The Ongoing Debate About Fannie Mae's CU Tool

Collateral Underwriter

The Ongoing Debate About Fannie Mae's CU Tool

A new tool for mortgage underwriting giant Fannie Mae rolled out in 2015, designed to reduce risk for lenders.

Many appraisers say it wil raise the cost of appraisals, and that their jobs are in jeopardy. Realtors worry about downgraded appraisals and a standardized system that values all homes in census block groups the same way. Buyers and those refinancing worry about having to make up differences between appraisal values and loan amounts.

Here's some of the chatter online about Fannie Mae's new Collateral Underwriter:

  • Fannie Mae's New Appraisal Risk-Assessment Tool: Collateral
    National Association of Realtors
    Fannie Mae will make Collateral Underwriter (CU), an appraisal risk-assessment tool, available to lenders in early 2015.
    You visited this page on 3/16/15.
  • Collateral Underwriter - HousingWire
    If the argument is that a lender can now more easily manage appraisers on their own because of Collateral Underwriter, that may be true if you believe AMCs ...
  • Will Fannie Mae's Collateral Underwriter kill appraisal ...
    Feb 4, 2015 - If the argument is that a lender can now more easily manage appraisers on their own because of Collateral Underwriter, that may be true if you ...
  • Appraisers are pist with Collateral Underwriter - HousingWire
    Jan 30, 2015 - Only a few days into the release of the Fannie Mae Collateral Underwriter and my prediction of this being the biggest process change in the ...
  • Fannie Mae: Collateral Underwriter is not "disruptive" to ...
    Jan 27, 2015 - Lenders are eager to start using Fannie Mae's Collateral Underwriter(CU), while appraisers raise concerns over the negative impact it could ...
  • Who's Afraid of the Collateral Underwriter?’s-afraid-collateral-underwriter
    Jan 12, 2015 - Last October, Fannie Mae announced it would make Collateral Underwriter, its proprietary appraisal analysis application, available to lenders ...
  • Appraisal Review Will Reach New Levels with Collateral ...
    National Mortgage News
    Jan 29, 2015 - Fannie Mae recently released its Collateral Underwriter automated risk assessment tool, which evaluates the risk associated with appraisals.
  • What's Going On with Fannie Mae's Collateral Underwriter ...
    Dec 1, 2014 - The recent announcement that Fannie Mae will expose its sellers to the Collateral Underwriter™ (CU™) appraisal review tool has appraisers ...
  • ACIweb | Collateral Underwriter and Chicken Little
    Dec 18, 2014 - In October of this year Fannie Mae announced the release of Collateral Underwriter, a "proprietary appraisal risk assessment application ...
  • Untangling the Misconceptions of Collateral Underwriter
    Feb 25, 2015 - The latest Lender Letter distributed by Fannie Mae was issued to dispel misconceptions about the intent and process of Collateral Underwriter ...
  • What Appraisers Should Know About Collateral Underwriter
    Jan 21, 2015 - Another milestone in the appraisal industry is upon us. Fannie Mae's Collateral Underwriter, known as "CU," is set to change the appraisal ...
  • How Will Collateral Underwriter Change Appraiser ...
    Mar 4, 2015 - Whether you believe Fannie Mae's comprehensive rollout of Collateral Underwriter will finally weed out the lazy form-fillers or it will end up ...
  • OREP/Working RE's Collateral Underwriter Talkback Blog ...
    Jan 27, 2015 - OREP/Working RE's Collateral Underwriter Talkback Blog. A free idea exchange designed to help appraisers share their experiences and ...

About CU

“Collateral Underwriter” is the new software tool released to lenders and AMCs (Appraisal Management Companies) in late January. A sort of “second guessing” model for appraisal comparables, it is designed to reduce risk for the underwriter, AMCs and lenders.

CU reviews comparables, generates review requests for additional comparables and assigns them a risk value. The question is, will the tool pressure AMCs and lenders to routinely downgrade appraisal values?

From Fannie Mae’s Fact Sheet

How to Use CU Risk Scores and Messages

  • Lenders may use the CU risk score to segment appraisals by risk profile, resulting in more efficient resource allocation, workflow management, and collateral risk management processes.
  • Risk flags identify appraisals with heightened risk of quality issues, overvaluation, and property eligibility or policy compliance violations.
  • Detailed messaging directs reviewers to specific aspects of the appraisal report that may warrant further attention.
  • Perform in-depth analysis using CU’s dynamic web-based interface that includes comparable sales data, market trends, mapping, aerial photography, public records, and other functionality to assist with manual review of the appraisal.

Is it an AVM?

Fannie Mae denies the tool is an Automated Valuation Model, arguing that it doesn’t produce a  recommended value. Instead, it provides up to 20 comparables “ranked by risk” by Fannie’s proprietary algorithms. The list includes the appraiser’s comparables, which are assigned a risk value. Appraisers must respond to lower risk comparables generated by the CU. As of January 26, 2015, appraisers and lenders were given access to local data to aid in their computations.

AMCs are likely to hire unlicensed staff to manager the CU-generated data, while licensed appraisers create the original appraisal and respond to requests by the CU. Will the CU tool affect a significant percentage of appraisal values in a negative way and increase the cost of appraisals? Too early to tell for certain, but a lot depends on the structure of the algorithm and accuracy of the data.

If designed as a support tool for originating appraisal accuracy, it will reassure buyers. If designed solely to reduce appraisal risk by shaving value, we worry about the formula’s impact on appraisers who know DC’s neighborhoods and rapidly-changing values, and on the DC real estate market in general, which in many respects is unique in the nation.

Neighborhood Values, CBGs and the CU

Our understanding is that the tool was released without standardized neighborhood boundary definition ability. In the absence of this, Fannie Mae will define market areas by Census Block Groups. As far as we can tell, this is true for the structure of the mapping capability, as well. The problem we see with this is that CBGs are typically dated and don’t reflect the District’s real-time, oft-changing unofficial neighborhood boundaries, which are the key determining factor in value of homes in many locations.

DC’s micro-neighborhoods and their associated market data can not be defined by CBGs or zip codes. This came up in appraisals pre-CU, too. For example, we often saw Mount Pleasant, which has extremely high neighborhood single family home values and whose zip code is shared by micro-neighborhoods with much lower market values, downgraded when CBGs and zip code rather than micro-neighborhood mapped data is utilized.

We rely on the expertise of experienced and DC-knowledgable appraisers to use comparables that reflect the location value of the property in question. Pre-CU, Fannie Mae provided appraisers with a Market Conditions Addenda form appraisers added to their report utilizing only neighborhood data for market trends. It’s not clear to us how appraisers generated this data.

We applaud providing appraisers with access to better data such as the type we purchase for DC micro-neighborhoods from RBI. Unfortunately, CU isn’t using a micro-neighborhood mapping tool or data. Will the absence of micro-neighborhood data and tools generate lower comps from dissimilar micro-neighborhoods the appraiser will then have to argue against, creating a greater workload for already time-strapped appraisers, and without additional pay (we’re guessing)? This could lead to appraisers simply folding in CU’s lower comps. It should be noted that Fannie Mae has an ‘approved appraisers’ list.

More on Fannie Mae's CU Tool at


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Comment balloon 0 commentsThe Isaacs Team llc • March 17 2015 07:23AM
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