Equity Value Partners

Collateral Underwriter Cliff Notes #2

Posted on: February 5th, 2015

CU chalkboard

Two Weeks into the Era of Collateral Underwriter: What Have We Learned?

— Be patient with your clients as they figure out their own process. Just because you’re asked for a silly rebuttal today doesn’t mean that it’s your client’s permanent solution.

— A thoroughly researched and well-written appraisal report still stands on its own merit. A “good report” acknowledges potential lender risks and explains why the available dataset supports the value opinion.

— The Collateral Underwriter isn’t a ploy to take our jobs. In fact, FNMA has reiterated its reluctance to “produce” values, which will hopefully encourage our ranks. In order to safeguard the future of the appraisal industry, which is EVP’s primary mission, we as appraisers must figure out how to deliver client value in the most efficient manner possible.

— The Collateral Underwriter does a decent job of selecting “alternative comps” based on the Q and C ratings provided by our professional peers. We have not seen many unjustified questions — for example, asking why the appraiser didn’t consider a house that’s half the size with half the quality.


Reaching Consistency on Property Classification

In regards to property classification, it is absolutely imperative that appraisers reach consistency and coherence. To this end, I have asked Robert Murphy, FNMA’s appraisal policy officer, to issue a visual guide similar to the Marshall and Swift cost handbook in order to help appraisers get on the same page. Futhermore, we’ve asked Mr. Murphy to expand the Q & C classification framework. The current Q1-5 is simply not detailed enough to accurately classify the majority of homes we are inspecting. There are very few Q1’s or Q2’s in most of our markets, but many shades of Q3 & Q4.


EVP’s Best Practice Suggestions

Tip #1: Include Rebuttal

Include a “Rebuttal to Collateral Underwriter” page as PAGE 7 in all your reports.

Benefit: This will allow quick access by UW and consistent presentation of the comments needed in your report.


Tip #2: Organize Report Structure 

To recognize how lenders are using our reports, arrange your appraisal reports using an organized and sorted structure, such as a stacking order or report skeleton. Many reports are delivered as if they will be printed and reviewed manually. Not sure where to start? We recommend the following format:

I. Pages 1–6 of URAR
II. Additional comparable pages
III. Rebuttal to Collateral Underwriter Page
IV. Photos
V. Maps
VI. Disclosures & Agenda

Benefit: There’s a tremendous leap in efficiency waiting to be captured by appraisers stacking their reports the same exact way. For example, we’ve all wondered how the weary UW could ask for a comment that was clearly addressed in our extended notes. The problem is, we all have different places we prefer to stick notes, which makes them easy to overlook.


Tip #3: Up the Presentation

Reorganize your presentation of market area description (insert link to FNMA selling guide appraisal practices). Particularly, describe what the market values most about the location, i.e. the “market drivers” in the neighborhood, such as convenient access to commute arteries, renovated condition, or proximity to neighborhood amenities. It is appropriate to identify by name economically competitive subdivisions in addition to proximate subdivisions which are not competitive.

Benefit: This will set the stage for why you selected your comparables.


Tip #4: Follow this Format for Your Rebuttal:

Follow this format for the “Rebuttal to Collateral Underwriter” addenda:

I. — Lead with your comp search parameters. This should logically tie into the market area description. If you skip over closed sales whose basic physical characteristics could be considered similar to the subject, in favor of other sales further away, it should be acknowledged in the report with reasonable explanation. Much of this can be headed off in the market description section where appraisers can actually identify competitive and economic substitute comparables by name. For example, “The appraiser chose comparables exhibiting most similar market driver characteristics as the subject in terms of age, condition, location (be consistent with market drivers listed in market area description) and excluded dissimilar properties that were more proximate.”

II. — Anticipate what Collateral Underwriter will identify as risks, then acknowledge and rebut those risks. Keep in mind that the 15% net/25% gross rules of thumb were set aside last fall. Your software should identify most of these risks for you.

III. — Always include the most similar, proximate sale, regardless of date. I have reviewed several lender Collateral Underwriter report examples and have noticed that their models tend to include sales that appraisers might leave out due to the sale date.


As Collateral Underwriter unfolds, EVP is confident that these new changes will have a positive and valuable impact on our industry. We truly appreciate your patience and investment in our profession. Thank you.