Fannie’s New Appraisal System Could Scuttle Deals, Appraiser Warn

A newly released federal online property valuation tool has the appraisal industry in an uproar.

On Jan. 26, Fannie Mae rolled out its Collateral Underwriter (CU) program, a new risk assessment tool to help lenders manage appraisal quality. Fannie is using historical appraisal data it has been collecting from appraisers since 2010.  Fannie claims to have 40 million sales in their database, with 40,000 new sales added monthly.

Mortgage lenders can use CU to manage risk. The CU system provides lenders with a risk score for the appraisal, ranging from 1 to 5, with 1 being the lowest risk and 5 being the highest risk. CU essentially analyzes large amounts of data from a variety of sources and produces up to 20 comparable sales, or comps, to compare them against the sales the appraiser uses in their report.

Fannie is providing lenders, but not appraisers, with direct access to the CU tool.

For some appraisers, they fear CU is an “appraisal time bomb,” while others are not so concerned about CU.

Georgia certified appraiser and blogger Hank Miller, associate broker of the Hank Miller Team at Harry Norman Realtors in Marietta, Ga.,warned that Fannie’s new nationwide appraisal system could lead to slower and costlier home sale closing and more disputes over price between buyers and sellers.

“My thoughts are that once again, the appraisal industry is the whipping boy for the sins of everyone,” said Miller, who predicted that appraisers will have to raise their fees to compensate for the additional time to respond to Fannie appraisal questions. “This will make appraisers even more defensive.”

Traditionally, an appraisal is performed and submitted to the bank, and then the underwriter signs off on it. Banks hire appraisers to tell them what a home is worth. Typically, appraisal fees run between $300 and $500, depending on the size and complexity of the appraisal. It’s a flat fee paid by the buyer to the appraiser whether or not the sale of the property goes through.

Bankers, appraisers and federal officials say they are seeing a rise in inflated home appraisals, which were widespread before the housing crash.

An estimated one in seven appraisals conducted from 2011 through 2014 inflated the home price by as much as 20 percent, according data provided to The Wall Street Journal from Digital Rick Analytics. The company was hired by the 20 largest lenders to review their loan files. Digital Rick examined 200,000 mortgages, reviewing the homes’ appraised values and other information, including the comparable sales, or “comps” in the areas at the times.

A separate survey by the Allterra Group LCC found that nearly 40 percent of appraisers surveyed from Sept. 15 through Nov. 7, 2014, reported experiencing pressure to inflate values, up from 37 percent in 2013.

For Realtors who are listing properties, these new CU tools are one more reason to price  properties correctly since the appraisal is going to be more carefully scrutinized now — if it’s a Fannie Mae-backed loan. Realtors working with buyers should make sure to inform their buyers that the federal government now has to sign off on Fannie-backed appraisals. And warn buyers that this new CU system could slow up a transaction or even scuttle deals because of appraisal issues.

What are your thoughts?

Is more government red tape good for the appraisal industry?

Or is CU a step in the right direction to help stop housing fraud?

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