The Illogical Reality of Mortgage Appraisal Reviews 

Reforming the Appraisal Review Process: The Illogical Reality of Mortgage Appraisal Reviews

Reforming the appraisal review process is essential to maintaining the integrity of the real estate market and protecting consumers and homeowners. 

In mortgage financing, the appraisal process is often seen as the foundation of accurate property valuation and market stability. However, beneath this façade of reliability lies a troubling rift: while real estate appraisers must navigate stringent licensing protocols and scrutiny, the individuals reviewing the appraisals often operate with minimal oversight, instead leaning heavily on automated systems and algorithms. This stark disparity not only undermines the credibility of the review process but also revives the threat of past missteps, once again jeopardizing the integrity of the entire real estate market.

The Appraisal Process: A Licensed Affair

A licensed or certified appraiser plays a critical role in the mortgage process. They are the only independent and objective party in real estate transactions, which is widely recognized as a consumer benefit. When a mortgage is being processed, the property in question needs to be appraised by a professional who is licensed or certified in the state where the property is located. This requirement ensures that the appraiser has a thorough understanding of the local market conditions, regulatory environment, and any state-specific or local factors that could influence property values. The appraiser conducts a detailed analysis, considering factors such as the property’s condition, location, and comparable sales in the area, to arrive at an accurate valuation.

Becoming a licensed or certified appraiser involves rigorous and extensive preparation. Aspiring appraisers must complete hundreds of hours of specific coursework approved by the Appraisal Qualifications Board (AQB), covering topics such as real estate principles, appraisal procedures, market analysis, and much more.

In addition to formal education, prospective appraisers must gain practical experience through supervised training. This apprenticeship-like phase requires candidates to work under the supervision of a certified appraiser, allowing them to apply their theoretical knowledge in real-world scenarios. The amount of experience required varies by certification level and from state to state but generally ranges from 1,000 to 3,000 hours over a period of at least six months to two years.

Continued professional development is also a key component of maintaining licensure. Appraisers are required to complete ongoing education to stay current with changes in laws, regulations, and appraisal practices. This commitment to continuous learning helps appraisers maintain high standards of practice and adapt to evolving market conditions.

This extensive training and ongoing education ensures that only qualified individuals can perform appraisals, thereby maintaining the integrity and reliability of the mortgage process.

The Appraisal Review: A Flawed System

Once the appraisal is completed, it is reviewed to ensure accuracy and compliance with lending standards. Herein lies the crux of the issue: the person or system reviewing the appraisal is not bound by the same stringent licensing or certification requirements as the appraiser. Despite the rigorous standards imposed on appraisers, the appraisal review process is not regulated in the same way. Instead, many lenders rely on automated valuation models (AVMs) and tools such as Fannie Mae’s Collateral Underwriter (CU) to assess the accuracy of appraisals. This reliance on automation introduces several layers of complexity and potential inaccuracy into the system.

Licensed and certified appraisers are required to adhere to the Uniform Standards of Professional Appraisal Practice (USPAP), which mandates rigorous standards for competence and ethics. These standards ensure that appraisers perform their duties with a high level of professionalism and objectivity, whether they are conducting the initial appraisal or a review.

In contrast, appraisal reviewers in the mortgage industry are often not licensed or certified appraisers. Consequently, they are not held to the same ethical and competency standards as those outlined in USPAP. Furthermore, the appraisal reviewer is often located in a different state from where the appraisal was conducted. This lack of standardized oversight means that reviews may not be conducted with the same level of diligence and expertise, potentially compromising the integrity of the appraisal process.

FNMA Collateral Underwriter


Collateral Underwriter (CU): Automation Over Expertise

Collateral Underwriter is an automated system designed to evaluate appraisal reports by comparing them against a vast database of property data. CU uses algorithms to identify discrepancies, flagging potential errors or inconsistencies. While such technology can be beneficial for quickly identifying outliers, it lacks the nuanced understanding that a human reviewer with local market knowledge can provide.

Automated systems like CU are limited by their reliance on historical data and comparable sales, which may not always capture the unique characteristics of individual properties or the dynamic nature of certain markets. This overreliance on data can lead to significant inaccuracies, particularly in cases where local insights and professional judgment are crucial.

Collateral Underwriter comparables

Fannie Mae’s Financial Interest and Conflict of Interest Issues

Adding another layer of complexity to this situation is the role of Fannie Mae. As a major buyer of mortgage loans, Fannie Mae has a significant financial interest in the transactions they review. This presents potential conflict of interest issues, as the organization ultimately benefits from ensuring that loans meet its purchasing criteria.

Fannie Mae is a private, for-profit, shareholder-owned corporation that operates as a government-sponsored enterprise (GSE) and whose stated mission is to expand the availability of affordable housing. It achieves this by purchasing mortgages from lenders, thereby providing liquidity to the mortgage market. By holding these loans in its portfolio or packaging them into mortgage-backed securities (MBS), Fannie Mae plays a crucial role in maintaining the flow of capital in the housing finance system.

However, this dual role as both a purchaser of loans and an overseer of the appraisal review process creates a potential conflict of interest. On one hand, Fannie Mae is expected to ensure that the loans it acquires are based on accurate and fair appraisals. On the other hand, its financial interest in acquiring as many qualifying loans as possible might influence the rigor and objectivity of the appraisal review process.

The Risk of Biased Appraisal Reviews

The use of Collateral Underwriter (CU) by Fannie Mae to review appraisals introduces a potential bias. CU is designed to assess the quality and accuracy of appraisals by comparing them against a comprehensive database of property data. While this automated system can identify discrepancies and outliers efficiently, it is not immune to the influence of Fannie Mae’s purchasing objectives.

If CU is calibrated or utilized in a manner that favors the approval of loans that meet Fannie Mae’s purchasing criteria, it could lead to biased reviews. This means that appraisals might be more likely to be approved even if they contain errors or overestimate property value, as long as the overall loan package aligns with Fannie Mae’s acquisition goals. This potential bias compromises the integrity of the appraisal process and can have broader implications for the real estate market.

Here are some example messages from Fannie Mae’s job aid for Collateral Underwriter that illustrate how reviewers might be influenced:

“In this example, CU found many other comparable sales that were ranked higher than the appraiser-provided comparables, meaning the model found alternatives that required fewer adjustments than the appraiser comparables. Many of these model comparables have favorable rankings as they are similar to the subject in terms of physical characteristics, and are closer in proximity than the appraiser-provided comparables.”

“CU has identified comparable sales that may be more similar in geographical location than those relied on by the appraiser. Ensure that the appraiser has relied on comparables with a similar geographical location”

“The lender might consider whether the model-selected comparables present persuasive evidence for a different value conclusion. If so, then the lender may want to ask the appraiser to consider whether these sales should have been included in the appraisal report”

Implications of the Current System

The disparity between the licensing requirements for appraisers and the lack thereof for reviewers, coupled with the heavy reliance on automated systems and potential conflicts of interest, has several troubling implications:

  1. Inadequate Local Knowledge: Automated systems and non-licensed reviewers may lack the local expertise needed to accurately value properties. They might miss critical factors like neighborhood trends, local economic conditions, and specific property features that can significantly impact value.
  2. Data Dependence: While AVMs and CU are powerful tools, their effectiveness is limited by the quality and relevance of the data they use. They might struggle with unique properties or those in rapidly evolving markets, leading to potentially inaccurate valuations.
  3. Quality Control Issues: Without the requirement for reviewers to be licensed appraisers, there is a lack of accountability and oversight in the review process. This can result in overlooked errors, diminishing the overall reliability of the appraisal.
  4. Market Stability: Inaccurate appraisals can lead to inflated or deflated property values, affecting consumers and lenders. For lenders, this means a higher risk of financial loss or missed lending opportunities, which can have broader implications for the real estate market.
  5. Conflict of Interest: Fannie Mae’s financial stake in the loans it reviews could lead to biased appraisal reviews that favor approvals, potentially undermining the objectivity and fairness of the process.

A Call for Consistency

To address these issues, it is essential to establish standards for both appraisers and appraisal reviewers. Just as appraisers must be licensed or certified in the state where the property is located, reviewers should also be required to have similar qualifications. This would ensure that all aspects of the appraisal process are conducted by professionals with the necessary expertise and local knowledge.

Moreover, while tools like CU can aid the review process, they should complement, not replace, human judgment. A hybrid approach that leverages both local expertise and automated systems would provide a more robust and reliable appraisal review process.

The current approach to mortgage appraisal reviews, which often relies on unlicensed reviewers and automated systems, is fraught with inconsistencies that undermine the integrity of the appraisal process. By aligning the qualifications of reviewers with those of appraisers and integrating local expertise with technological tools, the industry can ensure more accurate and reliable property valuations. Reforming the appraisal review process is essential to maintaining the integrity of the real estate market and protecting consumers and homeowners. History shows us that when entities within the real estate market act irresponsibly, consumers and homeowners bear the greatest burden. Ensuring a fair and accurate appraisal process helps prevent such outcomes and promotes a stable and trustworthy market.

By Dallas T. Kiedrowski, MNAA

Dallas is a Certified Residential Appraiser, an Accredited Mass Appraiser, as well as on the Executive Board for the West Puget Sound Chapter of IAAO. Dallas is also on the Board of Directors and Legislative Committee for the Appraisers Coalition of Washington (ACOW), is a Designated Member of the National Association of Appraisers (NAA) and a Candidate for the Residential Evaluation Specialist (RES) designation from the International Association of Assessing Officers (IAAO). You can find him on LinkedIn.

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25 Responses

  1. Avatar Pat Turner says:

    Well done!!!

  2. Luana Goltz on Facebook Luana Goltz on Facebook says:

    I was a review appraiser for one of the largest lenders for years, and all of us were required to be active licensed/certified appraisers.

    • Mikki Kersey on Facebook Mikki Kersey on Facebook says:

      Luana Goltz that’s good but I’m afraid in most cases that’s not happening. Look on indeed you can find review jobs all over and typically paid $18-25 an hour. I’m not sure how many licensed or certified appraisers will work 40 hours a week for that. Just my opinion.

  3. Shawn Vanderhart on Facebook Shawn Vanderhart on Facebook says:


  4. Stephen Reynolds on Facebook Stephen Reynolds on Facebook says:


  5. Jaie Blauvelt Woltjen on Facebook Jaie Blauvelt Woltjen on Facebook says:


  6. Avatar Older and maybe Wiser says:

    Most of the actual appraisers have been asking these questions for many years.

    I am not a medical doctor and I do not review work completed by a medical doctor.

    I am not a CPA and I do not review accounting work completed by a CPA.

    I am not a law enforcement officer and I do not review law enforcement work.

    And then we have appraisers.


  7. Avatar Benjamin Plourde says:

    Great article Dallas, very informative.

  8. AMEN and once people understand that the public (people getting loans) are the ones who are the most negatively impacted, no changes will be made. How about having more appraisal field reviews? That way you have an Appraiser reviewing the work of another Appraiser in the same geographic area as the original Appraiser. Because even if a review Appraiser in a Company is a Licensed or Certified Appraiser, they still may lack the LOCAL expertise needed to provide a truly reliable review.

  9. Since beginning in this industry as a lender in 1996 and appraising since 2002, I have always been under the impression that for one to “Review” an appraisal, one has to BE an appraiser.

    In USPAP, “appraisal review” is defined as “the act or process of developing an opinion about the quality of another appraiser’s work that was performed as part of an appraisal or appraisal review assignment.” For an appraiser subject to USPAP, appraisal review work is subject to Standards 3 and 4. An appraiser is subject to USPAP when required by law, regulation, or agreement with the client to comply with USPAP. For example, federal regulations require that an appraisal for a “federally related transaction” with a regulated lending institution be prepared according to USPAP. Also, state law may require that a state licensed or certified appraiser comply with USPAP for certain assignments.

    Note: Reviewers should check with the state appraiser board in the state where the property appraised is located regarding state licensing/certification requirements when completing a review.

    Making factual statements about the report (for instance, “the appraiser is licensed,” “the report is signed,” “the comparables are located within a mile of the subject,” (not a requirement) or “the comparable sold within less than 6 months” (not a requirement)) DOES NOT constitute an appraisal review or review. Under USPAP, such activities ARE NOT subject to Standards 3 and 4, but other parts of USPAP would still apply, notably the Ethics and competency Rules. Also, to be an appraisal review report or review report under standards, the opinion about quality must be communicated (orally or in writing) to a client. Giving feedback solely to the appraiser, such as in the case of peer review, does not constitute a review subject to standards.

    So… the question is do the checks and balances being completed by Fannie’s CU and other such checks and balances as mentioned above actually qualify as a “Review” as defined in USPAP? If the answer is no, there is really nothing one can do, as the entity accepting the note securing the loan has a right to insure it meets their standards. AND… if the answer is YES, well bad news… because only appraisers have to follow USPAP.

    Granted, I do not agree with the way appraisals are compared to big data and Dallas shares some valid information. But are the GSE’s and FHA “Reviewing” appraisals?

    Reference: Common Errors and Issues in Review – Appraisal Institute / USPAP

    • Baggins Baggins says:

      That’s where the work around term comes from; ‘Administrative review’ and ‘QC review’. No license required, because uspap only applies to appraisers. Fannie also removed many requirements for field reviews. Chalk up another executive bonus, by using less human appraisers. That’s the perspective of people setting GSE policy.

  10. Avatar Howard Wettreich says:

    A good and appropriate article. Old news though. Questions are, why is this still going on and why hasn’t it been dealt with after all these years? Answer…no one but appraisers actually care…no one.

  11. Avatar Pray Hard says:

    They don’t want appraisals. They want the appearance or caricatures of appraisals. They want to hold those appraisal costs down to the consumer by charging the borrower maybe $900 while paying us $300 of it. See there, they’re paying those appraisers less! It’s magic!

    Is India a different state? Asking for an appraiser friend …

    • Avatar Pat Turner says:

      I have a funny one for yall

      10-15 years ago I got a phone call from a man representing an AMC for a large regional bank asking about an appraisal I had done. His accent was a dead giveaway so I asked where he was.

      He said “my company is located in Philadelphia PA”
      I said no “I want to know where your ass is sitting”
      He said BANGALORE INDIA.
      I said well this conversation just ended, I hung up, and never heard another word about that appraisal!!

      Screw ‘em!

  12. Avatar Detachedaz says:

    “When a mortgage is being processed, the property in question needs to be appraised by a professional who is licensed or certified in the state where the property is located. This requirement ensures that the appraiser has a thorough understanding of the local market conditions”

    Being “In the state” and “Having a thorough understanding of the local market conditions” are like apples and oranges.

  13. Avatar Janet C McVey says:

    THE ONE AND ONLY GAME CHANGER: Have the appraisal done FIRST in the mortgage process. Right now every thing is done, all the paperwork, all the projections, everything is done, then the LO tells the borrowers, this is what the appraisal has to come in at for this all to work. All the work should be based on what that house is worth FIRST.

  14. Baggins Baggins says:

    The goal appears to be to remove the human appraiser from the process completely except for extreme high risk activity which does not fall under the umbrella of their ‘mission critical’ goals. FHFA has a grading chart specifically for this objective to use less appraisers in their monthly oversight progress reports. Keywords; appraisal, appraisal bias, appraisal modernization, scorecards, performance reports, avm, etc. Play around with the easy to use search bar and read their recent articles.—scorecard
    2024 scorecard and goals. / pg 3 & 4
    Continue modernization of single-family property valuation processes and
    practices, including traditional appraisals and valuation alternatives
    Image attachment. The GSE executives compensation is based in part on their ability to meet the goals set by FHFA. Automating the appraisal process and using less human appraisers is one of those goals with a high priority which effects the grading and subsequent compensation amounts. ‘To reduce valuation bias’ of course.

    • Baggins Baggins says:

      An image follow ups for investment side automation of the review process. Repost from Bagott’s censorship of appraisers article.
      Check this out, random find.

      Firstsource collaborates with 5 of the top 15 ML’s in the US. Read all of page 30, keyword; mortgage. Are these the companies and tools driving changes and complaints, repurchase requests? Perhaps so.

      Firstsource has successfully implemented a structured
      Robotic Automation Process for a leading US mortgage
      company, enabling them to overcome the challenges
      associated with traditional, high-volume manual processes.

  15. Avatar Howard Wettreich says:

    One question that I have as an appraiser regarding appraisal review is, how does CU or unlicensed reviewers deal with reviewing the adjustment grid? That’s an area where many errors can be found, or unexplained adjustments might occur. Does CU or the unlicensed reviewer know what to look for or know what questions to ask? Do they perform an analysis to verify the information or produce a verified contrary opinion? My guess is they don’t. So, in my opinion they (CU & unlicensed reviewers) produce an incomplete and misleading review.

    • Baggins Baggins says:

      Comparing the peer model database against applied adjustments is how they created a virtual appraiser reviewer they presumed would be as reliable as a human licensed appraiser performing manually time intensive reviews. On the input side there is an excess of appraisers cutting corners and using automation to generate the report data, courtesy of the discount amc model. On the back side nobody is manning the wheel as the automated systems rely on automated input, to perform ‘the administrative review’. The review process is fixed rules, read underwriter guidance on loan submission for how that works.

  16. Avatar Kevin says:

    The problem is that many reviewers lack the knowledge of the market area and have not “been there”. CU,,HA,, ya thats a laugh! I sometimes repond with, “In response to CU provided sales to consider, these have already been eliminated in the initial comparison search due to differences noted that do not regard them as comparables to the subject property. CU also has NOT visited the subject property nor the comparables and has not determined or provided evidence that the “comps” that are better than the ones initially provided in the report. Furthermore, the Appraiser will not respond to any such requests unless brought up by a qualified human reviewer that is licensed in the state of which the subject is located and has the gegraphic competency to compete a review.

  17. Good article. Great content and very well written. This is an important and relevant issue today. I’ve had to deal with reviewers who either didn’t read the report or didn’t know what they were talking about.


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The Illogical Reality of Mortgage Appraisal Reviews 

by Guest Author time to read: 7 min