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Effective Use of Collateral Underwriter Saves Time, Money While Improving Appraisal Quality

By Kerry Curry | January 14, 2016

Effective Use of Collateral Underwriter Saves Time, Money While Improving Appraisal QualityLenders that maximize the use of Fannie Mae’s Collateral Underwriter® (CU) have been able to make the underwriting process more efficient, while improving appraisal quality and reducing appraisal-related loan defects.

Collateral Underwriter is a proprietary model-driven tool developed by Fannie Mae that provides an automated appraisal risk assessment to support proactive management of appraisal quality.

“It’s such a powerful tool,” says Mat Ishbia, CEO of United Shore, a Troy, MI-based lender that participated in the trial testing of Collateral Underwriter. United Shore uses Collateral Underwriter on all of its conventional appraisals, Ishbia says. “Collateral Underwriter puts all the data and information at our fingertips and we can dig through it so much more efficiently,” he says. “Where it used to take us 30 minutes to review an appraisal, now it takes us 15.”

The system works best when a lender takes the time and effort to understand it and train employees, he says. At United Shore, the company’s chief operating officer and top leaders in underwriting spent time to put together a training program for the company’s underwriting department, Ishbia says. “The tool is so much more powerful than I could have ever imagined, and the cost savings are significant for the company.”

Fannie Mae’s customer engagement team and valuation experts from the CU team worked closely with United Shore and other lenders in their implementation of CU.

United Shore reviews about 300 appraisals a day and is saving 10 to 15 minutes on each one. That is at least 3,000 minutes a day saved, Ishbia says. “If it takes 100 minutes to underwrite a file, that’s 30 more loans per day that we can underwrite because of this tool.”

Besides being able to review more loans per day, United Shore used to spend $50,000 to $70,000 per month on automated valuation methods — money it doesn’t spend anymore. Collateral Underwriter is free.

Using Messages Effectively

Fannie Mae notes that it’s important for lenders to use the Collateral Underwriter messages displayed in the Uniform Collateral Data Portal® (UCDP®) at the time of appraisal submission as a springboard into the web application for more analysis.

For example, if a Collateral Underwriter message says an appraiser’s comparables are materially different from the model-selected comparables, a lender should go into the application and look at the sales Collateral Underwriter has pulled. How similar are they to the subject? Is there a good reason for them not being in the appraisal report or should they be in the appraisal report? Would their inclusion impact the appraisal result?

“There are some lenders who think they are using Collateral Underwriter because they are looking at the messages in UCDP and some of them think it is easy to take those messages and forward them to the appraiser. That is neither effective nor is it efficient,” says Zach Dawson, Fannie Mae’s director of collateral strategy. “The CU web application provides the context to make the messages actionable for the lender,” Dawson says.

Collateral Underwriter uses thousands of data points from appraisers to pull comparables and rank them in importance, using physical characteristics, time and location, and market-specific intelligence.

If the house in question is in a market where prices are rapidly increasing, for example, Collateral Underwriter will give more weight to the date of sale. But if the house is in a market where values have been flat, Collateral Underwriter may give less weight to the sales date and more weight to location and physical similarities.

Collateral Underwriter’s database is large, with 20 million appraisals, each with four to five comparable sales on average. This allows Fannie Mae to examine the data for inconsistencies within an appraiser’s own body of work as well as relative to his or her peers. 

For example, if an appraiser reports a sales price on a comparable sale that is different from what other appraisers reported, a data discrepancy message will be issued. When a lender goes into the web application, at a click of a button they will be able to see what other appraisers reported as well as what the public record shows for the value.

This finger-tip information allows the lender to quickly analyze the situation and decide how to proceed.

Additional Benefits

There are far more low-risk appraisals than high-risk ones submitted to Fannie Mae through UCDP. Collateral Underwriter allows a lender to quickly and efficiently evaluate low-risk appraisals in order to allocate time toward higher-risk appraisals.

“Collateral Underwriter not only can help you validate red flags but help you dismiss red flags,” Dawson says. “Say you are in a rural market and the comparables are 10 to 20 miles away and you are concerned. A lender can go into Collateral Underwriter and see that’s fine because those are the best comparables available, and there is no need to go back to the appraiser for clarification.”

“Collateral Underwriter can help lenders make fewer, but more informed requests for clarification from their appraiser. Many lenders we work with have actually reduced the number of appraisals sent back for correction while still reducing their number of appraisal-related defects at the same time,” he adds.

To date, more than 1,400 lenders have registered to use Collateral Underwriter and over 700,000 appraisals have already been reviewed by lenders in the CU web application.

While some are using it on 100 percent of files, others are still “kicking the tires,” Dawson says.
“Despite these benefits—and others—many lenders haven’t yet maximized Collateral Underwriter’s potential. However, we look forward to partnering with other customers, in similar fashion as we have with United Shore, as they implement CU.”

For Ishbia, a 100 percent commitment was a “no brainer,” he says. “Why would you not use it?” he asks. “And why would you not use it on every single file?”

Kerry Curry is a freelance writer for several Texas and national publications and is the former executive and magazine editor of HousingWire.