The implementation of Fannie Mae’s Collateral Underwriter (CU) has many in the industry up in arms about how to adapt to the new software and what it means for the housing industry. The purpose of CU is to identify risks and potential discrepancies in the appraisal report, and be utilized as supplementary advisory information when lenders analyze an appraisal.
Fortunately, Fannie Mae has published a Fact Sheet, highlighting sections of the Collateral Underwriter Lender Letter that was recently published. JMAC as well as other lenders were reminded by Fannie that CU is free and is not a requirement. CU rates appraisal’s based on a numeral risk score from 1 to 5, with 1 indicating low risk. CU takes into consideration the relevance of each potential comparable sale based on physical similarity, time and distance. Lenders are prohibited from providing the CU report to appraisal management companies or appraisers.
Fannie Mae also does not suggest that lenders ask appraisers to address all or any of the 20 comparables provided by CU but expects CU to further instill confidence in lenders regarding the appraisals they receive. Additionally, Fannie Mae’s Appraiser Quality Monitoring (AQM) process will identify appraisers who repeatedly show a pattern of inconsistencies and inaccuracies in their appraisal reports, which can later be used as training purposes and guidance. The AQM process involves data and technology similar to CU to identify patterns or potential issues with appraisal reports, triggering a red flag and human due diligence to determine relevancy and accuracy of the results from the automated system. There is also no correlation between CU risk score and AQM.
JMAC Lending Inc is carefully watching the CU process in order to gauge its effectiveness and cost to our brokers. It is generally viewed, however, as a step in the right direction since investors want more assurance that the loans they are buying are backed by suitable properties.