Collateral Underwriting and Bigfoot

Let’s say you are a scientist studying, oh I don’t know…Sasquatch.  Due to the countless hours you have spent researching the topic, you are considered somewhat of an expert.  People look up to you for the academic and scholastic approach you take to the subject.  Due to the controversial nature of Bigfoot research, you are very careful to fully document your claims and back up your rhetoric with scientific evidence.

Now, let’s say you get an email from a prestigious journal of North American mammal research.  The email says the following:  “Dear Dr. XXXXXXXX.  It has come to our attention that your latest claim regarding the existence of Homo sapiens cognatus (Bigfoot or Sasquatch), is materially different than what other researchers have found.  We are in possession of several academic papers which indicate this to be the case.  Please address our concerns.”

You frantically look through the email for an attachment to the claimed, contradictory evidence, but find nothing.  Furthermore, when you reply to the email and kindly ask for the evidence cited, you are denied access as “it is confidential.”

Of course, the hypothetical scenario described would be ridiculous.  How can you address ‘evidence’ that is not given to you?  How do you adequately answer concerns on a subject if you are denied access to the very material they are citing as being in conflict with your own data?  The answer is… you can’t!

A few days ago, I finally got my first Collateral Underwriter (CU) notification.  Yeah!  It was on a home I had appraised just the day previous (can’t say CU is not timely).  Here is the body of the email:

Please respond on a cover page addendum to the following and revise report if necessary. Thank you. FNM0424 N/A N/A Comparable 1 The condition rating for comparable #1 is materially different than what has been reported by other appraisers. Warning FNM1000 N/A N/A Appraisal The Collateral Underwriter Risk Score is 2 on a scale of 1 to 5 where 5 indicates highest potential collateral risk. A score of 999 indicates no Collateral Underwriter Risk Score available. Warning.”

Let me summarize.  “You reported one thing and other appraisers have reported something else.  Please explain why your information is different than others.”  No explanation of what the other appraisers might have put, and no attachment with the evidence.  Just a generic statement and a request for me to show why my data is better than theirs.

So, here is my question; how is this request from the AMC any different than the ridiculous, hypothetical scenario I presented above regarding Bigfoot?  In both cases, the person being approached is considered an expert in his or her field.  In both circumstances, the professional is being presented with ‘evidence’ that is contrary to the claims he or she might have made in a report.  Finally in both stories, the specialist is being asked to refute data but is not given the data he or she is being asked to refute.  Here was my answer:

Per your rejection notification, I have once again evaluated comparable #1. Based on the best information available to me (MLS data, interior photos, county, exterior drive by, and verification with agent), the comparable is indeed a C3 condition per UAD definitions. If you have information available that is not currently accessible to me, I would request that such information be passed along that I might evaluate it. I reserve the right to amend my designations if better information from credible sources is made available to me.”

I have received dozens of emails and other correspondence from appraisers across the nation over the past several weeks.  Each of them have a similar theme; ‘how do we answer CU rejections when we are not even allowed access to the very data being used to reject our reports?’  The answer is simple; you can’t.  At least, you can’t with any degree of specificity.

Now, I am not saying we should not be able to justify our reports.  We should.  If I put a C3 rating for a comparable, I had better have a reason for doing so (and I better have that reason in my workfile).  In the case above, it took me about 30 seconds to pull up the workfile and reconstruct  my justification for the rating I gave to Sale 1.  I felt confident about the condition reported and would have changed it if I had realized a mistake had been made after the fact.

The concern is that we are being judged on information that we do not have access to (well to be fair, the report—not necessarily the appraiser—is being scored based on information we do not have access to).  What professional in any field would be okay with that?  If you are going to say I am wrong because what I reported is “materially different” than what others have reported in the past, I say we are justified in demanding access to the evidence being used to refute my data.  Hats off to the Network of State Appraiser Organizations for their recent letter  for demanding just that.  Others are also calling for more transparency.

One way we as appraisers can help this effort is by not rolling over.  When you are asked to defend your report in the wake of other evidence, demand that you are given access to the evidence they are citing.  If you find that you were wrong, make it right, but do not simply change your report because CU says your data was materially different than what others have reported.  Doing so would be akin to declaring Bigfoot exists based on a new video that you have never seen.


About Dustin Harris

Dustin Harris
Dustin Harris is a successful, self-employed, residential real estate appraiser. He has been appraising for nearly two decades. He is the owner and President of Appraisal Precision and Consulting Group, Inc., and is a popular author, speaker and consultant. He also owns and operates The Appraiser Coach where he personally advises and mentors other appraisers helping them to also run successful appraisal companies and increase their net worth. His free podcast can be listened to on iTunes and Stitcher. He and his wife reside in Idaho with their four children. He loves playing in the outdoors and watching movies indoors.

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    Great article!

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    Maybe Sasquatch is doing the CU, it could explain the lack of data being provided! Homo sapiens cognatus sounds about right.

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    Artful and accurate depiction of the “big brother” aspect of CU….

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    How many tens of thousands of similar statements will finally get through to Fannie? Good statement and I use one that’s quite similar. I’m sure all of us have devised some type of similar response.

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    Amen to this! Totally agree! Do NOT compare me with the others and think that just because everyone else is coding something one way that you are automatically in the wrong and without evidence to the contrary, for me to review, this is a waste my valuable time.

    There is no other PROFESSION that I can think of where they basically say your expertise is meaningless! Give me your expert opinion please, but I won’t believe it or trust in it!

    We should have no problem explaining why we selected the comps we did and why we coded them the way we did, but to be asked to advise why you did NOT select other comps that CU come up with is a waste of my time and I plan to charge for it. We’ll see how that goes over with the lenders.

    I was asked to look at 3 more “comps” the other day (Trust me they were NOT Comparable) I told them they are not comparable for all the various reasons, then I said If I had used the Comps CU came up with, then CU would have come back and provided the Comps that I already included in my report and ask why THEY were not selected. It is a vicious cycle.

    I tell lenders that ask to consider more comps that the best possible Comps were already provided in my report as there is no reason not to include them. If the Comps provided by CU were better than the ones I selected, they would have already been in my report. If by some slim chance they actually did provide a better comp and I am in error I will be the first to admit this. But 95% of the time the additional comps are NOT Comparable.

    I am just Thankful that 40% of my business last year was personal business. I am getting to the point of saying…..I am mad as hell and I am not going to take it any longer! 🙂

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      Can you imagine if an attorney or a physician were forced to deal with something like Collateral Undertaker?

      “I understand your defense counselor but I’d like you discuss the
      points that the prosecution has presented as well before finalizing your

      Head Surgeon:
      “I understand the urgency of trying to save this patient’s life but could you determine beyond reasonable doubt whether the patient suffered from a dog bite, a gunshot, a knife, an arrow, or a hatchet before attempting to stop the profuse bleeding.

      To summarize: FNMA is full it IT.

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    Excellent allegory Dustin!

    Fannie Mae calls the CU an appraisal
    review and the “review” sure looks like a SR3 review so why aren’t the
    reviewers licensed, competent appraisers following USPAP?

    SR3 of USPAP states:

    957 (h) determine the scope of work necessary to produce
    credible assignment results in accordance with

    958 the SCOPE OF WORK RULE.

    959 Comment : Reviewers have broad flexibility and
    significant responsibility in determining the

    960 appropriate scope of work in an appraisal review

    961 Information that should have been considered by the
    original appraiser can be used by the

    962 reviewer in developing an opinion as to the quality of
    the work under review.

    963 Information that was not available to the original
    appraiser in the normal course of business

    964 may also be used by the reviewer; however, the reviewer
    must not use such information in the

    965 reviewer’s development of an opinion as to the quality
    of the work under review.

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      Is that for Fannie’s edification or are you preaching to the choir? In my view Fannie couldn’t give flying Sasquatch about USPAP or appraisers who say it applies.

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        Ed, I may be preaching to the choir because Fannie does not care about USPAP unless they can use it to make a buy back demand.

        The point I am trying to make is that the CU appears to be a standard 3 review and in some states like Oregon it is not legal for for a person who does not possess an Oregon appraiser license to produce a standard 3 review for property in Oregon.

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          Good for you. Now if only someone will notify these folks that persistently circumvent USPAP to cease and desist. Maybe it has to start by disciplining appraisers who seriously respond to these “Kangaroo” reviews.

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            The state can and does regulate the lenders doing business in the state. Appraisers do not work with Fannie they work with the originating lender and it is the lender using CU. CU is not mandatory for a lender to use Fannie “recommends” the lender use it.

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      In case you see this reply, Frank, writing in capital letters is the same as shouting in voice. Don’t do it. It is also harder to read. If you are doing your reports in all caps, by all means, change that habit immediately. It is not looked upon favorably buy business people.

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    I love the analogy Dustin. Well done. Sometimes good appraisers will dig deeper and find out things about a property that other appraisers will not. The problem is that those appraisers will be punished by CU revisions just like bad appraisers. CU encourages appraisers to fit in with the pack and do everything just like everyone else without sticking their neck out. That is not good for our industry.

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    Well done Dustin, I enjoyed the article and the analogy. While a bit of a stretch, it most certainly gets the point across that it is impossible to address why there would be a discrepancy without having a clue what it is.

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    Nicely done. I too had my first CU glitch. A bedroom count for one of my comparable sales was materially different from what was reported by’others’. In this case, the MLS sheet stated 4 bedrooms, but the comments section added that the 4th ‘bedroom’ had been removed and previously functioned as a 10×10 den/office. My response was, ,”It appears the individuals providing your data failed to read the comments section of the Listing Sheet or to verify the information via the agent.” Frustrating!

    The only good thing to come of this thus far is the analysis and admission by FNMA that their previous attempts at ‘improving’ appraisers comp selection, via the 15% net, 25% gross adjustment guidelines only served to weaken the analysis as appraisers struggled to shoe-horn adjustments within those constraints.

    I somehow feel another mea culpa from FNMA is coming down the line on CU.

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    This is being driven by FNMA and not AMCs. Great article and I have evidense that Elvis is still alive as well.

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    Well thought out. One question I would like to pose regarding CU and the idea of reviewing individual appraisals based on mass information is this, “What is to say that the appraisals that are being used by Fannie Mae are reliable or credible?” I know that our industry has a lot more bad apples than credible ones. And I am not going to state myself to be a good appraiser but I’ve seen what my “peers” do and I can’t say that the information that Fannie and CU are relying on to create this big data box is truly reliable. They are compiling all of this appraisal information based on a profession that is more subjective than objective. I’m sure there are appraiser’s out there that are going to look at my comment and think to themselves, “I’m an absolutely credible appraiser!!” and I will not go as far to say that those out there are not, but lets be frank. We still see appraiser’s creating generic CMA type appraisals without putting the true diligence and analysis required to create credible results. Otherwise, why is our industry the easyscape goat in every housing crisis. Its never the broker’s fault who’s only concern is their commssion check. Its never the underwriters fault because they are relying on an appraisal to make their judgement. So its the fault of an industry that has no two professionals that think alike. What about the executives of the banks out there that have periods of time where they are pushing mortgage volume and sending out bankwide referendums to drive more mortgage related business. Home buying is an absolute commitment and should not be so readily available in an economy where the typical household savings rates are not even enough to pay for a years worth of rent. I may be shooting myself in the foot for saying that but its whats most realistic and reasonable. The idea that everyone “deserves” to own a home is absolutely ridiculous, specifically in a market based economy where there will always be a divide between the “haves” and “have nots”. C U would be a good idea when the industry has absolute standards and the quality of information is consistent across the board. The fact that different appraisers could look at an Average-plus quality home and be on the fence between C3 and C4 is a prime example of our industry’s inconsistency when doing mortgage work.

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    I took a class in October ” how to pick the best comparables “.At the beginning of the class the instructor showed us a house that was currently on the MLS. We all got on the MLS and chose 5 comps. The instructor then compiled the total list and found that a total of 41 comps had been chosen for this one listing. We went through the class and “instructed” how to choose the best comps. We then went through the same exercise with the same listing. He had expected the total number to drop. That actual result this time was that a total of 43 comps had been chosen and I absolutely disagreed with the instructor’s comps. That is the problem with trying to standardize a very subjective type of work. You can’t but you can look at a report and decide if it makes sense and appears supported. They will never make real estate an industry with no risk. A lender wants to make money with no risk. Sorry, that’s the name of the game. Investment involves some risk and loans will go bad even when they were based on a “perfect” appraisal.

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    Excellent ……

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    Bottom line, Fannie has stated over and again that she and not you is in charge. She couldn’t care less about “appraiser independence” unless some bank is discovered to be in collusion of some sort with an appraiser. It has never occurred to her that almost everything she does eliminates independence. Indeed, conformity is her goal, but that is only short term.

    Whether you keep a work file with support in it or publish all of the support you have in the report does not matter to Fannie’s long term goal. Appraisers, as George Hatch opines, are a tax on lending and they want rid of it. Fannie is working on their behalf and is there to hassle you into submission until she and her clients are rid of appraisers altogether.
    She’s already won as far as I’m concerned and that was well before UAD and CU so I fired her. But that seems to be pretty much like fighting Sasquatch with a plastic knife.

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    A friend of mine had a brass plaque on his boardroom table that reminded him: “God so loved the world that He did NOT send a committee.”
    However, the UAD was created by a committee – a 12 member committee with two appraisers, six computer programmers, and four mortgage people. Guess how often the appraisers pointed out problems with the format, but got outvoted by the programmers.
    I think they eliminated the appraisers for the creation of CU.

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    To my friend Dustin, and all other appraisers:

    Why? Because FNMA does not want lenders to force appraisers to respond to these kinds of automated responses. Instead, they expect the Lender (and by extension, the AMC if used), to have a ‘human to human discussion’ about issues in the report. See below.

    It says so on page 2 of Lender Letter 2015-02, which describes what CU is and how it should be used: “The risk analysis performed by CU is for exclusive use by the lender in their analysis of the appraisal report. After completing a thorough review, a lender should be able to have constructive dialogue with the appraiser to resolve specific appraisal questions or concerns. Although the lender may use output from Collateral Underwriter to inform its dialogue with appraisal management companies and appraisers regarding appraisals they supplied, the CU license terms prohibit providing these entities with copies or displays of Fannie Mae reports that contain CU findings, including without limitation the CU Print Report, the UCDP Submission Summary Report, or any other CU report. The lender must not make demands or provide instructions to the appraiser based solely on automated feedback. Also the CU license terms prohibit using it “in a manner that interferes with the independent judgment of an appraiser.” Fannie Mae expects the lender to use human due diligence in combination with the CU feedback, and will actively follow up with lenders who are reported to be asking appraisers to change their reports based on CU feedback without any further due diligence.”

    So rather than writing a paragraph about your work, just copy and paste this paragraph above into an addendum, then add a statement that you will be happy to respond via a verbal communication with a human responsible for the report review, and will add further written information only if considered absolutely necessary.

    Only when we appraisers stop kaw-tawing to these improper requests, and begin informing the report users how things should be done, will the users ‘see the light’ and quit making these kinds of requests for additional information.

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      Better yet, if you are going to take secondary mortgage market work, copy and past Fannie’s quote into the letter of transmittal as well and then as Dave says, quit kaw-tawing. What is kaw-tawing?

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        It is kowtowing (cow-tow): To act in an excessively subservient manner.

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          Then I agree with Dave. In fact many members of the profession are far past kow towing and have moved on to deliberately throwing other appraisers under the bus just to get one more low paying job.
          Telling Fannie and her minions to stop encroaching on our independence is the job of each one of us, no one else. And it won’t be easy
          Maybe kow towing is the territory one gets working in the secondary mortgage market. What a mess!.

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      Thank you, Dave. I do not think you and I are far apart on this issue. Both of us are responding by not really responding. If my Condition rating was off, I believe it is my responsibility to change it. I am human and do make mistakes from time to time. 🙂 We should not address CU directly, however, and your point is well made. I like the paragraph you shared and am saving it to my quick responses right now. Thanks, friend!

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    And we are given a few sentences of Real Estate Puff and a few glamour shots. And we are all to give this the same ratings.. Ratings that are 1 paragraph long and split hairs.

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    you could walk 10 people around a house and get a range of rating for quality and condition.

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    Excellent article Dustin! You hit the nail on the head!!

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    USPAP has 3 mandates……to be independent, impartial and objective. When I am told that 8 other appraisers gave a comp a C4 and I gave it a C3 and I am ask to clarify, explain or revise, where has my independence gone? Why am I taking USPAP?

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    I feel the move toward UAD and now CU is a course to dumb down the industry. Appraisals are unique to the geographic area. It is impossible to try and standardize the industry country wide. I was taught that you appraise the subject property. NOT standardize your data in a uniform fashion so that every round peg fits into every round hole. I have completed many appraisals that required the square peg to be used. I sure hope that our industry as a whole will remain professional and not be pressured by lenders and Fannie to conform to their ideals. I would also like to hear some feed back one the difference between ADEQUATELY maintained and WELL maintained.??? with respect to C3 & C4.

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