COLLATERAL UNDERWRITER NOT AS BAD AS WE THOUGHT

Movie trailers are great, especially for scary monster flicks. The gritty announcer, hard musical open, then fade to black. A bunch of fast clips and loud sound effects, maybe a few screams added in and by the end, you’ve pretty much seen the scariest parts. So once you actually go to see the movie you think to yourself…“wow, that wasn’t so bad after all”.  In the appraisal business, this year’s big monster wasn’t Jason or Godzilla…it was CU™. Fannie Mae’s Collateral Underwriter™ was coming. We all knew it. And like Y2K, we entered the year with, well; let’s say cautious skepticism. So in the end, how did the movie turn out? Actually not as bad as we thought.

Anyone who was in the business during the ’08 housing bubble and subsequent financial crisis was also in on the ground floor for new regulations aimed at preventing a repeat of the mistakes that were made. One of the stars of that show was the 1004MC, which—while well intentioned–triggered as much confusion and frustration as it did clarification. In 2011, the Uniform Appraisal Dataset (UAD) and the Uniform Collateral Data Portal (UCDP) attempted uniformity as related to Single Family and Individual Condo Forms, resulting in over three quarters of a million appraisal submissions. These submissions helped to create a massive database of analytical data to provide reliable comparables and adjustments…the backbone of Collateral Underwriter™ (CU™), Fannie Mae’s free, model-driven tool for improvement in appraisal quality and risk assessment. When announced, most lenders and appraisers thought that CU™ was to be the sole basis by which Fannie Mae accepted or rejected a loan request. But that was far from the truth.

CU™ takes data from an appraisal, then uses it to asses score from 1 to 5 in determining risk (the higher the score, the higher the risk). Any appraisal deemed risky receives a “flag” and subsequently, CU™ offers up comparable properties. Flags are made up of 3 main components:

• Property Eligibility/Policy Compliance
• Overvaluation
• Appraisal Quality

So how is CU™ doing? Joni Pilgrim, Co-Founder of Nationwide Appraisal Network says it’s not the monster it was made out to be. “In a lot of ways, it’s been helpful,” claims Pilgrim. “Sure it took a lot of getting used to and there are no doubt bugs to be worked out, but CU™ is certainly not the Armageddon-type shift that people feared.” Co-Founder Cari Burris agrees. “There are certainly concerns that underwriters and appraisers have in regard to CU™, but it’s not all bad…in fact, the data that is being gathered every day by the CU™ process may end up being a huge asset to lender, borrower, AND appraiser in the very near future.” So what’s the report grade? Both Pilgrim and Burris give it an incomplete, but in the words of FDR, there is nothing to fear but fear itself…CU™ is part of the business and will improve with time. If you want something REALLY scary…probably best to rent a good horror movie this weekend.

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