Fannie's New Appraisal Program Raises Concerns

Nationally syndicated real estate news columnist Ken Harney has indicated in an article on tucson.com that the new Fannie Mae appraisal risk assessment application that is due to be launched on January 26, 2015, may cause more problems than it solves.  In a post entitled, "Fannie Appraisal Review Revisions", I previously outlined the new application, "Collateral Underwriter", that Fannie will begin using in connection with its Uniform Collateral Data Portal ("UCDP"). 

This new application will compare current appraisal information to older or concurrent appraisals on file with Fannie for the same property and will produce reports indicating errors of various nature in the new appraisal that is submitted.  The application will comb information on comparable properties used by appraisers as well as misstatements of facts regarding the subject property.  Some mistakes are serious enough under the new application to stop the whole loan underwriting process.  Other errors are correctable or can be overridden.

Ken Harney indicates in his article that, "many appraisers are worried that the new program might mess up the marketplace".   Harney sites possible delays and higher costs as a result of the new application by Fannie as being one concern.  Appraisers may be faced with justifying the comparables they use to value the subject property.  The additional work that may be required may cause delays of a week or more in extreme cases according to Harney.

A second problem reported is that Fannie will not give appraisers access to the information on which it is basing its decisions.  The Illinois Coalition of Appraisal Professionals is circulating a petition demanding transparency.  Since the review by Fannie is an automated review the application will not be able to recognize the differences between adjacent neighborhoods, a key factor in valuations, as the application is based on census tract groupings which will include both higher and lower comparable properties as determined by the application.  The concern is based on a feeling that the application will be biased toward lower priced comparable properties.

It would seem to me that is an appraisers does a proper job and follows the guidelines that have been established for the preparation of appraisals, there should not be a problem.  Only the most serious of discrepancies will stop the process cold, common factual errors and other mistakes can be overridden.  Will the program application affect all appraisers or only the unscrupulous?