I know some day soon our days as BPO specialist will end, this could be the start of our demise. This article refers to appraisers however the software in use today will soon make us all pretty much obsolete. Any comments?
Does the mortgage industry still need Appraisal Management Companies?
Not with Fannie Mae's Collateral Underwriter
On January 26th, Fannie Mae rolled out its Collateral Underwriter, and Freddie Mac will roll the same program out in March. Veterans Affairs already uses a Core Logic AVM to review appraisals and it’s almost guaranteed that Federal Housing Administration will follow suit.
For those of you that are not familiar with the Collateral Underwriter program, it is a computer generated appraisal review using data that has been provided to Fannie Mae by the appraisers since 2010. To date, they claim to have 40 million sales in their database with 40,000 added monthly. The purpose of the program is to review every appraisal submitted for accuracy, consistency, the use of the “proper” comparable s and possible overvaluations and undervaluation's.
The appraisal will be reviewed before the loan is submitted and will receive a score from 1 to 5 with 5 being “high risk”. Contained in the program will be a series of “hard stops” that will automatically reject the appraisal and also generate a list of 20 “low risk” comparables that the loan underwriter may use to query the appraiser with, thus extending the time of the appraisal process.
The Collateral Underwriter program is a very sophisticated automated valuation program that will select what it determines to be the “best comparisons” using their database which defines a neighborhood by its Census Tract(s), therefore it infers that the appraiser should use Census Tracts for comparable searches.
Gone are the days of comps within one mile; no more than a 10% “line item”, or 15% net and 25% gross adjustments and comparables may be used with sales dates up to one year old. The lowest risk comps will be those with the most similar characteristics such as size, bedroom and bath count, age, lot size and amenity features. Condition and quality are determined by the appraiser imputed “condition and quality” rating which is subjective, at best, but considered “absolute” by CU.
Another issue is the mandated use of Fannie’s Market Conditions analysis form, which is basically flawed, in that, it will take from 3-6 months for the analysis form to recognize a trend, albeit positive or negative. In an increasing and/or decreasing market, time/market conditions adjustments will not be supported, thus not used, further repressing values in an up-trending market. Because of CU, every adjustment to a comparison that an appraiser makes must be supported by facts using “paired data” analysis and/or regression analysis.
Every appraisal will be filed to the appraiser's license number and if there is a pattern of “high risk” appraisals attributable to an appraiser, he/she will receive a “warning letter” and if, in the opinion of Fannie Mae, appraisal quality does not improve, the appraiser will be placed on the 100% review and/or do not use list, which will result in loss of profession, and all of this without explanation from Fannie Mae if or what recourse the appraiser has to defend his/her appraisal(s).
The “senior” and experienced appraiser that properly uses the scope of work and has knowledge of “paired data” and “regression and market trend analysis” will have no issues with CU. It’s the lesser experienced appraiser that “cuts corners” that will run into major issues with CU. It is the latter that are doing the vast majority of the lender work through appraisal management companies that pay “cram down” fees, forcing the appraiser to “cut corners” and produce an inferior product. If the truth be known, the AMC’s are to blame for the inferior quality work, in spite of their insistence that they thoroughly review the appraisal and guarantee it to the client in exchange for 35% to 50% of the appraiser’s “customary and reasonable” fee that was to be codified by Dodd-Frank. I have too many examples of “cram down” fee offers, but let me share just one. One of the “big five” banks has their own AMC. Their fee schedule to the appraiser is $305, yet they charge the customer $550 and the difference becomes a “profit center” for the bank.
Now that the GSE’s have the ability to instantly review every appraisal submitted to them and will advise the lender of its accuracy, it occurs to me that Appraisal Management Companies are no longer needed.
The individual lender need only to maintain their own independent fee appraiser panel and insure the orders are randomly assigned. Fannie will take care of the “bad appraisals/appraisers” and appraisers can once again earn a wage commensurate with their education, background and experience.
I am very disappointed that Fannie did not take the time to properly educate the appraisers about CU. When they announced the 1004 Market Conditions form, they had special online and classroom education, but with CU, nothing.