Collateral Underwriter, What’s Under the Hood?

Collateral Underwriter, What’s Under the Hood?

Collateral Underwriter – Garbage In, Garbage Out (GIGO)

FNMA has a fascination for first patenting garbage, & then implementing it as policy! FNMA simply LIED! Collateral Underwriter IS an automated ‘appraisal review’ despite disclaimers. It was never intended as anything else. Read the patent application below.

Before I get into the details, I want to ask each reader to forward this to every appraiser you know. This concerns FNMA’s patent of the seriously flawed techniques and underlying support for their Collateral Underwriter (CU) Risk Rating “System”.

It’s time for appraisers to take action against the unreliable system which is unfairly hurting appraisers, and misleading consumers and taxpayers into a false sense of being protected from the next crash.

Reference: United States Patent Application Publication Obrecht et al.
Publication No.: US 2015/0302419 A1
Publication Date: Oct. 22, 2015
Inventors: Paul Obrecht of Santa Fe, NM; Adam Davis of Alexandria , VA; Alex Medinets of Washington, DC; Eric Rosenblatt of Derwood, MD; and Zachary Dawson of Washington DC.
Assignee: FANNIE MAE, Washington, DC, Application No. 14/258,512
Filed: April 22, 2014

“ABSTRACT –A system and method for appraisal adjustments scoring rates the quality of adjustments made by appraisers in their appraisals of real property. This is done by accessing a model adjustment database that is based on an automated valuation model and a peer adjustment database that is based on an aggregate of appraiser peers in the same geographic location as the subject property. A comparison is conducted for adjustments made by the appraiser to both model adjustments and peer adjustments to determine discrepancies. When a discrepancy is larger than a threshold, a message or warning may be generated. A sales pool composition database is also accessed to determine a valuation impact of the flagged adjustments given the particular set of comparable sales selected by the appraiser. After data evaluation, a rating score is calculated for the property appraisal based on the number and severity of messages and the valuation impact.”

Okay fellow appraisers, please go ahead and reread the above. It is a verbatim quote. The use of forty word sentences is even hard for ME to follow and y’all know how long winded I get!

I’ll wait right here patiently.

Okay, done?

Am I the only one that sees this as an outright violation of Federal Law? Specifically FIRREA 1989 TITLE XI, and Dodd Frank?

Isn’t “rating” the quality of our adjustments in an appraisal, an appraisal review? “Determine a valuation impact?” You mean is the appraisal conclusion credible or not. THAT is a review.

Before I go any further. NOT ONE of the “inventors” currently holds a valid appraisal license from any state or jurisdiction according to the Appraisal Subcommittees Federal Registry. NOT ONE!

There is a possible name match for Mr. Davis in a different City (Arlington) which is adjacent to Alexandria for an INACTIVE license. Mr. Dawson HAD a regular (non-certified) license from Minnesota from 2003 to August, 2010. It is not currently active.

So what we have is at best an illegal appraisal review system, invented by people that are not licensed appraisers. I say illegal because it does NOT conform to the requirements of FIRREA, Dodd Frank or USPAP. And when used by FNMA it IS being applied in Federally Regulated Transactions.

Okay, second sentence. The rating is done by looking at some kind of undefined “model adjustment” database that was in turn developed from AVMs! Wow. THAT must be reliable! Where do we find the statistical variance reliability statement (and amount) for each appraisal reviewed?

The following quote was provided by a friend:

“Page 291, Real Estate Appraisal A Critical Analysis of Theory and Practice by Paul F Went, 1956, published by Henry Hold and Company, New York.
“Various mathematical techniques have been developed for adjusting comparable market sales prices.”

“Although adjustments for differences in the timing of sales and for non-comparability are certainly necessary, it might be contended that the over refinement of mathematical adjustment techniques has frequently encouraged appraisers to lose sight of the basic principles of fixing values by reference to comparable sales. Some of the simpler and more straight-forward techniques for adjusting comparable sales recommend themselves in terms of their logic and simplicity in application.”

“Organized price data are becoming increasingly available for various sectors of the real estate market. This improvement in the quantity and quality of market data should enhance the reliability of the market comparison approach and encourage its more general application. As the knowledge of the buyers and sellers increases and as the market structure becomes more efficient, less attention need be devoted to the adjustment of market sales data. Viewing these developments as worthy objectives, the efforts of appraisal groups can be better given to the improvement of basic market data than to the continued refinement of mathematical procedures based in the last analysis upon judgment and opinion.”

After the AVM comparison, the subject appraisal is also compared with the so called “peer adjustment database” aggregated from appraisers that have performed appraisals in the same geographic area.

IF the majority of THOSE adjustments could be documented to be “market based” in accordance with the FNMA definition of market value at least one half of the system would have potential relevance. Imagine. A system that from the very outset can never be more than fifty percent accurate AT BEST!

The problem is that FNMA implemented this new system BEFORE they advised appraisers that the old ‘guidelines method’ of adjusting individual line items, net, and gross adjustments was determined to have caused many, if not most appraisers to appraise to the guidelines rather than to the market.

It’s significant that FNMA told appraisers in 2015 that they are NOT to make adjustments to old, outdated ‘guidelines’ (such as those adjustments their database is filled with).

We cannot stress enough that their “peer” database of adjustments is made up of adjustments that were made ‘to artificial FNMA guidelines’ through 2014 rather than to market perceptions.

Our work is rated against one metric that is completely unreliable (AVM), and another that is known to be seriously flawed at the outset. It is flawed to the point of being completely unreliable. It’s arguable that it should not be called or referred to as a “peer” database at all. I’m a professional. So are MY peers. MY peers have NEVER adjusted to or appraised to artificial guidelines. MY PEERS have always adjusted to market. And when market derived adjustments fell outside FNMAs whimsical guidelines, we EXPLAINED them! My peers are competent licensed or certified professionals.

Keep in mind that AVMs are ultimately regression based. ALL regression analyses have a margin of error. Or better yet their own “reliability rating”. It’s doubtful that most adequately account for even 70% of value related elements. That means the AVM “model” ONLY “accurately” accounts for $210,000 value factors of every $300,000 sale! Impact? At least $90,000, 30%, is being arbitrarily allocated to OTHER elements for each adjustment. Or arbitrarily excluded from the calculations. If there are only three adjustments to a comparative sale, each one could be inflated by $30,000, assuming all are allocated similar overage. OR one or more factors MAY have been perceived in the real market to be up to $90,000 more – though pre-programmed software has determined it to be otherwise.

Pointing out that virtually every FNMA appraisal written also had a statement of limiting conditions prohibiting its use for any other purpose would probably just be ‘piling on’ of charges.


“The Appraisal Subcommittee (ASC) of the Federal Financial Institutions Examination Council (FFIEC) was created on August 9, 1989, pursuant to Title XI of the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 (Title XI). In response to the “Savings and Loan Crisis,” Congress adopted Title XI to address the problem of unregulated persons performing incompetent and/or fraudulent appraisals for federally regulated financial institutions. Title XI’s purpose is to “provide that Federal financial and public policy interests in real estate transactions will be protected by requiring that real estate appraisals utilized in connection with federally related transactions are performed in writing, in accordance with uniform standards, by individuals whose competency has been demonstrated and whose professional conduct will be subject to effective supervision.”

I don’t see where FIRREA excludes automated appraisal reviews performed by faulty algorithms using AVMs and inapplicable databases. An appraisal review IS an appraisal.

A system that ‘rates’ the adjustment portion of an appraisal is an appraisal review system regardless of how it is named. Just as an AVM prepared by an appraiser is an “appraisal.” A system that is inherently flawed that performs automated review appraisals is one that is not ‘competent’ to the task. It is “incompetent”. Further to knowingly use such a system; and to make false claims about its reliability or applicability is fraud or at least gross negligence.

Appraisers have been told repeatedly that the Collateral Underwriter is NOT an appraisal review, and that it is NOT an automated appraisal review based on AVMs! Reading the patent abstract, THAT claim is completely false.

USPAP 2014-2015 (In effect when Collateral Underwriter was implemented)

“APPRAISAL REVIEW: the act or process of developing and communicating an opinion about the quality of another appraiser’s work that was performed as part of an appraisal or appraisal review assignment. Comment: The subject of an appraisal review assignment may be all or part of a report, workfile, or a combination of these.”

There are a series of undisclosed assumptive opinions inherent within Collateral Underwriter. The inventors’ opinions as to what is deemed applicable comparison and what an acceptable threshold is, and assumptions of applicability for their algorithm. It’s interesting that no peer review of the Collateral Underwriter process is documented in the patent application. WE were left to assume the unlicensed inventors are competent.

The input of previously low level licensees (not certified) with less than seven (7) full years’ experience who in turn are not competent to perform complex appraisals themselves, develop extremely complex appraisal review processes to review the work of those that ARE competent? No wonder a description of Collateral Underwriter had to be so carefully parsed that it could spuriously be argued to NOT be a review!

Whether it is a human being, or a programmed “process” that was developed by human beings to “rate” portions of an appraisal, rating or opining as to the quality of an appraisers work is in fact an appraisal review.

In this instance, Collateral Underwriter is a review BY incompetent (unlicensed) people. People not qualified to perform the specific appraisal reviews being conducted in bulk, using methods that are not recognized sound appraisal practices and reporting the results of that / those reviews via pre-determined generalized messages. Further, it is a ‘review’ using databases AND methods that are known to be unreliable throughout the entire profession.

Lastly, it is a review that provides a misleading result. Individual adjustments developed by the software imply a degree of accuracy that is not feasible. Therefore if the stated accuracy is not possible, why should ANY part of the conclusions be considered valid? It’s more than mere failure to round results to “market significant” numbers. It is the misuse of completely unsupported cumulative automated adjustments that are based on mathematical formulas rather than actual market perceptions of human beings that buy and sell real estate.

Any LICENSED or CERTIFIED appraiser that performed to the above ‘standards’ FNMAs system uses would lose their license.

Dodd Frank
Interim Final Rule Highlights
Federal Reserve System
Regulation Z
Truth in Lending
AGENCY: Board of Governors of the Federal Reserve System
TILA (REG. Z) established new requirements for appraisal independence for consumer credit transactions secured by the consumer’s principal dwelling. To ensure that real estate appraisals are based on the appraiser’s independent professional judgment, free of any influence or pressure that may be exerted by parties that have an interest in the transaction. (Page number 1)

Compliance date is April 1, 2011.

Part of the appraisal independence provisions are: Prohibit coercion, bribery and other similar actions designed to cause an appraiser to base the appraised value of the property on factors other than the appraiser’s independent judgment. (3)

These provisions are contained in TILA Section 129E, which applies to any consumer credit transaction that is secured by the consumer’s principal dwelling.

FNMA is a purchaser of loans secured by the appraisals they are ‘rating.’ That’s definitely an interest in the transaction. Rating adjustments and then communicating “their acceptability” based on a rating system is both an appraisal “review.” It is also both influence and pressure on an appraiser(s) when those ratings or messages are communicated to them. Whether allowed under their (FNMA) licensing agreements with lenders or not, the fact remains that SSR / Collateral Underwriter ratings and messages ARE being communicated to appraisers. These in turn cause them to believe they must either change their adjustments “to conform” to spurious “peers”, and or that they must either now use or explain why the Collateral Underwriter identified potential comparable sales have not been used. All of these things cause an appraiser to consider (or base) the appraised value on factors other than their own independent judgement.

Please see the PDF Patent Application as I received it below.

  1. Note the cover sheet and page 1 of 10 exemplary sales ‘comparison’ grids both omit unadjusted comparable sale prices. Why? Would inclusion provide visual evidence of how far off the process is?
  2. Note all ratings are pre UAD: Good, Excellent, Fair, or Y (yes), N (no). Yet this same Collateral Underwriter is used to ‘review’ or rate UAD format grading. How can an appraiser be ‘outside’ peer adjustments when FNMA’s database uses pre UAD subjective comparative property ratings that do not universally match or equate directly to current UAD absolute ratings?
  3. Sheet 1 of 10 inclusive show the order of the steps within the process. Good or bad, they are worth reviewing.
  4. Page 1 of 9 makes several statements about Comparative Sales Analysis. Several of these are either only partially true or unsupported within the document. Paragraph [0004] correctly identifies sales comparison elements but neglects the impact of the other two traditional approaches to value completely. It ignores any benefit they may have as a checks and balance against potential erroneous results from the sales approach. The paragraph summary sentence states “The resulting opinion should represent the appraiser’s professional conclusion, based on market data, logical analysis, and judgement.” NOTHING in the patent application authors’ own descriptive sentence suggests substitution or omission of ANY of these three criteria could produce a reliable result.
  5. Paragraph [0005] states the appraiser documents the facts concerning the subject and comparable sales. It makes no mention of how the ‘facts’ used in the AVM OR peer databases are verified. Or whether they ARE verified beyond the ‘fact’ that they have been accepted by FNMA.
  6. Paragraph [0006] has the appraiser calculating adjustment amounts with no mention that those “calculations” are derived from data taken from the marketplace OR identifying how that data is taken.
  7. Paragraph [0007] is where the offensive underlying suppositions start.

    “Many appraisers however tend to under adjust in their appraisals.” “Routinely select superior comparables and then fail to subtract an appropriate amount?” My favorite? “Furthermore, because appraisers routinely attempt to create the best impression of a subject property, the set of comps that they select and the adjustments that they make can create a false and inflated value.”

    Perhaps the last statement best explains why none of these ‘inventors’ have a valid appraisal license anymore. Is this stated as one of the underlying extraordinary assumptions in all Collateral Underwriter ‘reviews’?

  8. Paragraph [008] is as offensive as number 7. Appraisers inflate property values.
  9. Paragraph [0009] is the authors’ statement that

    “…there is a need for a system and method to rate the quality of the adjustments made by appraisers in their appraisals of real property. Furthermore, there is a need for a system and method for detecting and quantifying adjustment issues found in an appraisal.”

    If ONLY someone had told the inventors about FIELD REVIEW APPRAISALS! What’s really surprising is that old timers at FNMA used to know what field review appraisals were for.

  10. Paragraph [0010] admits the system is not merely a generalized rating to identify heightened risk, but is rather a system and method of “evaluating risk in the adjustment of the comps in real estate appraisal.”

    “Using algorithmic modeling various embodiments evaluate appraisers claims against industry standards, model predictions, and geographic information service (GIS) analysis, etc. Various embodiments detect erroneous adjustments because they are both materially different from a model estimate and materially different than those made by the majority of appraisers in the same area.”

    I am outraged by both the above assumptions, and logic behind the conclusion that being different than a majority of appraisers in a given area equates to being in error! Twenty low paid AMC FNMA appraisers do cursory work with rote “safe” adjustments and then a COMPETENT and HONEST appraiser comes along and finally does a decent job of extracting real market data and THAT is the one that is identified as having “erroneous data” or adjustments! When FNMA is notified of this and the ‘suspected evil appraiser’ proves his adjustments, does FNMA then go back and correct the database or do they leave the erroneous data there for repeated use? Do they then pull the 20 loans that were purchased based on the bad rote appraisals and make the originators buy them back?

  11. Paragraphs [0011] and [0012] are equally offensive. Paragraph [0011] introduces the comparable sales pool. Paragraph [0012] identifies the invented application as being able to be “embodied” in a variety of diverse unidentified business processes, computer implemented methods, computer program products, computer systems and networks, user interfaces, application programming interfaces, and the like.
  12. Pages 2 through 7 of 10 give more details concerning the first set of illustrations about the process.

The Uniform Standards of Professional Appraisal Practice, or USPAP, provides for mass appraisal standards to govern the use of hedonic regressions and other automated valuation models when used for real estate appraisal. Appraisal methodology treats the hedonic regression as essentially a statistically robust form of the sales comparison approach.[5] Hedonic models are commonly used in tax assessment, litigation, academic studies, and other mass appraisal projects.

The FNMA Collateral Underwriter system purports to accurately analyze value differences in site area. In order to do so credibly, it would also have to ‘know’, determine, or consider the total site value. The same holds true for depreciated value of living area, as SF or rooms. IF these are known, why doesn’t the ‘process’ also calculate and report the replacement cost? Certainly ‘Big Data’ has access to Marshal and Swift, Means Residential Cost Estimator, and or

A review that does not even cross check the validity of its results with another traditionally accepted appraisal technique is not well supported. Is the concern that the vaunted process results would be contradictory if subjected to multiple appraisal techniques?

It’s true that in residential appraising there is often not enough available data to adequately develop an income approach using gross multipliers. FNMA on the other hand processes hundreds of thousands of transactions where rent surveys and gross multipliers have been determined for property all across the country. If the patented Collateral Underwriter process is so reliable, why can it not also be cross checked using the Income Approach as applied to small residential properties?

FNMA’s policies and processes exemplify circular thinking that undermines the validity of real estate appraisal itself. And diminishes the trust that Americans have or will have in the appraisal of real estate.

FNMA decided it would not always require a Cost Approach to be completed, accepting the premise that depreciation from all causes in older improvements is ‘difficult’ to determine by individual appraisers. THIS policy was not updated with the development of their Collateral Underwriter process huge databases. Neither was inclusion of the income approach.

In short, FNMA has developed a system or process of comparative line item valuations based on:

  1. AVMs,
  2. flawed ‘peer’ databases and
  3. a process that ONLY considers ONE of the THREE traditional approaches to value!

How does THAT process meet the requirements of FIRREA?

I urge those with particular expertise in developing regression models to analyze this process and offer their opinions.

I’m not such an expert, but I HAVE read the fable about The Emperor’s New Clothes!

Michael Ford
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Michael Ford

Michael Ford

Over 28 years appraising all property types and interests, in Southern California real estate. VP/Chairman National Appraiser Peer Review Committee, American Guild of Appraisers, #44OPEIU/AFL-CIO. - Michael Ford on e-AppraisersDirectory

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16 Responses

  1. Avatar Tom D says:

    the ones in charge get to determine the size of the whip they use.  we only get to enjoy the “beating”.  nice job mike, but i don’t think the normal person would get past the 1st paragraph.  my head started hurting a little into the details, i think that a typical jury would be glassy eyed after about 1 hour.  guess that only leads to one conclusion, smile while they beat you.  maybe we will all get angry enough one day, maybe mike.

    • Mike Ford Mike Ford says:

      It IS a wee bit lengthy and topically way out ‘in the woods’, but it is something that affects every single residential appraiser in the country, doing work for FNMA. MY head hurt reading an analyzing the patent too. All I can ask is that it be forwarded to all the appraisers you know with a request to bite the bullet and read it all.

      THEN we need to decide what to do about it! Maybe a Qui Tem suit by one of those experienced in them. FNMA has used this system for BILLIONS of dollars in loans and then made representations to Wall Street about the quality of the securities being bundled for sale to them, have they not?

      Any other ideas? Anyone?

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

    ooooooooooh, they violated federal law. whoopie doo Mike. the individual states and feds violate their own laws all the time. i can provide in detail, first-hand knowledge and a great example, of our own state appraisal regulators violating their own law right now.

    laws are made to govern the minions. the government is exempt and rarely held accountable for breaking their own laws. Hillary is a great example of that.

    (DOH!  did i just say that out loud?)  🙂

    definition of minion: A minion is nothing more than a yes-man, a nameless faceless servant. It is a negative term implying that your only importance is from the person who orders you around. Corporate presidents may have minions to do their dirty work such as firing employees who have made a mistake. If a celebrity comes to town, minions will come ahead of time to make sure that everything is to the celebrity’s liking.

    sounds VERY familiar.

    the bleeding continues . . . . .

    • Mike Ford, AGA, GAA, RAA Mike Ford, AGA, GAA, RAA says:

      Lol! Bubba, per our discussion, please read it over carefully with a very critical eye. Its one thing for ME to think they have violated law; its another for others to think the same thing. If there is a consensus, then the next step will be to submit this to the state coalitions and potentially friendly attorneys for their opinions.

      Originally I thought we could initiate a Qui Tam suit, but in studying the criteria for that, it doesn’t seem applicable to this. This seems more like SECCs equivalent type of case. The “harm” to the public is added bailout exposure the bundling of loans where collateral risk (and value) has been based on or affected by this system. The ‘fraud’ (if any) would likely be overstating the value and under stating risk associated with loans processed using this system.

      Potential options are:

      Suit for punitive damages; THAT would necessarily be HUGE considering the volume of loans FNMA packages for sale to investors.

      Suit to enforce compliance with FIRREA and USPAP; Cease and desist with respect to the patented CU system.

      Seek settlement so that CU would be made fully available to appraisers BEFORE their work is submitted to clients so that they could identify and address any ‘discrepancies’ BEFORE reports are submitted and USPAP “violations” occur.

      Seek federal administrative or legislative redress either through ASC; FFIEC and or CFPB or Congress.

      I’d like to see a few more views and opinions from other appraisers and then possibly forward links to this article to each of the state coalitions in the country for their views and suggestions / support in developing a unified plan to address this.

  3. Avatar KenQ says:

    Mike, your article is being discussed on Facebook, in a private appraisers group. I thought I should share this post with you. I’m not going to share the appraiser’s name, but you should check the group at

    1 – Here is the main problem that has this writer up in arms. Per Uspap Standard 3, only appraisers should be reviewing other appraisers for substantial factors such as quality of work and reasonableness of value conclusions. This is NOT happening with CU, which, according to this patent application, generates “a rating score […] for the property appraisal based on the number and severity of messages and the valuation impact.” 
    Fannie has long claimed that the CU was never meant to replace human appraisers, yet that is exactly what is happening every business day. Fannie does have some human staff review appraisers who presumably supplement CU with technical reviews and serve on their “review panels/management committees.” But the vast majority of daily appraisal work is funneled through CU with no human input as required by USPAP when the substantive quality of an appraisal is being evaluated. What’s the mix of automation and human review? Do they have local competency? How qualified and experienced are they? How are appeals handled?
    At this point, it is reasonable to ask, is Fannie even required to comply with USPAP? We appraisers tend to think the answer is an obvious and resounding ‘yes’ because Fannie engages in federally-related transactions every day. But is this true from a legal standpoint? Its actually a murky question; even the AI isn’t so sure. Link here…/AI…
    I haven’t found legal documentation to conclusively say Fannie itself must comply with USPAP, although I think we’d all agree that, at minimum, Fannie is an appraisal client who requires USPAP compliance for its transactional purposes. This much is clearly stated on their web site: “Lenders (or their agents) [must] use appraisers that are state-licensed or state-certified (in accordance with the provisions of Title XI of FIRREA and all applicable state laws.” And certainly Fannie’s human review appraisers must comply with USPAP as a condition of retaining their appraisal licenses (regardless of who they work for). 
    Yet CU is obviously not human and it is apparently performing appraisal review work without a license. Now Fannie wants to patent its system to do just that. Such a situation would be a violation of various federal laws, including the FIRREA Title X of 1989 which states, “Title XI’s purpose is to provide that Federal financial and public policy interests in real estate transactions will be protected by requiring that real estate appraisals utilized in connection with federally related transactions are performed in writing, in accordance with uniform standards, by individuals whose competency has been demonstrated and whose professional conduct will be subject to effective supervision,” Perhaps I should add here another thing that seems obvious to us appraisers but which may not be so to non-appraisers, namely that Appraisal Review Is An Appraisal, too!
    2- There are other concerns, too. The writer is inflamed over the reality that our livelihoods are at risk because we are being judged and juried by a secret computer system that we are not allowed to even view, let alone independently validate the methods, data, statistical models or assumptions by which our work is being deemed good or poor. These complaints aren’t new, of course, but the inherent unfairness of this reality isn’t lessoned by the mere passage of time since its inception.
    3 – None of this even touches what has long been my biggest concern about CU, which is the dubious legality of culling confidential appraiser-created data without permission from either appraisers (USPAP scope of work rule) or our clients.

    • Ken, first off thank you for taking the time to review it so carefully (sincerely). So many valid observations that stand on their own merit, I don’t need to try to add to them. The ONE comment I would add to is the ‘cant find any document saying FNMA is required to comply with USPAP.’

      1. FNMA is a regulated GSE under conservatorship because of how poorly they operated prior to TARP and how the Federal Regulators have an ongoing concern that they will or could again become the cause of further economic instability.

      2. FIRREA is pretty clear that transactions intended for use by and in federally regulated transactions are required to comply with USPAP. When you think about it, ALL clients in federally regulated transactions must comply with USPAP. Being our client does not excuse them from that.

      Lastly, not only have they ILLEGALLY culled and compiled OUR collective appraisal data, it appears that they are using it for unintended and unauthorized purposes in a manner that is misleading.


    • Avatar bill johnson says:

      Ken, I would ask you to review my comments/situation below and see what you think.

  4. Avatar Bill Johnson says:

    As it relates to the Collateral Underwriter (CU) platform let me give the readers on this site a real world example.  

    I have a client who under their documents section provides a copy of what they call UCDP SSR (from FNM) for all completed appraisals (hundreds of assignments). Although generally two pages long, the information contained is scary and results in a guilty verdict with no way to appeal. I should know as I devoted a few days to try and voice my concern and appeal the findings but the system appears closed (They don’t want to hear from us).

    My latest appraisal contained the following information.

    (1) The Collateral underwriter Risk Score is 3.8 on a scale of 1 to 5 where 5 indicates highest potential collateral risk. A score of 999 indicates no Collateral underwriter Risk Score available.

    (2) There is a heightened risk of appraisal quality issues.

    (3) The location rating for comparable #2 is materially different than what has been reported by other appraisers.

    (4) The appraiser-provided comparables are materially different than the model-selected comparables.

    (5) At least one of the “subject to” boxes is checked. The lender must obtain a certificate of completion, stating the nature of the “subject to” issue has been resolved before loan delivery.
    (1) As it relates to providing the lender a risk score of 3.8 out of 5, how does the government or the lender interpret this? Will I be subjected to additional government scrutiny or receive a letter in the mail? Will the lender use this score to determine future assignments? Again, no such appeal process is in place for the appraiser to disagree with or dispute.

    (2) Why am I guilty of heightened appraisal quality issues? Will this label stick with the lender thus denying me future appraisal opportunities (no way to appeal)? The CU system does not have the ability to read my comments but yet has determined the quality of my report.  If quality was determined solely on the sales comparison approach grid section and there monitored categories, then again how is my score being calculated and do I have the ability to disagree? This assignment is a cookie cutter property where ALL aspects of the subject are bracketed, gross adjustments are less than 8%, net adjustments are less than 7%, 3 closed sales are within 90 days, one comp is on the same street, and my 2 pending listings have now closed escrow supporting my original conclusions. Where are the quality issues?

    (3) What appeal process is there for the appraiser to reinforce his conclusions on indicating a comparable sale has an adverse location? The system does not read my statements concerning location, but assumes I’m the guilty party based on other appraisers. I would love to provide them the proof that I lived on this busy road for 8 years and have a full understanding of the daily happenings. I would love to show them the backed up traffic in the morning for blocks as the double yellow line road feeds into a stop light that takes way to long. I would love to walk them to the elementary school 1 block away from the comp. Again, I’m guilty.

    (4) Although the document in question does not provide me with the 20 comparables that the CU supposedly provides the lender, an additional document titled “Underwriter Assist” is 5 pages long and does have a section called Supplemental Sales Data where 5 comps are provided for comparison.  Although technically some are closer in proximity, their characteristics are inferior (4 out of 5 have inferior bedrooms) and 3 if adjusted out support my conclusions. The other 2 comps have sales prices 25% lower than the subject’s contract price while noting the subject was only on the market for 13 days.  Again, how does this data get interpreted by my lender client (I use materially different comps / wrong comps) and will this impact my opportunities for future work?

    Although I may be in the unusual circumstance to monitor my performance, all of the readers here should know they are being judged without the ability to appeal.

    • Avatar Tom D says:

      ehh, 3.8.  you better learn another trade.  if you get some more higher cu ratings fannie can put you on a watch list.  that means every appraisal you do has to be looked at.  what amc/lender is going to go thru that.  if this is the only one then don’t worry.  there is nothing you can do, well you could do fha for now.  ti’s pretty nerve racking to get that rating just once.  then again nothing may happen, except you will get bad nerves.  try to figure the system, write to the system.  resistance is futile. much thanks for sharing.

      • Avatar bill johnson says:

        I would ask you Tom, do you have access to this information on the reports that you complete (UCDP SSR (from FNM)? Heck, I will ask anyone who posts here if they have access to this information? Unless you can review this information as I can, then I would hold your thoughts as to whether or not I should find a new trade. With KNOWN flawed collected data, limitations on the ability of the system (does not read comments) and NO ability to dispute the findings, WE should all be worried about how the CU system rates our work. Again, this was a cookie cutter property with a comp on the same street (required a single adj.) What rating are you receiving Tom on those complex assignments? What is the lenders risk score when we take those assignments that don’t easily fit into the AMC’s or lenders checkboxes? If the point of the article was to indicate the CU platform should done away with, changed, or opened up for appraisers eyes, then I would say changes need to be done ASAP to lesson the unfounded exposure and liability that WE ARE ALL CURRENTLY UNDER.

    • Bill, outstanding observations.

      By the way, ALL APPRAISERS  SHOULD TAKE THE FNMA CU course. NOT just the ones for appraisers, but the actual lender courses. You ARE allowed to do so. Sign up with your email address; and state how long you have been “in the mortgage industry” (I’ve been ‘in” it for over 30 years; first as an agent then as an appraiser; and even as a consultant).
      User Interface Basic Training- CU

      If link does not work its under the FNMA site under eLearning courses (CU has basic and advanced)

      Bill, THIS course will answer all the questions you have; EXCEPT WHY the AMCs are not obeying their license agreement with FNMA for use of CU. BTW-I don’t know of ANY lender that is obeying the license agreement.

      FNMA states that even a 4.0 or a 5.0 can still have the loan purchased as long as the CU concerns are adequately addressed but LENDERS read this to mean “just to be safe, we are not going to fund anything with a CU score over 3.5. They are deathly afraid of post purchase audits (PPAs).

      When I took the course, FNMA had 21 canned messages of which 17 apply to appraisal. NOT ONE of these is allowed to be transmitted by the lender to the appraiser under the CU license agreement. The issues they deal with are supposed to be researched and then paraphrased if contact with the appraiser is required.

      FNMAs “alternate comps” are NOTHING MORE THAN all sales within 2 or 3 years within the same census tract area. Period. THAT parameter can be over ridden by the lender-licensee to search a broader area; for example a radius that THEY determine. It has NOTHING to do with the defined neighborhood or competitive market area identified by the appraiser.

      The license agreement PROHIBITS licensees (lenders) from merely sending us a list of comps and telling us to explain why they were not used. The lender is instead REQUIRED to  (1) review and determine if they are even relevant FIRST; and to then (2) If determined to be relevant whether they would have had an impact on value IF used; and (3) ONLY  THEN the licensee is to communicate the specific reasons they APPEAR to be more relevant to the appraiser and ask for further explanations.

      That is how FNMA CLAIMS the system works.

      In practice they simply send the FULLY AUTOMATED SSR to the to the lender/AMC through the portal who may or may not also have been provided with the actual CU results from the lender. You get a copy and paste inquiry to explain why you didn’t use these 5 to 20 “better comps”.

      The banks are NOT paying AMCs additional money to ‘review’ the file to see if these issues were addressed in advance by the appraiser (as required by FNMA). THEY have already paid the AMC their one size fits all gross fee of $495 to $550; taken their $50 to $75 kick back for using that AMC and the AMC has an additional direct overhead of $100+ leaving only $345 to $400 for the appraiser and any “review”. THAT is assuming the AMC is not interested in ALSO having something that’s called “profit.”

      THERE IS NO MONEY in the contract for USPAP compliant appraisal review! NONE. (I know this from personal experience) the AMC is EXPECTED to eat the costs of any review! Like THAT is going to happen!

      …and yes Bill, eventually FNMA WILL expand the CU UCDP system to flag appraisers with ‘too many’ high scores and monitor or disbar them.

      By the time a qualified, trained human being is involved, you have already been fatally stabbed to death. Rest In Peace!

      or join the AGA and FIGHT this bullshit!

  5. Bill, and others: I DO have access to both the CU and SSRs through a “friendly” AMC. I’m not just speculating. THEY were never supposed to get the CU score documents either, but that’s how the business actually works between lender and AMC.

    While you cannot write FNMA direct about a high CU, you CAN write them about a lender and or AMC that violates the license agreement. It is THAT lender that is supposed to request an over ride to the CU for adequately explained exceptions.

    But, even then the CU score remains the same. Six months after loan closing FNMA MAY come back to the lender and require them to repurchase the loan OR renegotiate the discount (loan origination) fee.

    Folks, THIS is why I ask you to join me. (1); I’m getting to a  point where I need the help logistically. OPEIU can get our foot in doors and lobbying help but it can’t analyze appraisal policies for us. THAT requires trained appraisers (us) doing it, as members (2) Too often ‘humorists’ among us negate the impact of serious problems, or refute serious issues merely for the sake of a funny post; OR (3) NON appraiser are posting DEFENDING the acts of bad AMCs and  regulators.

  6. Baggins jr jr jr Baggins jr jr jr says:

    Another great article.  Great job.  These are difficult conversation points to detail, when borrowers inquire about the appraisal process, or ask why the report was written the way it was.  I simplify the issue by stating;  The government has a massive AI system in place much like Skynet.  A T2 literally reviews all appraisal reports these days.  Just be patient, and I’ll do my best to get a compliant report together.  The thing is I cannot predict when they’ll slow down the process or not.  With some companies you simply can never do it right the first time, when it comes to appraisal development.  There are too many illogical correlative factors being looked at, that it’s literally impossible for all of them to ideally line up every single time. / My comments to appraisers whom are reviewing this issue;  Underwriters are drones whom don’t even bother to open pdf’s anymore.  And they are getting paid more than ever.  If you’re cool with a 20 report review an hour xml based review quota, you too can bounce to underwriting for higher pay.  It would be very illustrating for appraisers to see some screen shots of what underwriters utilize in their ‘report quality reviews’ these days.  It’s just a loose set of correlative data points.  I could detail the irony and inconsistency of this data correlation approach, but if you’re a practicing appraiser you’ve surely hit the wall with these issues at one point recently or another. You can never do it right the first time. /  So how do I find solutions to these challenging issues?  I pdf print my original pages, and scan them into the report.  Then I adjust all reporting, expand the scope of research, and make statements my independent research is presented in the redundant scan in original reporting pages, and I have only made these changes by demand of the underwriter, so that I will not be denied payment for my professional efforts.  Sad but true, that’s appraising with Skynet these days. My MC xml reads one thing, and my independent analysis scanned in original MC in reads another. For whatever FNMA said about appraising to market, and not appraising to form, the XML review protocol absolutely does force appraising to form, and completely denies the principals of appraising to market. If you are the review appraiser you get pass on UCDP correlation, and your data is treated like corrective data. But if you’re the origination appraiser, your conclusions are suddenly in question based on ‘peer standard’. I guess review appraisers must be more competent than origination appraisers. Don’t worry though, these low rates will result in much less lending activity in the future, and this little experimental ucdp effort will fall flat on it’s face. “Appraisers don’t make the market data, we merely report on it.” I guess with XML UCDP style review, if there is not a sale in 90 days in a rising market, there cannot be a valid appraisal report to back any new sale which may come through. My suspicion is this whole thing is working towards the next big bubble bust deal. These big shots were so wildly successful during the last pop, they can’t wait to blow the whole thing up again. This time around with UCDP backing, they’re hoping to not deal with as many repurchases from those unsuspecting investors. Anything going through FNMA should be downgraded to junk. The “FNMA mortgage shell game” continues on.

    • The Facebook forum would label you as a conspiracy nut right behind mine for being the author of this ridiculous drivel.

      Then again, THAT is from somebody that been certified for all of four years; and someone else with a name that sounds the same as the former owner of ACI. If so, he MAY be a tad upset and biased after the Conflict of Interest article I wrote. I consider the sources.


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