Collateral Underwriting


Collateral UnderwriterTM [CUTM]

Collateral Underwriter is an appraisal risk assessment algorithm and database developed by Fannie Mae. This free tool is made available to all lenders to give them a holistic value of risk on properties they underwrite and potentially sell to Fannie Mae and Freddie Mac.

What is It?

A database of over 12 million appraisals and almost 20 million transactions. Which applies a risk and comparable values on properties under contract. The database and algorithm will have access to comparable sales data, market trends, mapping, ariel photography, public records and additional information to assist in the manual review of the appraisal.

When is it Implemented?

The process will begin on January 26th, 2015 and will be fully implemented by April 2015.

Why is it being used?

CU was developed to give a monetary value and risk assessment on properties across the United States being underwritten and sold to Fannie & Freddie. It will help determine any risk in an area or property that may or may not retain its value. It will also help to eliminate the purchase of risky properties where the buyer may be underwater on the value. CU will give a numerical score of risk, ranging from 1.0 to 5.0. Risk flags and messages will identify risk factors that may require additional attention.

How does it work?

When a consumer has an executed contract on a home, the lender will run an initial findings report with the contracted property. The initial risk assessment will alert the lender to any valuation risks reported by the CU system. This system will be used to gauge the completeness of an independent appraisal. Appraisals will be required to be submitted prior to the appraisal review process in Underwriting and any differences in a lower than sales price value will need to be defended by the appraiser. The appraisal can be resubmitted to be reanalyzed.

How will it affect my sellers & buyers?

CU may impact property eligibility and could cause the contract parties to renegotiate the sales price based on the CU risk assessment on conventional loans. There will be unintended consequences that will not be fully “understood” until implementation of the entire product.

What are our Appraisers Saying?

“I think they are going to be electronically monitoring all appraisals for consistency. They will be comparing reports against their database to see if it exceeds or falls below their parameters.  They want the appraiser to use specific formulas and regression analysis to mathematically support the amount of the adjustment. In the past it has always been left up to the appraiser’s experience and judgment. What his peers would consider reasonable. They are also doing away with the 15-25 rules (net vs gross adjustments). Recently I’ve been taking Green related courses and have been able to develop a way to adjust for solar panels and green energy efficient homes that have a HERS rating. It is a technique that takes into consideration the present value of savings over an extended period of time. Most solar panels have a life expectancy of 15-20 years. The only drawback is that FNMA will not allow for solar panels that have been leased. It is a way for new home builders to build more efficient homes and be able to compete with other builders.” Edward Gray, Appraiser.

How are we implementing the process?

The process has been implemented into our initial submissions on a property. It will begin assigning risk, flags and comparables on January 26th as part of our DU process. We will know at the beginning of the process if there might be flags issued on the subject property.

In true Hamilton Group fashion, this will allow us to get ahead of any value or property issues prior to the appraisal. Communication is the key! We have trained all of our Loan Originators to contact the listing agent after approval from our borrowers.

Training & Information?

Training Solutions provided by Fannie Mae beginning on January 6th, 2015. We have scheduled a training session on January 13th, here at our office, at 1:00 PM. If you would like to attend the training complete with a Q&A after, please click here to sign up! This event is free to our Realtors!

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