How Will Collateral Underwriter Change Appraiser Regulation?

Whether you believe Fannie Mae’s comprehensive rollout of Collateral Underwriter will finally weed out the lazy form-fillers or it will end up euthanizing the aging residential leg of the profession once and for all, is not the subject of this article.

There are plenty of blogs, articles, and seminars that are wrestling with the efficacy of CU and its long-term impact. To be sure, the profession has entered the new age of big data. Residential appraisers will need to navigate regression analysis, heat maps, trend lines, oblique aerial images, and especially how to tie it all together into something meaningful.

From a regulator’s perspective, the new paradigm creates compliance challenges for appraisers and AMCs. Collateral Underwriter will be analyzing its own model data and data provided by an appraiser’s peers. Everyone needs to be aware that Fannie Mae’s label of “peer” is not necessarily synonymous with the USPAP definition of “peer”.

APPRAISER’S PEERS: other appraisers who have expertise and competency in a similar type of assignment.

Appraisers who are provided rebuttal data through CU will need to justify their own analysis against an unknown group of “peers”. No one will know for certain whether this pool of “peers” truly fits the USPAP definition that includes expertise and competency. A peer in USPAP is not just anyone with a license. To CU…they might be. AMCs will need to steer clear of making demands of their panel based upon CU output.

From the AMC Administrative Rules:

Section 1452.190 Unprofessional Conduct—
“Dishonorable, unethical or unprofessional conductʺ as used in Section 65(a)(9) of the Act includes but is not limited to:

i) Deliberately interfering with a licensed Illinois appraiser’s ability to comply with USPAP;

j) Failing to deliver all information that supports a change in property value to a licensed Illinois appraiser without good cause;

When these two sections (i and j) were drafted back in 2010, it was already clear as to the direction the appraisal profession was headed. The law was written so that AMCs wouldn’t be able to filter the data toward one result or another. CU data, when provided by an AMC must be complete and support any change, up or down, to an appraiser. There will be no tilting of data to produce a more favorable score.

However, appraisers are also cautioned to understand that AMCs are legally permitted to ask for three things on any assignment:

Nothing in this Act shall prohibit an appraisal management company from requesting that an appraiser:
(1) consider additional appropriate property information, including the consideration of additional comparable properties to make or support an appraisal;

(2) provide further detail, substantiation, or explanation for the appraiser’s value
conclusion; or

(3) correct factual errors in the appraisal report.

These dovetail perfectly with the intent of CU.

Changing Landscape—

Why is Fannie doing this? Why are there so many different algorithms? Why so many different AVM models? Fannie Mae, like everyone else that pours money into real estate is looking for ways to minimize risk. The entire real estate collapse that began in 2008 was all about risk management through commoditizing and offloading risk. Today, big players are on the hunt for technological ways to minimize and manage their exposure to loss.

The first thing I was taught when I got into real estate in 1980 was that real estate was dynamic. Dynamic, meaning ever changing. Algorithmic tools embedded in AVMs and platforms like CU are trying to hedge the bets of their entities in residential real estate. The big players would like to know about the future of residential values but the mechanism by which conventional residential valuation is built, is by looking backward. The dynamic nature of real estate makes it a moving target—every day.

To CU, comparable sales closer to the effective date of value are important when the trend lines are pointing toward rapid appreciation or rapid decline. Conversely, sales going back twelve months are acceptable in a flat or stable market. In either reality whatever the appraiser chooses as a comparable is always in the rear view mirror. Appraisers base the future trend upon events of the past.

Steven Wright the comedian said, “I had a friend who asked me if I’d ever seen any pictures of him when he was younger. ALL of the pictures I had seen of him were when he was younger.”

Even if all of your comparable sales closed yesterday for an appraisal completed today, all of the sales would still be in the past. Imagine an appraiser completing a ten year DCF for the Twin Towers on September 10, 2001, with all of the assumptions that were reasonable on that day. What was the value of those reasonable assumptions on the following day?

What Do Residential Appraisers Need Now?

Regression analysis is here to stay. Because so many of us in the profession grew up with an intuitive approach to valuation, there’s a profound need for statistical education. Most of the residential appraisers in Illinois may only have a cursory understanding of regression techniques. You’ll need it to survive the data avalanche coming your way. You’ll need it to be able to defend your analysis and the risk scores that will be the result.

As for the brokerage business, there’s going be a need for more reliable listing information across Illinois. The days of haphazard reporting of GLA, room counts, baths, basement finishes, etc., need to come to an end. Too much is riding on data integrity. Appraisers need to get in front of their lenders and brokers so as to educate them on the new reality that has become big data and analytics. AMCs need to do more to educate their own panels.

This article was originally published HERE for more articles from Brian Weaver you can visit

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About Brian Weaver

Brian Weaver is the Appraisal Coordinator / Appraisal Management Company Coordinator for the Illinois Department of Financial and Professional Regulation (IDFPR). Brian has been a leader in the industry for over 25 years and worked as an investigator for the Office of Banks and Real Estate in Illinois.

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  1. Avatar

    Good luck.. I’ve been appraising for over 20 years. I stopped doing Conv work months ago.. I don’t need to hassle and additional liability… All I’m doing now is FHA and non-lender work…

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    With the lower rates, we don’t sleep now. Can’t imagine more documentation. No one is willing to pay us for the extra time that will be needed to complete a report, so good people will just leave the industry and find work that pays the same, with a lot less accountability, exposure, liability, stress, headaches, pressure.

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    Nothing in CU provides the answer that lenders REALLY want: what will the property be worth five years from now, when the borrower went bankrupt due to a car accident, or the couple got a divorce and had to sell, or the economy collapsed and the borrower was laid off. Or, if the desire to hold real estate debt or equity assets among households changes, as it did in the early 2000s to the mid and then late 2000s. That is an answer our current practice and understanding of real estate appraisal can’t provide. However, that won’t stop the torture of residential appraisers until they are finally replaced by AVMs.

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    I like the article Mr Weaver. I’ve been saying that FNMA work is appraising in a “box”. I do not like that the conflict of peer definition is overlooked by FNMA. I do agree that regression is a great tool to help us support what we do with our factors to value as well as supporting a trend line for market conditions. I like how you pointed out pertinent issues with CU and explained what we should do to adjust to the changing appraisal environment. Hope more Buzz articles are from well-informed individuals with a solid perspective on the issue. I think your general issues from Illinois are as applicable to myself here in California. Thanks.

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    Every large scale system goes through cycles of centralization and decentralization. Whether it is corrections (jails vs. halfway houses), mental health (hospitals vs. community clinics), military (large national army vs. reserves), etc. We are seeing the absurd end of a centralization cycle in appraisals. We literally have our central authority telling us they know better than us how to do our jobs, and know more about a property than someone who has walked through it. I for one do not want a return to a day when the Appraiser’s voice was god-like in proclaiming value, but what I’d rather have is balance. But for now, I’m glad I retire in three years. I wouldn’t wish upon my worst enemy the profession of real estate appraisal as long as we continue in this race to make more rules, centralize authority, undermine the “eyes on the ground”, and pay a wage that is dropping towards a minimum wage (while escalating the entry gate to the profession to a college education). None of this works. And oddly, the goal of “minimizing risk” is completely undermined by the combined effects of the regulatory and economic models. To minimize actual risk, you have to have an economic model that allows an Appraiser sufficient time to run out every detail of the appraisal process.

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    Someone please tell me what a heat map is.

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    Realtors actually telling the truth? Putting in the proper square footage of the living area. NOT omitting site sizes? Putting in a dollar amount for concessions? Saying that a property is waterfront when it’s a water view? Putting Manufactured homes in as one story standard stick built? Not counting basement living area, rooms above the garage, detached additional dwellings separate from the “real above grade living area” and not misrepresenting a property? That will be the da-a-a-ay when I die.

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    Here I sit with a college degree, 36 years of residential and commercial appraisal experience, SRA Designation, million $ E&O policy and General Appraisal Certification and for the past two weeks all my clients are telling me that my appraisal reports suck due to these automated reviewer software programs. Actually, the automated reviewer systems were written by software techies who know nothing about real estate valuation. Also, the lender’s forgot to send out the memo to all the home builders, owner builders and property developers who have built product over the past 80 years that does not conform to the new rules. The Realtors, sellers and buyers were also not given the memo either. What a cluster bomb it is now.

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    A couple of corrections…

    The entire real estate collapse… was ALL about …commoditizing and offloading risk. Today, big players (let’s not euphemize, we are talking about the banking lobby) are on the hunt for technological ways to re assign loss to the public (that’s us). PERIOD. Private profit, public risk. That is the modern business model.

    “Appraisers base the future trend upon events of the past.”

    For the type of appraisal assignment we are talking about, appraiser DO NOT predict or report future trends. We are reporting things “as-is” while the bank is the one speculating on the future value of a property as it will serve for collateral for their mortgage backed commodity.

    CU is yet another band aid which is resting upon dozens of others all trying to stop the bleeding from a compound fracture. It is the system that is broken, not the individual components.
    Banks are underwriting the risk for loans with other peoples money by way of FNMA. Appraisers are supposed to regulate this transaction “in the public interest” but we have to compete with each other in order to get paid by the very entities we are meant to regulate.
    That’s like your local contractor being in charge of hiring the building inspector.
    Foxes…meet hen house!

    • Avatar

      Excellent response. I am so discouraged by the corrupt banking system taking advantage of unknowing and incompetent buyers and the appraisal industry who believes that regression analysis will fix real estate valuation issues. There is no free market. There has been no free market for years. We are in another bubble set in motion by an out of control Federal Reserve
      who’s only response to our economic problem are low interest rates and money printing.
      In Europe they have begun negative interest rates and you know that policy will becoming here.
      The economic (currency) reset is coming and it is coming fast. Get your bills paid, buy some silver and gold, store some food and get your money out of the banking system.

      I would write more but I have to finish this FHA appraisal with 6% seller concession. Oh yes, it’s selling over list.

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    “Appraiser Coordinator” Weaver -I posted a comment earlier and it was critical of the fact you actually have no type of USPAP Appraisal License-and the post was removed. That action reflects and defines the negligence perpetrated by the Banks, and their AMC’s shill companies – and yet you feel qualified to judge professional Appraisers.

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    The implementation of CU is a violation of appraiser independence guaranteed by the Ethics Rule of USPAP (See page U-7). When a written disclosure comes your way displaying that your condition ratings , quality labels, gla’s, etc. have not matched those of eleven other appraisers using that address and you are asked to explain, clarify or revise, your independence has been revoked. Secondly, this is affixing itself to an “Appraisal Review” also governed by USPAP. Why aren’t the USPAP instructors screaming at the top of their lungs?

  12. Avatar

    Fannie Mae lays off top review appraisers on 3/4/15

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