think FNMA website published ‘guidelines’ are the same as USPAP requirements!

          My best guess is that the number of state regulators that are actual appraisers and that have also done a UAD report (ever) is an extremely small population.

          • Baggins Baggins says:

            One time a mother of a borrower injected herself into the process to challenge my value. Oh boy, the dude’s mother in law is on the phone telling me how she’s a senior appraiser who handles litigation work for my state and works with the regulatory office. She proceeded to pick apart the appraisal, being apparently unaware of the limitations to UAD coding, and made all these demands. I told her in the final revised report to take it up with FNMA and there was nothing I could do about the UAD coding data entry restrictions. Wonders never cease in this industry.

            • Baggs, should have turned HER into the state. She performed an appraisal review of your work AND a report-while claiming state regulatory authority? IF she really did work for state, shes not the kind of person that should. If she didn’t then misrepresenting herself as a government official is a no no in most states.

              • Baggins Baggins says:

                Sure I could have done that. Then she would have turned right back around, applied pressure again to the non licensed panel manager (which is how she got through in the first place), and I would have lost the 650 flat rate client I was enjoying at the time in the middle of the rush. This is why I continue to advocate for and float the suggestion that only actively currently licensed appraisers are qualified to manage day to day senior administrative activities of appraisal panels.They are literally the only ones an appraiser can hold accountable, which is why lenders are adverse to hiring them for that position.

                Currently I’m taking a slight haircut on every order because the panel manager is an actual appraiser.  He’s there when I need him with qualified advisement, a rare benefit which is increasingly difficult to substitute. Everyone and their mother seems to be an appraisal panel manager these days. Good luck finding one whom understands the regulatory structure in a similar capacity as a licensed individual.

                My new job venture is to become a doctoral and educational qualifications manager. Surely I could provide that service for a much lower cost. One presumes that if non qualified persons can manage qualified persons in real estate appraisal, the same would be true in other licensing based industries right?

    • Mike Ford Mike Ford says:

      Like any traditional genie, it involves finding a brass lamp and rubbing it. A computer or cyber-lanp will suffice.

      IF you have rubbed the lamp properly, a cloud of blue smoke will appear (magically!)

      All that remains is to simply contact your client and blow the blue smoke up their arse!

    • OK to be fair I watched the entire video.

      PLEASE use this method! I need the review work AND my state would likely LOVE to nail everyone that uses this garbage. I can’t think of a faster way to cut appraiser competition down from 75,000 appraisers nationally to whatever population chooses NOT to use this system.

      Don’t forget the certification disclosure and requirement to name the hundreds of appraisers (peers) whose adjustments you relied on to develop (and support) your own specific adjustments (which are an AVERAGE of PEER adjustments)…unknown if those are the same peers that populated the fatally flawed FNMA CU database but since it is corelamode offering this my guess is it is at least partially the same database.

      JUST FOR FUN WATCH the video all the way through to the 1004MC auto filler and note grid 4th to 6th month activity (42) dropping down to 4.5 and then being marked stable! There is SO much wrong with this it is hard to decide where to start.

  11. FNMA crush you FNMA crush you says:

    I often cut this joke; Skynet is now reviewing all appraisal reports. Actually, it’s not that funny anymore. Billions upon billions floating through the system, and the federal government cannot attach the name of a case worker, handler, or contact individual for these FNMA CU complaints? Apparently due process is no longer a right a privilege of American citizens, if they are real property valuators. The sooner the government stops backing international lenders interests, the better.

    Did you hear the one about FNMA selling notes to hedge funds, without the borrowers being aware?

    What about FNMA giving steep discounts to investor purchasers who evict existing mortgagee residents, but the residents are denied principal reductions?

    So don’t forget that FNMA although federally chartered, is still a private corporation. If they could have successfully fulfilled their charter, they would have a very long time ago.  Be a smart consumer, and get a mortgage loan held in house at credit union instead. FNMA sure does cast a lot of judgements on hard working appraisers, despite the fact that FNMA should have been shut down a long time ago. Get the government out of lending and watch the value of valuation professionals boost up dramatically. People care about quality valuation services, when they’re lending their own money.

    You tell me if FNMA is following their charter, given the above disclosures from the two linked articles…

  12. Avatar Josephine says:

    I just read your blog about receiving the letter from Fannie Mae. I got one exactly like that this month.

    Can I ask how did the situation turn out?

    My take is exactly like yours. Most properties ARE C3 condition based on their definition!!! Not sure what I should do differently.

    If I should go take some classes or deal with them some how, please advise.

    • Avatar Bryan says:

      I responded with a letter and called. They basically said the computer sends out the letters. I can’t believe they are still doing that! I recommend doing your best work and keep a good file. Fannie doesn’t even use appraisals on their (our since we own them) REO properties in my state so I would say we know where this is going.

      • Baggins Baggins says:

        It’s not rocket science but the UAD condition ratings exhibit parses it down quite a bit. C1 only for new. C2 only for like new recently finished or absolutely completely renovated. C3 for all reasonable updates. C4 in a logical relationship for dated units which track at notably lower pricing. C5 rarely used since lenders defied FNMA and said they will not loan on C5’s and units must have C4 to get insurability status. But you can tag in a C5 for a hud reo ripped down but still technically insurable. C6 if they have condition issues. Despite the guidance which says C6 if any subject to, it’s better to avoid auto review firing to just give it the hypothetical as if repaired C rating if you use the subject to box. Use the reports within 1 mile auto pop up feature when you’re creating a template. Then take the time to print the relevant 10 pages or so from previous reports within a mile, within 2 or 3 years, and track and somewhat mirror your adjustments and ratings. Appraisers get identified as being inconsistent if they do not refer to previous reports of similar properties within a year or so, applying notably varied adjustments. The purpose of the Collateral Underwriter remains the same although the premise will never stop being absurd, to substitute data comparisons through massive databases among the peer model and then identify who’s juggling numbers to make deals work or just being plainly inconsistent. It’s not an effective approach because the tech programmers who write and run these programs no matter how hard they try, will never have the same logical perspective regarding limited scope appraisal analysis and comp selection as a human appraiser with experience. Micro vs macro. Macro on the fnma side, micro on the appraisers side. Limited selections. Congruent approaches. Logical C ratings for matching housing per price relationships. Easy.

        Appraisers are in for a cold surprise if they trust programs like data genie and typing master or whatever to fill the forms and relevant data entry for them. If they’re not typing unique informative relevant language they might as well let someone else sign the reports as well. What is the benefit of proof reading anothers non qualified work again? I’ve always felt typing services were more like paying for a trainee to complete the report for you. The relevant question is; who’s typing it and what is their accreditation? The answer is more simple than that, plagiarism. Re applying text from other appraisers reports they submit as samples, always tricking the new subscriber into thinking the language is written by a qualified person. However, details matter. I don’t communicate with robots so if I ever get that letter, I’ll ignore it until a human becomes involved.

        • I just saw an appraisal where the subject is a C2 and all the comps are C-3, But the C3s are all adjusted from $0 to $25,000 on a $375,000 sales price.

          • Mike Ford Mike Ford says:

            …and the issue is what? C2 C3 are artificial UAD absolute ratings based on canned criteria. They often fail to reflect actual market perceptions.

            It is the appraiser’s job to reflect and adjust to actual market perceptions, regardless of FNMA or Freddie’s phony UAD rating system.

            Respectfully, (following is not directed at you)

            Its unfortunate lazy appraisers (too lazy to explain differences as well as adjustments as they are required to do) adopt this misleading jargon rather than explaining actual market-perceived differences and adjustments that go along with the magical UAD ratings.

            It is perfectly acceptable to have adjustments inside the same categorical rating (C# etc). It’s more unusual to see a -0- between a so-called C3 and C2 but it’s certainly plausible. The C2 could be perceived in the market as very good condition (& quality) whereas the comparable sale technically UAD rated lower could be in superior condition as perceived by the market (excellent condition-though much older age & better original quality or even design appeal).

            You simply said they were C2 and C3 without indicating condition, quality or both.

    • Josephine Richard Hagar offers a class through OREP WorkingRE (I think website is http://www.orep/education or similar).

      Anyway he has a great class  called “avoiding FNMA Fails”. As he says in advance, it may anger you but don’t shoot the messenger. His task in class is only toward teaching those who continue to do GSE work in surviving it.

      Eye opening and educational. Price is reasonable too. Can take it as a package deal for around $269 or $289 unless you have further discounts.

      This is not to say others classes are not as good. I haven’t seen others classes. Just Hagars.

      • Baggins Baggins says:

        STIP! The borrower is not appropriately qualified and therefore we need the appraiser to provide additional reporting to safeguard our lending position. Ooops! That message was not intended for the appraiser. The message we intended to send the appraiser is that the appraisal report is deficient and we demand these items be corrected or payment for services will be with held and complaints will be filed.

        If appraisers feel like they just can’t do the job right no matter how much effort they invest into a quality report, this is most often the case why. Unless they’re using outsourced services, then it’s probably the lack of attention to detail in the first place which is raising these auto review flags. Haggar is the king of litigation specialty, and the posters here should have been nicer to him when he submitted articles in the past.


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Dreaded FNMA Letter RE Condition Ratings

by Guest Author time to read: 3 min