By: Ollie Sutherin, Consultant and Manager of Secondary Market QC Services

On May 5, 2021, Fannie Mae announced a break from its traditional guidance regarding field review appraisals in favor of a more technological approach to the reverification of appraisals. These changes were effective immediately.

Historically, Fannie Mae required one field review appraisal to be ordered for every 10 loans reviewed. The revised guidance states that, “the lender must complete a collateral risk assessment for all mortgage loans with an appraisal as a part of its random QC sample. It is acceptable for the collateral risk assessment to be completed by an individual who is not a licensed or certified appraiser.” Further, the collateral risk assessor must be competent in appraisal theory and must be able to specifically:

• Determine that a property meets eligibility requirements including the LTV, CLTV, and HCLTV ratios
• Assess appropriateness of comparable sales
• Assess appropriateness of the data presented in the appraisal report
• Conclude that the rationale for the reconciliation of value is supported
• Prescribe corrective actions for defects identified in the appraisal process
• Reconcile flags and messages that were identified in Collateral Underwriter (CU) if the property was able to be scored in CU. If the property was not able to be scored in CU, then reconcile any known quality messages (messages, alerts, flags) that are reflected in other third-party tools if utilized.

If the lender is unable to complete the above assessment or appropriately determine the quality of the original appraisal, it may order either a desk review or field review from a licensed appraiser for each sampled loan. The desk review or field review must address all the points in the above requirements.

This is seen as a significant change in the industry as the costs for traditional field reviews were becoming comparable in most cases to traditional appraisals. Additionally, it has become increasingly challenging to contract a licensed appraiser to complete the field reviews, especially in rural areas.

As the industry transitions into effectuating these new changes, the key takeaway for financial institutions is to contemplate either 1) hiring competent staff or train existing personnel to complete the assessments in accordance with the guidelines, or 2) engage knowledgeable third-party vendors to coordinate the completion of the work.

If your institution needs assistance pertaining to these or other quality control requirements, please contact Dave Reno, Director of Business Development, at dreno@younginc.com or 330.422.3445.