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Scotsman Guide Residential Edition |
ScotsmanGuide.com | May 2017 36
Collateral Underwriter works in conjunction with Fannie Mae’s Day 1 Certainty initiative to give lenders freedom from representation and warranties
on loans that receive a CU appraisal risk score of 2.5 or lower. On appraisals
that come back with risk scores of three or higher, CU can be used to identify
the source of the risk, which can then be resolved by working closely with
an appraisal management company (AMC).
Thus, CU can help lenders and mortgage companies proactively manage
appraisal quality and originate mortgages with increased certainty and efficiency. The program allows users to easily identify areas of potential risk
with appraisals, and gives loan originators and processors the tools they
need to address these issues.
CU marks areas of risk with detailed flags that align with each step of the
valuation process. These flags identify potential issues leading to a high-risk score and can equate to both overvaluation and undervaluation. Many
appraisal issues can be resolved using insight into what triggers a CU flag in
the first place. There are three flags users will see in a CU analysis:
■ n Flag 1: Proprietary Eligibility and Policy Compliance;
■ n Flag 2: Overvaluation Risk; and
■ n Flag 3: Appraisal Quality.
When you see Flag 1 inside a CU analysis, it can be accompanied by two
different messages. The first is a Critical Proprietary message, which leads
to a hard stop in your valuation process. Fortunately, very few appraisals
receive this flagged message, but if it is not resolved, the loan cannot
be sold to Fannie Mae. The second message type is the Fatal UAD Edits
message, which signals that the appraisal has incomplete Uniform
Application Data or that the data is not in compliance with the set
The overvaluation risk flag (Flag 2) denotes exactly what it claims — a risk
of overvaluation. This flag does not trigger a specific message but rather is a
straightforward yes or no on the property being a higher risk versus having
little to no risk.
Flag 3 analyzes the quality of key appraisal components, which makes
this flag one of the most workable and valuable alerts available to originators. It is driven by four categories of messages: Data Integrity, Comp Selection, Adjustments and Reconciliation. These messages help originators
pinpoint specific aspects of the appraisal that need further attention. Let’s
take a look at each of these message areas in more detail.
Flag 3 message areas
The first set of messages originators might encounter under Flag 3 point
out issues with data integrity, which is the foundation of any appraisal. CU
is designed to help identify risk associated with data issues and examines if
the physical attributes and transaction terms of a property are accurately
reported. Data-integrity messages appear if there is any data discrepancy,
whether from issues with public records, mortgage information, incorrect
tax-assessment details, or others.
Comp Selection messages are triggered by analytics that address issues
with the comps selected by the appraiser. These messages help originators
identify if the selected comps are truly representative of the property. Every
comp selection should be unique and based on the local market.
Using CU, originators can easily rank the appraiser’s comps against other known sales and available data in the area. Keep in mind, the flag only
indicates that other potential sales exist. The originator or loan processor
should review other comps to determine if they might be appropriate and,
if so, present them to the appraiser.
Adjustments messages are generated when there is an issue with how
the comps have been adjusted for market reaction. Instead of relying on
approximations, CU performs regression analysis using millions of property transactions to produce statistically derived and market-specific adjustments for time, physical attributes and location.
Adjustments on a property that are significantly different than the CU
models are flagged. This flag doesn’t necessarily mean there is an issue
for concern. It simply means that certain “nontrackable” items, such as the
emotional factor or blanket appraisals, should be considered. The originator or processor should review the appraiser’s adjustments and determine
if they are supportable.
Finally, the Reconciliation message is a quick way to check if the value of
the property is within the sales-price range of nearby comps.
The CU flags and messages serve as alerts to potential issues and provide
originators and loan processors with points of intelligence to drive actions
and decisions on how to manage risk. Apart from the Critical Proprietary
message, which is a hard stop, the CU flags, messages and even the overall
risk score do not impact a loan’s submission status.