CU Sooner Rather Than Later
By now, most of us real estate professionals have become accustomed to the fact that things rarely stay the same for long in the mortgage industry. Not a month passes, it seems, where guidelines do not shrink or expand at the whims of our regulators, and certainly not a day goes by where rates do not fluctuate with the broader economic markets. So it should strike us as no surprise that the appraisal world we know will again be shaken up on January 26, 2015, when Fannie Mae’s Collateral Underwriter (CU) is implemented. Here is what we all need to know:
What is CU?
CU is a proprietary application developed by Fannie Mae to promote and support appraisal quality. The program flags potential errors in the appraiser’s evaluation before the lender commits to fund the loan. It scores the appraisal for overall risk of inaccuracy on a scale of 1-5, 1 being the least risky. The application also provides as many as 20 alternative comps for comparison.
Fannie Mae’s CU appraisal review is not a new concept. Fannie Mae has been using this analytical tool to look for potential issues and compile data about each appraiser based on work submitted. The difference is that now the tool and its all-encompassing data is being made available to lenders during the underwriting process. It will provide detailed messaging that highlights specific aspects of the appraisal that may warrant further attention. The goal is for the lender to be able to address any issues earlier in the process, prior to closing and delivery to Fannie Mae.
Anticipating the Future
The future is here – and we’re ready. At RPM we are fortunate to have an appraisal department that anticipated these changes to the industry standard. Through the use of our own proprietary review tools, we have already implemented procedures similar to CU. “Our appraisal software has already vetted out CU requirements. We are ready to integrate CU into our process to assist appraisers and reduce lag-time for review and response,” explains Gary Vujovich, Senior Vice President and Chief Appraiser at RPM Appraisal Services. “The appraisers on our approved list are the most experienced (appraising for at least 10 years). We keep them within 15 miles in populated areas, they are not on any “watch lists” and all are well-versed in the required procedures.” As a Fannie Mae direct seller, RPM will have immediate access to CU’s online data portal, which will allow for enhanced efficiency.
Why is CU Important?
Accurate appraisals are a critical component to a stable housing marketing. Over- valuation leads to greater risk of a real estate market bubble. Any review other than CU is based on assessor data and MLS data. CU is based on the comps that appraisers have used, which should be better data than what is reported by the assessor. Quality control and risk management must be built into the system to achieve the highest standards that will, in turn, improve investor confidence.
Why the mixed reaction?
Change is hard. No one knows quite what to expect. Some REALTORS® are worried about losing deals due to potentially longer transaction times, higher fees, or revised appraisals. Appraisers have expressed concerns over additional hours spent justifying their evaluations against comps that are delivered directly to lenders. However, Fannie Mae expects that the tool will be superior to current lender check-lists and engagement letters and will prevent some of the call-backs appraisers receive from underwriters for additional comps. The National Association of Realtors recently released a press release to communicate additional facts and dispel some myths surrounding the issue.
For now, CU will be applied to conventional loans, however, I expect that jumbo, FHA and VA will follow suit in the future. This has been the pattern with appraisals since the implementation of the Home Valuation Code of Conduct (HVCC). The lending industry retreats behind a “better safe than sorry” ideology and tools like CU support that philosophy.
After all the appraisal changes in the last few years, implementation of CU may come across very much like a “just when you thought it was safe to get back in the water” moment. But I have every confidence we will find our way to shore, just like we have time and again in the recent past. What are your thoughts, questions and concerns about Collateral Underwriter?
CU on the beach,
Mortgage Loan Originator
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