Appraisal Issues and Fannie Mae’s Collateral Underwriter; The Dreaded CU Score
CU = Collateral Underwriter
High “CU Scores” are causing appraisal issues more than ever, and creating a lot of confusion. But what is this Collateral Underwriter? This Collateral Underwriter is a property appraisal review tool that was created by Fannie Mae to provide an automated collateral risk assessment to mortgage lenders as a part of their underwriting process.
Collateral Underwriter Analysis
The CU tool relies upon a database of market data, property records, and proprietary analytical models to look at appraisals. Items in the appraisal that are looked at are the data integrity, comps, adjustments, and reconciliations. Lenders can then look at the CU results that provide the following, (1) a CU risk score on a scale of 1-5; (2) risk flags to address factors that lead to a”high risk” score; (3) detailed notes highlighting specific areas of the appraisal where further review (by a human) is required.
What Does A High “CU Score” Mean?
Fannie Mae now requires a “Collateral Underwriter” (CU) Score on every appraisal. This score reflects an automated risk assessment of the appraisal based on county records, comparable sales in the area, and appreciation of the subject property.
If the CU score comes in too high (appraisal is too “risky”), we are required to verify value with a field review or second appraisal. On a scale of 1-5, both “4” and “5” are deemed “too high.”
This is no longer the case. The underwriting team may order a desk review or ask clarifying questions from the original appraiser, but we do not order a 2nd appraisal OR a field review.
When a score comes back high, we immediately order a “rush” second appraisal (instead of a field review) because full appraisals tend to be more accurate. We also remind borrowers and realtors not to release the appraisal contingency until we have the 2nd appraisal in hand.
Why don’t we order the second appraisal upfront?
We simply cannot predict which appraisals will come back with a high CU score.
Some loans do require two appraisals from the start (i.e. flips, or price points over $1 million with LTV over 75%). For these deals, we order both appraisals on Day 1. When it comes to high CU Scores, however, we just don’t have a crystal ball.
Founder/Broker | JVM Lending
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