The Great Collateral Underwriter Caper
Hold the presses and rewrite the headlines! Retitle the newsletter, get ready to put this on your home page, and tweet everyone. You have been robbed! The data you have provided on every appraisal submitted since the development of the UAD communication system has been analyzed and the GSEs have created what is likely the greatest tool in collateral assessment history. A tool so powerful it can identify risky collateral. A tool so powerful it can calculate adjustment values. A tool so powerful it can run a comparable search and rate in numeric sequence the comparables it identifies as most similar to the subject. And most importantly a tool which… is not available to you. But there is hope. Read on.
Take the time to read up on Fannie Mae and Freddie Mac’s new Collateral Underwriter. This is a fascinating development where the immense amount of data the GSEs have accumulated can be used to rank the quality of an appraisal, helping the lender determine if that collateral may have an elevated level of risk. For example, if you do a complex home with market data that requires large adjustments or is taken from different locations, CU will recognize that there is weakness in the appraisal. Kudos to the system as we all know an appraisal on which we have weak data is often less accurate than a simple appraisal. Similarly, an appraisal of a subdivision home with an active market and great market data will receive a high score. Kudos again. The key to the lender is a well scored appraisal reduces future risk for a buy back demand.
Where did all of this data come from? You.
First, let me apologize to the high quality review appraisers and appraisal leadership that value appraisers, believes in the cost plus model, promotes professionalism, allows adequate time for report completion, and works hard to convince lenders that only items that are important to developing a credible value should be considered as an addition to the scope. All appraisers appreciate you and it is not my intention to lump all reviewers and leaders together.
However, it seems to most appraisers you are not the one that contacts us.
Rather, we are dealing with what we perceive to be a less experienced appraiser or an administrative reviewer working off a check list. Now they have authority over the veteran appraisers trying very hard to use whatever market data we have (not that we wish we had) to do a good job.
I hope the Collateral Underwriter system will be used to assist appraisers and improve reports. It seems more likely the intent is punitive and the reviewer I note above will now have the ability to question comparable selection and adjustment values. Can you imagine a reviewer with the power to say “Collateral Underwriter rated 6 comparables higher than 3 of your comparables. Please review and let me know why you did not use these 6 comparables.” And, of course, that work will be expected to be free.
Why do I have hope? The GSE message from the start is that they are motivated to improve the quality of valuation. If they only use this data in a punitive way they will not only fail in that goal but continue to drive appraisers out of the industry.
So, let’s look at the logical evolution. All appraiser leaders and organizations take note: We must band together and put the wheels in motion to create an end goal of Big Data made available for use day to day in our appraisal office.
Money makes a lot of things happen. Collateral Underwriter will be offered to FNMA clients at no cost. With nearly 100,000 appraisers listed on the national register assume for a moment that around 25% paid $50 per month for access to a GSE system. 25,000 appraisers paying $600 per year equals an income stream of $15,000,000 per year. Seems like that might be enough money to motivate even the GSEs to participate. If not, maybe they will partner with a private business.
Let’s dream. The goal would be to use the GSE system to assist in your development of an appraisal report. You would be able to complete searches as you do now, using your local data sources and market knowledge. Then you would be able to see how your selections compare to the computer generated options. Your software vendor would work with the GSEs to allow direct input of the data right into your appraisal grid in UAD format. Suggested adjustment values would automatically be registered based on the GSE massive data analysis.
To be clear, the GSEs have stated there is no plan to share this with the rank and file appraiser. Is that ok with you?
Time to band with your peers, speak loud, and see if we can make a change in the next chapter of the Great Collateral Underwriter Caper.