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Collateral Underwriter Explained

Today, we’re going to go over everything you need to know regarding Collateral Underwriter.  collateral underwriter

We will be discussing what collateral underwriter is, what it will do, the top things you need to know, its potential impact, and most importantly, what you can do.

Collaterual Underwriter is Fannie Mae’s proprietary ‘risk management’ software tool they have been using in-house for years to help mortgage lenders manage risk. Yesterday, they’re released this software to lenders and their business partners (AMCs). It will provide additional transparency and certainty by giving lenders access to the same appraisal analytics already used.

Fannie Mae’s quality control process. There is a higher need for appraisal quality since the Great Recession and CU will provide a backstop to make sure these quality needs are being met.

According to Fannie Mae, CU now supplies up to 20 comparables that are ranked by risk to the lender and AMC. Fannie Mae has been collecting data from the UCDP for years.

14093_wpm_hires (1)Before we go further there’s a few aspects of Collateral Underwriter that are very important to know.


First: Collateral Underwriter is used only for loans geared towards Fannie Mae. Any other types of appraisals done (ie for divorce settlements) are not subject to Collateral Underwriter.

Even with Fannie Mae, Collateral Underwriter isn’t always used. For instance, Collateral Underwriter isn’t applicable for 2-4 unit properties, drive-bys, FHA or VA loans.


Now that those points are established, lets go into what Collateral Underwriter will do.

Because CU performs an automated risk assessment on appraisals and returns a risk score, flags and messages to the lender, Collateral Underwriter is able to provide a risk score for the appraisal of anywhere between 1 – 5. Where 1 is the lowest risk score, and 5 is the highest risk score.


CU will take the comparable sales selected by the appraiser, analyze them and recommend alternative. CU is able to do this because Fannie Mae has over 12 years of data that has come through the UCDP, which allows them to compare previous data to any new appraisals that come through. Not only do they have comps other appraisers have used, but also value adjustments completed by other appraisers. CU can analyze the conditions of one report to another, and it will pay special attention to comp selection, adjustments, and the final reconciliation of value.


This means that CU will also compare adjustments the appraiser has given with what other appraisers have done in the same area.


However, when it comes to neighborhood boundaries, CU uses census block groups for data analysis instead of specific neighborhood boundaries that are already easily understood in the market.  These do not always align well with actual neighborhood boundaries. These CBGs will be used to help calculate Market Conditions and trends. This means that there is potential for distinct difference between CBG based trends and neighborhood trends defined by the appraiser in the market conditions addendum.

Appraisers can easily use google maps to help them understand census blocks if they need to defend an appraisal.

Also, CU cannot read any of the commentary an appraiser may put on a report (which is instrumental in understanding comp selection, adjustments and final value) – so it is likely many appraisers will receive their reports back

Appraisers will need to respond to any “value reconsideration” requests, and also respond to reviewer supplied CU risk rated comparables. This could mean added time on appraisals.




When it comes down to it, no one actually knows the impact of giving lenders access to CU will have on the market. It could change the mortgage industry, or nothing could happen. Remember, Fannie Mae has been using CU for years, and it only applies to Fannie Mae loans, however it is very important to notice that when it is first implemented there be a learning curve, which could slow down loan processes. It’s going to take time for lenders, appraisers and underwriters to adjust to this new format of work. This also means that turn-times could become slightly longer. As lenders and AMCs will now have access to CU, it is possible that the client can question why not all of the other comps in the census block were not used on the report. Increased scrutiny could cause the appraisers to spend more time responding to CU. It is important to lenders to make sure that they are working with a talented AMC, one that has experience in appraisals themselves, to help the lender determine which comps need to be defended by the appraiser, and which ones are simply differences due to the census block groups inability to determine the exact neighborhood boundaries.



Our advice to lenders is this:


Ensure that your AMC utilizes every QC (both automated, and by actual people) checks have been performed prior to UCDP delivery. This could greatly limit the appraisals with hard stops that require extra commentary or reflection on behalf of the appraiser. You also want to be working with an AMC that has a strong qualified panel of appraisers on its’ side. The more knowledgable the appraiser, and the more detail and accuracy that go into the report – the smoother the proccess will be. But be prepared for hiccups and time constraints along the way. No new processes have ever been implemented flawlessly.


Our advice to appraisers is this:


For appraisers, all we can say is continue to choose the best available comparables and make reasonable market-supported adjustments. As you continue your work after the start of CU access to lenders and AMC, there will be a learning curve. But the more accurate, and detailed your work, the more red flags you can avoid. Explaining why you made adjustments and supporting those adjustments will be the foundation of your year while the industry adjusts to CU. Bottom line is, you should begin adding more commentary in your reports. AppraisalPro supplies lots of resources and materials to help you in your appraising process, as well as discounts for continuing education. These can be found right on our website.


AppraisalPro is completely prepared and ready for the release of Collateral Underwriter. We are utilizing the best technology available, and have both automated and human QC checks at every step of the appraisal process. We ensure that we employ only the most stringent and qualified appraisers to ensure everyone is satisfied with reports, and have the lowest red flagged appraisals returned. As one of America’s most trusted AMCs, we will continue to strive for a nearly flawless track record with appraisal reports. Ensuring our clients have the confidence they need, and the speed their loan officers demand.


Fannie Mae