hastalavista
Elite Member
- Joined
- May 16, 2005
- Professional Status
- Certified General Appraiser
- State
- California
Last Friday, in San Francisco, I was part of my local AI Chapter's Fall Conference event (65th year). This is a daylong event that is divided into a general session, and then break-out sessions lasting 1.5 hours each.
I moderated a panel on CU and had two guest speakers, both work for banks (smaller community bank and larger community bank; almost regional) and they shared their insight on how the CU program works.
I won't say that they gave away top-secret information, but they were very clear that the GSEs limited what could be shared on their product; and that is a shame. Because after their presentations, I walked away thinking, "this is much ado about nothing... and if the GSEs could open their books and share with the appraisers how it works and what it does, a lot of the angst would disappear."
A few things I can share might make things easier for some of us:
1. CU ranks 1-5, with anything over a "4" being an upper risk.
Upper risks will always be looked at.
2. Lenders assume that the CU risk ranking is a flag for buy-back demands.
Lenders need to address these issues one-way or another. If they are not addressed and the loan develops into a buy-back scenario, then the lender has really weakened its position to argue against the buy-back. By the way, a "buy back" doesn't necessarily mean a default. The package could be pushed-back after the lender closes the loan and once it is submitted to the GSEs.
3. Different lenders have different abilities to filter the CU feedback.
I thought this was important.
Lenders with their own review departments will spend time reviewing the CU findings against the appraisal report. Many times, if CU flags the report as a higher-risk loan, upon review, the issues disappear. When the reviewer cannot clear the item him/herself, it will then be sent to the appraiser for a response.
However, many smaller lenders (and some larger ones) don't have a "review department" per se. In that case, it may be an underwriter who is making the decision to send the issues back to the appraiser. This isn't a function (necessarily) of an inept lender; it is a function of their structure. If there isn't a review appraiser available to review the report, then the likely result is a request gets sent to the appraiser direct. This has caused a lot of frustration; especially for appraisers who deal with an AMC that has both types of lender-clients: One lender may just ask a specific question because they've already filtered through the CU & appraisal; another lender may not have that ability and just send off the issues to the appraiser to address.
4. AMCs can handle some of the CU issues, but not all.
This is something I learned from an earlier presentation that was made by AMCs only. The AMCs do not get the full report and the AMCs are not the ones on the hook for the buy-back. Some lenders require that all CU issues be addressed by the appraiser. Others will ask the AMC to be their in-house review process and filter the request a bit. However, regardless of which system is used, the lender is ultimately responsible.
5. Good appraisal reports are flagged as high-risk.
The CU program doesn't think and cannot read an appraisal report. The CU program does rely on a lot of data and the geographic area it searches is, many times, not the same as an appraiser would search. Good reports are flagged when the CU data is poor quality or the property-type is atypical.
6. Good appraisal reports have an explanation of what they did.
It was unanimous in both events that the best way for an appraisal report to address a CU issue is if it provides the necessary discussion. This means discussion of the market area, discussion of the comparables (yes, those that were used and those that, on paper, look like their good but were not used), a discussion about the adjustments.
The discussion (and, in some cases, support) is critical to the lender. If the reports simply state things, that's about as good as the CU (which simply prints out a number or a suggested adjustment). Reports that provide a summary of the problem, analysis of the issues, support for the adjustments, and a reconciliation of why they picked the value they picked have the information needed to refute the risk-flag from the get-go. Nevertheless, remember, if the lender does not have the bandwidth to digest that, they may default to a request-to-address CU issues anyway (even if it is in the report).
7. A big flag is conflicting "C" and "Q" ratings.
This will result in a "hit" almost every time. There is no getting around this, like it or not. Inconsistent ratings will trigger an alert. If there is a reason for the difference and it is known, then it should be explained in the report (remodeled, or the place has been damaged since the last time the appraiser used it, etc.).
8. CU analyzes the market area differently.
CU breaks down a market area based on a sub-division of the census tract. It is really meaningful for the appraisal reports to adequately describe and define their selected competitive market/neighborhood. Some meaningful description is necessary. Things like school districts, tract developments, etc., are not easily identified by CU but should be part of the appraisal analysis when they matter. And, since CU is using census tract data, it matters.
CU is a risk-analysis tool that the GSEs are using to reduce their purchase of "risky loans". I put "risky loans" in parenthesis because the CU analysis, as sophisticated as it is in gathering data, is just a computer program. Based on the presentations, there is no way a CU risk-flag can hold water against an adequately written and supported appraisal. There is just no way. And, while I don't want to put words in any of the presenters in my sessions, that is my take-away of how they felt as well.
I also took-away this: Other than the consistency check, CU is not a threat to appraisers. It is a PIA sometimes, and especially if some lenders simply default to sending the risk-flags out for comment; but, again, those lenders are typical the ones who don't have the review wherewithal to filter out the items themselves.
All participants have experienced friction from appraisers in dealing with the CU requests. While they understand it (they are appraisers too, and as I said, they see more than we when a CU flag is a false-positive) dealing with it in a negative way is not helpful in the long run. Some of the stuff is simple housekeeping issues that are easily resolved. Other stuff might take more explanation and discussion; stuff that, if it were in the report to begin with, likely would have been resolved without the appraiser ever knowing about it.
But, the lenders do take CU seriously as it is the initial tool that the GSEs use to rate collateral risk. And, if the lenders don't address the concerns, their ability to argue against a buy-back demand... even with a good appraisal... is impaired.
What I would encourage other appraisers to do who can influence their own appraiser-groups who hold presentations and panel discussions is this:
Have a CU panel with lender representatives (too many times it is a non-bank/lender appraiser who is talking about what CU rules are; we know what CU rules are. We want to hear how it is actually used by our clients). Get them to share with appraisers how they use it, what they see, the good and the bad of it, and what they think can nip a CU issue in the bud.
If appraisers were able to attend presentations like that, I think it would go a long way in reducing the anxiety that CU has created and give us guidance on how to communicate the kind of report that our clients are now looking for.
I moderated a panel on CU and had two guest speakers, both work for banks (smaller community bank and larger community bank; almost regional) and they shared their insight on how the CU program works.
I won't say that they gave away top-secret information, but they were very clear that the GSEs limited what could be shared on their product; and that is a shame. Because after their presentations, I walked away thinking, "this is much ado about nothing... and if the GSEs could open their books and share with the appraisers how it works and what it does, a lot of the angst would disappear."
A few things I can share might make things easier for some of us:
1. CU ranks 1-5, with anything over a "4" being an upper risk.
Upper risks will always be looked at.
2. Lenders assume that the CU risk ranking is a flag for buy-back demands.
Lenders need to address these issues one-way or another. If they are not addressed and the loan develops into a buy-back scenario, then the lender has really weakened its position to argue against the buy-back. By the way, a "buy back" doesn't necessarily mean a default. The package could be pushed-back after the lender closes the loan and once it is submitted to the GSEs.
3. Different lenders have different abilities to filter the CU feedback.
I thought this was important.
Lenders with their own review departments will spend time reviewing the CU findings against the appraisal report. Many times, if CU flags the report as a higher-risk loan, upon review, the issues disappear. When the reviewer cannot clear the item him/herself, it will then be sent to the appraiser for a response.
However, many smaller lenders (and some larger ones) don't have a "review department" per se. In that case, it may be an underwriter who is making the decision to send the issues back to the appraiser. This isn't a function (necessarily) of an inept lender; it is a function of their structure. If there isn't a review appraiser available to review the report, then the likely result is a request gets sent to the appraiser direct. This has caused a lot of frustration; especially for appraisers who deal with an AMC that has both types of lender-clients: One lender may just ask a specific question because they've already filtered through the CU & appraisal; another lender may not have that ability and just send off the issues to the appraiser to address.
4. AMCs can handle some of the CU issues, but not all.
This is something I learned from an earlier presentation that was made by AMCs only. The AMCs do not get the full report and the AMCs are not the ones on the hook for the buy-back. Some lenders require that all CU issues be addressed by the appraiser. Others will ask the AMC to be their in-house review process and filter the request a bit. However, regardless of which system is used, the lender is ultimately responsible.
5. Good appraisal reports are flagged as high-risk.
The CU program doesn't think and cannot read an appraisal report. The CU program does rely on a lot of data and the geographic area it searches is, many times, not the same as an appraiser would search. Good reports are flagged when the CU data is poor quality or the property-type is atypical.
6. Good appraisal reports have an explanation of what they did.
It was unanimous in both events that the best way for an appraisal report to address a CU issue is if it provides the necessary discussion. This means discussion of the market area, discussion of the comparables (yes, those that were used and those that, on paper, look like their good but were not used), a discussion about the adjustments.
The discussion (and, in some cases, support) is critical to the lender. If the reports simply state things, that's about as good as the CU (which simply prints out a number or a suggested adjustment). Reports that provide a summary of the problem, analysis of the issues, support for the adjustments, and a reconciliation of why they picked the value they picked have the information needed to refute the risk-flag from the get-go. Nevertheless, remember, if the lender does not have the bandwidth to digest that, they may default to a request-to-address CU issues anyway (even if it is in the report).
7. A big flag is conflicting "C" and "Q" ratings.
This will result in a "hit" almost every time. There is no getting around this, like it or not. Inconsistent ratings will trigger an alert. If there is a reason for the difference and it is known, then it should be explained in the report (remodeled, or the place has been damaged since the last time the appraiser used it, etc.).
8. CU analyzes the market area differently.
CU breaks down a market area based on a sub-division of the census tract. It is really meaningful for the appraisal reports to adequately describe and define their selected competitive market/neighborhood. Some meaningful description is necessary. Things like school districts, tract developments, etc., are not easily identified by CU but should be part of the appraisal analysis when they matter. And, since CU is using census tract data, it matters.
CU is a risk-analysis tool that the GSEs are using to reduce their purchase of "risky loans". I put "risky loans" in parenthesis because the CU analysis, as sophisticated as it is in gathering data, is just a computer program. Based on the presentations, there is no way a CU risk-flag can hold water against an adequately written and supported appraisal. There is just no way. And, while I don't want to put words in any of the presenters in my sessions, that is my take-away of how they felt as well.
I also took-away this: Other than the consistency check, CU is not a threat to appraisers. It is a PIA sometimes, and especially if some lenders simply default to sending the risk-flags out for comment; but, again, those lenders are typical the ones who don't have the review wherewithal to filter out the items themselves.
All participants have experienced friction from appraisers in dealing with the CU requests. While they understand it (they are appraisers too, and as I said, they see more than we when a CU flag is a false-positive) dealing with it in a negative way is not helpful in the long run. Some of the stuff is simple housekeeping issues that are easily resolved. Other stuff might take more explanation and discussion; stuff that, if it were in the report to begin with, likely would have been resolved without the appraiser ever knowing about it.
But, the lenders do take CU seriously as it is the initial tool that the GSEs use to rate collateral risk. And, if the lenders don't address the concerns, their ability to argue against a buy-back demand... even with a good appraisal... is impaired.
What I would encourage other appraisers to do who can influence their own appraiser-groups who hold presentations and panel discussions is this:
Have a CU panel with lender representatives (too many times it is a non-bank/lender appraiser who is talking about what CU rules are; we know what CU rules are. We want to hear how it is actually used by our clients). Get them to share with appraisers how they use it, what they see, the good and the bad of it, and what they think can nip a CU issue in the bud.
If appraisers were able to attend presentations like that, I think it would go a long way in reducing the anxiety that CU has created and give us guidance on how to communicate the kind of report that our clients are now looking for.
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