How might the new Collateral Underwriter affect appraisers, agents, and loan closings?

How might the new Collateral Underwriter affect appraisers, agents, and loan closings?

As of January 26, 2015 the new Collateral Underwriter risk assessment tool will be in place to be used by lenders inCollateral underwriter friend or foe order to measure the quality of an appraisal report being submitted to Fannie Mae. Appraisal reports will be intensely reviewed and a report will provide a risk score along with any red flags the lender should be aware of. The report is suppose to help lenders identify appraisals that may have quality issues or may reflect overvaluation of the subject property.

While this sounds like a great idea, one of the main complaints that appraisers have is that this information is not being provided to them, only the lender. This information would be very helpful to the appraiser because if there are any negative issues it is possible that they could be cleared up before the appraisal assignment is completed. The data that the Collateral Underwriter tool utilizes has been collected through data mining of appraisal reports over the past several years and while it can be helpful it can also negatively affect appraisers, agents, and loan closings. Lets take a look at what could possibly happen.


The CU tool will be comparing data included in appraisal reports with the data it has collected over the last several years relative to the physical attributes of the subject and comparable properties as well as adjustments that the appraiser has made in the report. While this information can be helpful in some situations it may also result in appraisers being asked to revise their report and consider other comparables that have been provided to them. You see, the CU can provide up to 20 additional sales that the appraiser may be asked to consider, however these sales MAY NOT truly be comparable because the CU cannot distinguish true neighborhood boundaries only census block groups. These sales may not be comparable, which can result in appraisers spending longer on an appraisal
assignment because they have to comment on why they were not used. This can result in appraisals taking longer and appraisers profitability decreasing because work may increase but pay will probably not. It will be interesting to see how things unfold for the appraiser.

Real Estate Agents

One of the red flags that the CU looks for is over valulation of a property. It is my opinion that it will be more important than ever for real estate agents to do a more competent job in pricing a listing to the market rather than what the seller wants to get out of the home. This type of seller may present a challenge to the agent because they are not willing to listen to what the agent has to say, however this could result in appraisal problems.

A scenario of this situation may look something like this: The home is listed higher than recent comparables show, however the seller is insistent that they get a certain amount for their home. The home is listed at the higher price and it eventually goes under contract. The appraisal is ordered and a not so competent appraiser finishes the appraisal, coming it at the contract amount. The appraisal now has to be reviewed by the CU and most likely it will come back with red flags indicating a risk of being overvalued. The appraiser will be given additional sales to consider and the value will most likely be dropped to reflect what the market indicates. In this scenario the CU is doing a good job of catching an over valuation problem before it occurs, however it can cause delays in the loan process and waste a lot of time for appraiser and agent. The moral to the story is that it is very important for the real estate agent to price the home to the market because if they don’t do it up front then it will be caught on the back end of the loan. While a bad appraisal may have slipped through the cracks in the past the CU is making that less of a possibility, which is good if it works as planned. If an agent has any reservations about what the home should be listed at they may want to get a pre-listing or marketing appraisal to make sure the home is priced to the market, thereby decreasing the likihood that it will be red flagged.

Loan Closings

As I have already indicated, the loan closing can be delayed because of appraisal issues that the CU catches. I gave an example of a home being overpriced and the issues that it can lead to, however there is also the potential for the loan closing to go slower just because the whole process is slowed down due to CU requirements. Real estate agents and mortgage loan officers may want to build some cushion into their loan closing timeline to reflect the uncertainty of how long the process will take with the new CU guidelines.


If you are an appraiser, agent, or loan officer what are your concerns with the implimentation of the Collateral Underwriter? Leave me a message below and let me know your thoughts.

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    • It’s a good article that describes the CU from an appraisers point of view. Certain parts of the CU can be good but there are other areas I do not agree with. I do think that the “grades” for each appraisal are tied to us as the appraiser and not the property though. Thanks for your thoughts Andy.

  1. Mike Phillips says

    Once again they have spent untold amounts of money to address a non issue really. Killing a gnat with a sledge hammer. It might make some of the few remaining incompetent appraisers do better jobs. Or it might just make everybody cut appraised values to avoid the big bad CU proctal exam. But this would only be a short term answer because over time the cutting would have to continue. This causes a much more harmful result. That is hurting the housing market and thus the health of the economy. Nobody wants over inflated values again, but nobody should want under valued properties to be systemic either.

    And this CU does nothing to red flag appraisers who undervalue properties.As I pointed out above, that is also a very important issue that FNMA and regulators seem to be ignorant of or just don’t care. But home sellers care and every buyer will be a seller next.

    And lastly I agree with above comments. No AVM can do what an appraiser can do. One side of the street may bring more money than the other side. One block away in the same neighborhood can be very different. One street may have more traffic and fewer stop signs and thus bring lower prices. Real estate agents and appraisers know these things, not AVMs.

    Off my soapbox now.

    • Thanks for sharing your thoughts Mike. I agree with you that if high values are a problem then low values should also be a problem, but it is not addressed. I think that all of the national appraisal organizations that represent us should have had a say so in how this “Big Data” was implemented. Having the data that Fannie Mae has could help us be better appraisers but I do believe that they are using it to provide a “Gotcha” moment to appraisers by trying to catch us in a situation where are adjustments don’t match that of our peers. While there has been room for improvements with appraisers I don’t think the way they are implementing the CU is the way to do it.

  2. CU has many potential problems. One problem is that CU will be providing warnings to people who do not understand the context of those warnings. In these cases, the warnings will just be passed to the appraiser. In other cases, it is likely that some good appraisers will do things that the majority of their peers do not (like researching more and finding out that a comparable might look C3 in photos, but it is really ) and CU will flag them as being a high risk appraiser. Since CU does not flag when values are too high, it is possible that appraisers will learn that if they are conservative on value, they will not get hassled by CU warnings.

    • It’s going to be interesting to see how all this pans out Gary. I am eager to see how they account for differences that may not be bad such as the example you give.

  3. This is definitely something to watch. The danger with any online valuation tool is that real estate is not just about facts. There are emotions involved, which means you simply cannot put every property in a neat little precise value package. There is usually a range of values anyway for a property instead of such a precise figure down to the very cent. Now that lenders will have massive quantities of data thanks to Fannie Mae, it will necessitate underwriters to read appraisal reports and to balance out what Fannie Mae says instead of asking appraisers to respond to all the potential “errors” the appraiser made. If CU does negatively impact the market, it will be time for NAR, NAMB, and others to challenge CU (and hopefully appraisal organizations).

    • That is so true Ryan. The fact that CU cannot judge neighborhood boundaries is troubling in itself. Census blocks are not the way to determine comparables and if we have to spend all day responding to suggestions as to why certain sales were not used that could be a problem.

  4. Tom Molinari says

    All great points Tom. Fannie has positioned itself as the “know it all” of the residential real estate world with regard to property value. Since their CU system is the end all for determining the “correct” value of a property, tell me how this is different from a pre-determined property value. If CU only needs an address to come up with a value, then they have pre-determined what any given property is worth “subject to” the appraisal matching their value determined by the model. If the appraiser comes up with something different, I’ll bet that 9 out of 10 times that the lender is going to pressure the appraiser to meet the CU model and its conditions.

    Let’s take CU a step further. Why not let Realtors to use CU directly when listing a home. The agent orders a CU valuation to determine the maximum loan amount for the property prior to listing the property. Then, the agent can back into the listing price based upon the max mortgage that Fannie will lend on. Who needs the appraiser when Fannie already knows what any given property is worth more or less? In the end, it’s just another step in taking the appraiser out of the valuation business and into the realm of form fillers and property photographers.

    • Tom, you also make very good points. I can only hope that the many people I have heard speak about the CU and the future of the appraisal industry are correct when they say that the appraiser will always be needed and not just as form fillers and property photographers. I think we must, as appraisers, make ourselves more valuable by doing a better job than the AVM’s can. In addition we must diversify our business so that we are not dependent on only lender work. It is more important than ever that we find new ways to market our services to non lender clients.

      • Tom Molinari says

        Absolutely Tom!

      • Tom Molinari says

        Absolutely Tom! I guess on the plus side, CU may help weed out truly bad appraisals and appraisers. It may provide an impetus for lenders to use experienced and ethical appraisers to begin with so as to avoid potential processing delays.

        • That is a positive way to look at it. Over the last several years I believe a larger number of appraisers that were not serious about the profession have left, however we can benefit from that by having more work.

  5. Tom, this was very helpful. Thank you for keeping us ahead of the curve.

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