UAD is Data Mining Nothing More
This article was published in the September 2011 issue of the IllinoisAppraiser Newsletter
Blue Pill – Red Pill
If you’re reading this on September 1st, you’re probably sitting in front of an unfamiliar drop-down menu on your appraisal software or frantically thumbing through Appendix D looking for an answer that isn’t there.
Today is D-Day. Actually, UAD-Day.
While Fannie Mae and Freddie Mac slide another deck chair over to catch a better view of the ice berg they’ve already hit three years ago, appraisers around the country are wrestling with Fannie & Freddie’s latest contribution to mind-numbing, muddled, mortgage malaise; the UAD.
This is blue pill/red pill time—ala The Matrix.
If you haven’t taken a UAD class from one of our providers and you’re preparing to write your first UAD appraisal report… then believe whatever you want to believe.
The Rabbit-Hole ala Red Pill—
The Federal Finance Housing Agency has received letters from the Appraisal Standards Board (ASB) as well as from the Association of Appraiser Regulatory Officials (AARO) outlining the obvious and short-sighted pitfalls of the UAD.
In spite of those warnings, the UAD is a go. Except for FHA who has pushed it off until after New Year’s.
I still have my old Fannie Mae Focus Appraisal Guide from 1988. It’s a little dog-eared but in pretty good shape. I’d rate it a C4 (start getting used to it). It had 68 pages and covered what was important at the time.
I was looking to see if Fannie had written something like, “…for Pete’s sake, will you appraisers start giving us MORE descriptive details on quality and condition? Quit writing words like average and good because those words don’t tell us anything meaningful! Sheesh!”
Here’s what Fannie wrote back in 1988:
“Our appraisal report forms provide a summary of principal factors about the improvements that have a bearing on the value and marketability of the subject property. These factors are rated to indicate how the subject property compares to competing properties in the general market area. The same ratings that were used in Section 404.09 to summarize the neighborhood analysis — good, average, fair, and poor — must be used to summarize the improvement analysis.”
So, we weren’t crazy after all. The four descriptors we all grew up with, were precisely what Fannie insisted that we use.
The reason I point out this little fun fact is that Fannie & Freddie would have us believe that appraisers somehow dreamed up these non-descript descriptors on their own and have been going rogue ever since.
This whole UAD thing had all the planning of a last minute surprise party where the guests aren’t even sure where the party will be held.
Already, software is crashing and sweeping away already populated pick lists. Some software vendors have lost direction and are putting in things that have nothing to do with UAD requirements.
Some AMCs are insisting that appraisers should be prepared to convert pre-September appraisals into UAD compliant formats when called upon to do so after September begins.
Data mining. Nothing more.
We also need to recognize that nobody is truly ready for this. Not the appraisers, the banks, the real estate brokers or agents, the software vendors, or more importantly… consumers.
Fannie has lost $104.8 billion so far. If it had been a corporate bankruptcy it would’ve been #3 historically, behind WAMU and ahead of GM. Estimates put both of the GSE’s losses at between $220 and $365 billion by 2013.
You’d think that with track records like this, the two of them would’ve thought this UAD project through a wee bit more. A more thoughtful roll-out. Re-engineer the forms along with creating the UAD. Invite the ASB, state regulators, and appraisers to contribute. Inform the public. You know…the customers who need to understand it. Beta test it. See what works and what doesn’t.
But alas, here we are in the land of “if it don’t fit; force it…now!”
Good luck Fannie & Freddie. Something tells me that it’ll all work out exactly the way it’s supposed to.