First Look. Webinar Series 1. Uniform Mortgage Data Program

Transcription

1 First Look The Fannie Mae & Freddie Mac Appraisal Data Program Webinar Series 1 Uniform Mortgage Data Program Sponsored by Northern Michigan University Developed/Presented by Rich Heyn and Dawn Molitor Gennrich Handout: First Look Webinar: Series 1_ Developers: Heyn, Molitor Gennrich, LLC Page 1 of 29

2 For Educational and Informational Purposes Only Suggestions or recommendations presented in this webinar are not warranted or guaranteed by the developer(s), presenter(s), or sponsoring organization. None of the parties involved in the development, presentation or sponsorship of the webinar intend any information presented herein to: constitute an absolute solution to similar types of appraisal assignments. The presentation merely provides guidance. constitute, or be a substitute for, legal advice or assistance from an attorney. If legal assistance is necessary, please consult your personal attorney or other competent legal counsel. Handout Copyright By having possession of this Handout you have: agreed to the terms and policies set forth under the Northern Michigan University (NMU) Continuing Education Policy [ certified you are the person who enrolled as identified in the webinar registration for this webinar program. For Further Information Contact Sponsoring Organization: Northern Michigan University, Continuing Education Appraisal 1401 Presque Isle Avenue, Marquette, MI Telephone: , conteduc@nmu.edu or Fax: Website: Webinar Presenters/Developers: Richard Heyn, SRA and/or Dawn Molitor Gennrich, SRA webinars@att.net About the Developers & Instructors Richard Heyn, SRA and Dawn Molitor Gennrich, SRA are the webinar's developers and instructors. Both Rich and Dawn are AQB Certified USPAP instructors and Certified Distance Education Instructors. Dawn is a former member of the Appraisal Standards Board. First Look: The Fannie Mae & Freddie Mac Appraisal Data Program Webinar Series 1 Copyright 2011 by Heyn, Molitor Gennrich, LLC, Baroda, MI. All rights reserved. Handout: First Look Webinar: Series 1_ Developers: Heyn, Molitor Gennrich, LLC Page 2 of 29

3 First Look Webinar Series 1 Table of Contents Webinar 1 Introduction First Look Overview First Look P art A. Part A Objectives...6 I....7 II....8 III....9 IV V VI VII P art B. Part B Objectives I I I I II Illustration Illustration Illustration Illustration Illustration Illustration IV Links Handout: First Look Webinar: Series 1_ Developers: Heyn, Molitor Gennrich, LLC Page 3 of 29

4 Introduction First Look This is the first webinar in a series covering the Fannie Mae and Freddie Mac "loan quality initiative" that calls for a number of significant changes in the way you will communicate and deliver your appraisal reports going forward. This initial, two hour webinar was designed to give you a "heads up" on how these changes will affect your appraisal practice. You should now understand the concepts and objectives of: Uniform Mortgage Data Program ( UMDP) Uniform Collateral Data Portal (UCDP) Uniform Appraisal Dataset (UAD) MISMO XML File Format (MISMO) The Uniform Mortgage Data Program (UMDP) is a joint effort by Fannie Mae and Freddie Mac (the GSEs) to standardize and improve data quality in a manner that benefits the entire mortgage industry. To enhance appraisal data quality and consistency and promote the collection of electronic appraisal data the GSEs have developed, as part of the UMDP, the Uniform Appraisal Dataset (UAD) and the Uniform Collateral Data Portal (UCDP). Handout: First Look Webinar: Series 1_ Developers: Heyn, Molitor Gennrich, LLC Page 4 of 29

5 Overview First Look Webinar Description This webinar is designed for residential appraisers who are involved in mortgage lending appraisals. The objective is to help you clearly understand what new obligations will be required to effectively complete and transmit an appraisal report to a lender client under the new Uniform Mortgage Data Program. The webinar is comprised of two parts. Part A describes the key initiative, the Uniform Mortgage Data Program and its two appraisal related programs. In an effort to enhance appraisal data quality and consistency and promote the collection of electronic appraisal data both GSEs, as part of the UMDP, have developed the Uniform Appraisal Dataset (UAD) and the Uniform Collateral Data Portal (UCDP). Of the two, the UAD has the greatest impact on residential appraisers who communicate and report their appraisal results on predefined forms for mortgage lenders. The UAD includes all fields required for a complete appraisal and standardized definitions, acronyms, and responses for a key subset of fields. To further enhance your understanding of the UAD, six illustrations of key standardized elements are discussed in Part B. There should be no mistake after attending the webinar presentation that if you are involved in appraisals for mortgage lending, the new UMDP lending initiative will affect you and how you report your assignments results. Handout: First Look Webinar: Series 1_ Developers: Heyn, Molitor Gennrich, LLC Page 5 of 29

6 Part A Part A of the webinar begins with a discussion of the Uniform Mortgage Data Program developed by Fannie Mae and Freddie Mac. This is the key lending initiative from which all other programs in the initiative originate. So understanding why the UMDP was developed and the concepts behind it provides a basis for understanding the other two programs specific to residential appraisers. Learning Objectives The learning objectives are: Identify the different names and acronyms associated with the new lending initiative, the Uniform Mortgage Data Program (UMDP). Recognize the rationale behind the new Uniform Appraisal Dataset (UAD). Recognize how the new UMDP initiative creates a need for common data standards, known as the Uniform Collateral Data Portal (UCDP); and, how a data standard called MISMO XML fits into the picture. Helpful Thoughts The key to Part A is grasping the alphabet soup of acronyms for the various new programs developed by Fannie Mae and Freddie Mac. Don t be discouraged if you initially had difficulty remembering one acronym from another during the webinar. You can take your time now and review the acronyms and their accompanying titles to be sure you understood each one correctly. This type of recognition will assist you when you need to implement the requirements in the reporting of your appraisal reports. Handout: First Look Webinar: Series 1_ Developers: Heyn, Molitor Gennrich, LLC Page 6 of 29

7 Part A Uniform Mortgage Data Program Introduction Question: What appraisal related information do you believe Fannie Mae or Freddie Mac receive from the lender before a loan portfolio is purchased? Answer: The fact is that Fannie Mae and Freddie Mac, also known as the GSEs or Enterprises, have almost no information about the subject property before they purchase a loan. It s the proverbial pig in a poke trick. However, today the GSEs have apparently decided to change the way they do business. In 2009, Fannie Mae and Freddie Mac began laying the foundation for a new lending initiative that would require lenders to electronically deliver loan documents and appraisal reports prior to the GSEs purchasing the loan portfolio from the lender. This new initiative is the topic of First Look: The Fannie Mae and Freddie Mac Appraisal Data Program. I. What is the UMDP, ULDD, UAD, UCDP? The Uniform Mortgage Data Program (UMDP) initiative has a number of components that are referred to by using different acronyms, so first let s sort out the alphabet soup and then focus on the two components that have the most significant ramifications for appraisers. The general umbrella that covers the initiative is known as the Uniform Mortgage Data Program, or UMDP. Under the UMDP are two requirements that specifically deal with the appraisal report: the Uniform Appraisal Dataset (UAD) and the Uniform Collateral Data Portal (UCDP). The objective of the Uniform Appraisal Dataset is to bring more standardization and uniformity to the data reported by appraisers. The Uniform Collateral Data Portal is the mechanism by which appraisal reports will be electronically transmitted to the GSEs. A. What is the Uniform Loan Delivery Dataset (ULDD)? The Uniform Loan Delivery Dataset identifies the data points required for all loan types delivered to either GSE. To provide some perspective and ensure you don t feel singled out as an appraiser, understand that the Uniform Mortgage Data Program also imposes new requirements for lenders as well. In addition to the Uniform Appraisal Dataset and the Uniform Collateral Data Portal, the UMDP includes the Uniform Loan Delivery Dataset or ULDD for lenders. Handout: First Look Webinar: Series 1_ Developers: Heyn, Molitor Gennrich, LLC Page 7 of 29

8 The ULDD consists of a 2,000 character loan delivery file format with accompanying field definitions and an implementation guide of 170 pages. This is clearly more extensive than what appraisers will be required to deliver under this new lending initiative. While it's too early to tell, the fact that lenders will have substantially more to learn than appraisers, could mean that it will take the lending community more time to "get up to speed" on the new appraisal requirements. And that carries an implication for appraisers. That implication for appraisers being they may have to provide "on the job training," soto speak, for some underwriters and others once the new appraisal requirements become effective. Appraisers who have an in depth understanding of the new appraisal requirements will be able to deal with calls, questions and stipulations from these sources in a more time efficient manner. II. Rationale for the UMDP, UAD and UCDP A. The Uniform Mortgage Data Program Question: Why did Fannie Mae and Freddie Mac institute the new UMDP? Answer: To better identify the data the GSEs receive related in a loan portfolio purchase and to recognize the characteristics of good loans versus bad loans. Another way of saying this, in the words of Fannie Mae and Freddie Mac is "to improve overall loan quality." The Uniform Mortgage Data Program is a major, new lending initiative by the Enterprises to improve the consistency and quality of data reported for appraisals and other loan information. The point of the initiative is to enhance the depth of appraisal data, borrower data and loan data submitted by lenders to the GSEs, but the final underwriting decision is still up to the lender. The Uniform Mortgage Data Program is a long term, joint effort by the two GSEs that has two goals that affect appraisers: To create improved and uniform 1) appraisal data standards and the 2) appraisal data collection processes. B. The Uniform Appraisal Dataset The UAD and resulting new appraisal data standards, weren t developed in a GSE vacuum the Enterprises continue to work with varied industry participants including appraisal organizations, independent appraisers, software vendors and lenders to develop these uniform appraisal standards. In addition, two government agencies and their appraisal experts have worked closely with the Enterprises in developing these standards the Federal Housing Administration (FHA) and Veteran s Administration (VA). While FHA and VA have not adopted the Uniform Appraisal Dataset, it would not be surprising if they did in the future. So if you accept appraisal assignments from financial institutions, the UMDP and its requirements will have a significant impact on your appraisal work. Handout: First Look Webinar: Series 1_ Developers: Heyn, Molitor Gennrich, LLC Page 8 of 29

9 III. Past Reporting of an Appraisal A. Introduction The Data Portal will affect how appraisal reports will be communicated and transmitted to a client; therefore, a brief historical review is in order. The following is a review of how appraisers have been completing appraisals, reporting results, and getting the reports into the hands of their clients over the years. Traditionally, field collection of data was done using paper and clipboard. After an appraiser had collected the data in this manner, he or she would analyze it and develop opinions and conclusions. When the appraisal development portion was finished, the appraiser would hand write the appraisal report. For residential appraisers this was commonly done on a pre printed appraisal report form. In the "old days" development and reporting were clearly and physically separate functions. Once the handwritten report was complete, in most cases the appraiser would hand off the file and handwritten report to a staff member who would type up the report using the same type of pre printed report form. After the appraisal report was typed up, the appraiser or a staff member would place stick on arrows onto the map exhibits and use a glue stick to paste on the photographs. If typographical errors or misspelled words were found during this task, the report might need to be re typed! The completed report was mailed to the client, or, in many cases, hand delivered to the client near the end of the business day, and the appraiser, in an effort to further cement the appraiser client business relationship, would invite the client for some postworkday refreshment. After the appraiser sent or delivered the report to the lender, the report was reviewed and the loan was underwritten according to the lender s policies. This was when lenders strictly followed the three C s of lending; Creditworthiness, Capacity to repay and Collateral assessment. The secondary market was not much of a factor back in the good old days and most loans were kept in the lender s loan portfolio. In most cases, that s where the loan papers and appraisal report remained until the loan was paid off. Loans were local. B. Standardized Appraisal Forms The Green Hornet People in the business world know that order promotes efficiency, so even in the good old days lenders wanted standardized appraisal formats, at least for their own use. Standardized appraisal forms enable the lender/reviewer to find information more quickly once they become accustomed to looking for a given item in a given location. Handout: First Look Webinar: Series 1_ Developers: Heyn, Molitor Gennrich, LLC Page 9 of 29

10 In 1962, a Chicago appraiser by the name of Greg Opelka developed a standardized form for the U.S. League of Savings and Loan Associations. The Appraisal Committee of the U.S. League eventually adopted the form as the #17 PRA, or Professional Appraisal Report, but because of the color of the paper on which it was printed, it soon became known as the Green Hornet. The Green Hornet was used by many Savings and Loan Associations in the 1960s and early 1970s. Then, during the 1970s, Fannie Mae released their residential appraisal report, which became the go to form for many lenders, even if they weren t selling loans in the secondary market. IV. Curren t Reporting of an Appraisal Today things are different, although the appraisal data gathering process hasn t changed much. Most appraisal data related to the subject property is still gathered on a clipboard and paper, although more appraisers are using portable devices. But after the field data is gathered, things begin to change dramatically from the good old days. The majority of appraisers use computer technology to obtain the additional data needed for the development process and create the report as the analysis takes place. Essentially, the development and reporting occurs almost concurrently, and when the processes are complete, the computer stores the report as a data file in a digital format. While the ramifications of having the data in a digital format are significant, the data file is in the proprietary format of the appraisal forms software vendor. In other words, the format in which the data appears to the eye, the appraisal form, may be standardized; however, the format in which the data itself is stored is not. This is a significant issue as it more clearly explains why the GSEs have developed a new requirement as part of the UMDP, the Uniform Collateral Data Portal (UCDP), for transmitting appraisal reports to your lender clients. Although appraisers have been using computers to prepare appraisal reports for over 30 years, it wasn t until the mid 1990s that appraisers began transmitting reports electronically, and in the case of many offices, not until just the last 10 years. And that process has been far from perfect. In many cases, the exchange of appraisal report data is hampered by the lack of a standardized data file format. Depending on the needs/wishes of various clients, an appraiser who prepares a report using software from Vendor B may have to use a separate program from Vendor A to convert the data into a format of a client's choice. Typically, this is because a client is using a "Rules Set" that is compatible with a given software vendors proprietary data format. A. What is a Rules Set? Appraisal reporting is not the only lending related function that has changed over the years; the underwriting process has changed as well. Underwriters now have electronic helpers in the form of a Rules Set. Handout: First Look Webinar: Series 1_ Developers: Heyn, Molitor Gennrich, LLC Page 10 of 29

11 A Rules Set is a computer program that checks an appraisal report for completeness and consistency. Automated rules for appraisal reports go back about 25 years. In the mid 1980 an appraiser, Richard Heyn, SRA who owned an appraisal software company compiled a list, or set of common requirements and guidelines used by lenders and secondary market participants, like Fannie Mae and Freddie Mac. He didn t know it was called, or would become known as a Rules Set and didn t know the concept would eventually be adopted by every major lender and processor of appraisal reports. He simply reasoned that if the appraiser could run these rules against his or her report before it was sent to the client, the client would get a better report and the appraiser would receive fewer calls from underwriters. He almost named the product Underwriter Fighter but thought it was too corny and antagonistic, so he named it Review Master. The name sticks to this day. V. Today The GSEs and Loan Origination Question: Where do Fannie Mae and Freddie Mac fit into the origination process today? Answer: Fannie Mae and Freddie Mac each have their own Guide, which outlines the policies, procedures and requirements for lenders who wish to sell mortgage loans to either entity. Question: Today, does Fannie Mae or Freddie Mac review each loan portfolio before they purchase it? Answer: As noted earlier, no. Fannie Mae and Freddie Mac require a lender to represent and warrant that if the lender sells a loan to either entity, everything in the loan file from the loan application to the credit report and on to the appraisal report will be consistent with the requirements outlined in their respective Selling Guides. Historically, Fannie Mae and Freddie Mac wait on the sideline and don t get into the game until the loan is closed, and only then, if the loan goes bad, or turns nonperforming to use their terminology. In that latter case, the GSE will then take a hard look at the loan file to see if the lender has played by their rules, their Guides. If not, they can force the lender to repurchase the loan. Currently, Fannie Mae and Freddie Mac don t receive a copy of the appraisal report prior to the purchase of a loan file. As we stated earlier, the GSEs only receive a handful of appraisal related data points from the lender: the borrower name, property address and type, occupant type, number of units and final value. VI. Future The GSEs and Loan Origination Under the new lending UMDP initiative, Fannie Mae and Freddie Mac have a new game strategy that includes getting involved right from the start no sideline benching; direct contact is their goal. They want the opportunity to have a look at every appraisal report prior to the loan being purchased from the lender/client and to gather and analyze the data from the appraisal report. Handout: First Look Webinar: Series 1_ Developers: Heyn, Molitor Gennrich, LLC Page 11 of 29

12 This represents a major shift in their strategy and the ramifications of that shift are going to change the game dramatically for residential appraisers. NOTE: To be clear, this look by Fannie Mae and Freddie Mac will occur before or at the time the loan portfolio is purchased, not at the time the loan file is closed with the borrower and lender. Reviewing an appraisal prior to or at the time of purchase may seem like an obvious element in risk management, but as stated earlier, the GSEs have historically relied on the lender s ability to properly underwrite the loan and the lender s signed representations and warranties, or reps and warrants. Given the volume of loans processed by the GSEs, delays caused by the simple logistical issues of getting a copy of the appraisal report and reviewing it prior to purchase were considered too time consuming, therefore, unacceptable. VII. The Uniform Collateral Data Portal To overcome the issues associated with the delivery process, Fannie Mae and Freddie Mac will require lenders to electronically deliver the appraisal report prior to (or at the time) the loan portfolio is being purchased, if the loan application date is on or after December 1, 2011 and an appraisal report is required. You may be thinking, What s the big deal; appraisers have been transmitting reports electronically to their clients for years? The answer to the question, What s the big deal is the fact that there has never been a standardized data file format between the appraiser, the lender, and the GSEs to accomplish this task as a unit. Here s where the Uniform Collateral Data Portal (or UCDP) enters the picture. The Uniform Collateral Data Portal is a means of electronically collecting the appraisal report data, but it requires a standardized data file format. Once in this format the lender can deliver to the Enterprises the appraisal report data electronically through the UCDP prior to loan delivery. So the lender will provide the GSEs a PDF version of the appraisal report and an electronic version of the appraisal report using a standardized data file format through a uniform portal. This will allow the GSEs to ensure that the appraisal report "passes" the Rules Set, which includes the Guide requirements for completeness and standardized responses. In theory, the concept sounds great, but understand that the lender is responsible for allowing enough time for both the lender and the GSE to resolve (with the appraiser) issues with the appraisal report and still meet the delivery date to sell the loan to the GSE. The law of unintended consequences tells us to expect undue pressure to respond to inquiries and questions from clients who do not allow adequate timing for pre delivery review. Handout: First Look Webinar: Series 1_ Developers: Heyn, Molitor Gennrich, LLC Page 12 of 29

13 A. Standardized file format and data portal When an appraiser prepares a report on his or her computer, the report is stored on the computer in whatever data file format the software provider designed; a proprietary file format. Computers store data much like the old time post offices used pigeonholes to sort the mail. Today, each software vendor has their own file format. It s as if one post office sorted the mail by the recipient s last name and another post office used the street name. This would result in different storage formats. If a postal employee transferred from one office to another, he or she would need to be re trained because that post office s data file format would be unfamiliar. In the world of computers, data is transmitted from one computer to another as a series of bits and bites, or zeros and ones. Converting and storing data from an appraisal report form into "bits and bites is not a problem; appraisal forms software vendors have been doing that for over 30 years. B. What is MISMO XML? When information is being shared between two computers, the receiving computer needs to know in what order those bits and bytes are being transmitted. If the transmitting computer is sending the file in the proprietary data format from Vendor A and the receiving computer is expecting to receive the data in the file format used by Vendor B it won t work the two will be unable to communicate. So a common data format is needed. Here is where a new player in the Data Portal game enters the picture MISMO. MISMO XML based mapping information is used to translate the data entered on the appraisal report form into the format expected by the Uniform Collateral Data Portal. The Internet based acronym, XML is a file extension meaning extensible Markup Language specifications. MISMO XML will be used by appraisal forms software vendors and any lender (including their agents, like an Appraisal Management Company (AMC)) selling the loan packages to the Enterprises to meet the new requirements under the Uniform Mortgage Data Program. MISMO is an acronym that stands for Mortgage Industry Maintenance Standards Organization. It is a wholly owned subsidiary of the Mortgage Bankers Association. According to their website, MISMO's objectives are to develop, promote and maintain voluntary electronic commerce procedures and standards that allow mortgage lenders, investors, servicers, industry vendors, borrowers and other parties to exchange real estate finance related information securely, efficiently and economically. MISMO is an all volunteer organization and publishes open standards, meaning no fees are associated with their use. There is no need to get too detailed with the actual standards, as this part of the process will be transparent to appraisers. Handout: First Look Webinar: Series 1_ Developers: Heyn, Molitor Gennrich, LLC Page 13 of 29

14 C. Future Transmission of an Appraisal Report Question: How will the Uniform Collateral Data Portal change the future of transmitting an appraisal report? Answer: For starters, appraisers will likely not be able to see any difference because appraisers will complete and transmit their reports much like they do today. The software vendors will incorporate conversion programs that will automatically convert a proprietary vendor s file format into the new MISMO XML 1 file format. The appraisal report will be transmitted using the MISMO file format to the lender or their agent, such as an AMC. The lender will in turn send this electronic appraisal data set and a PDF version of the appraisal report to the GSEs prior to loan delivery. But remember, as stated earlier, this will be transparent to the appraiser. Per the GSEs, there is no cost associated with uploading an appraisal report, in an acceptable MISMO XML format 2, to the portal. However, if the report can only be transmitted by 1 st Generation PDF, there will be a fee for the conversion of that PDF into an XML format. 1 Open standards. 2 MISMO Property Valuation Response V2.6 Schema Errata 1 Handout: First Look Webinar: Series 1_ Developers: Heyn, Molitor Gennrich, LLC Page 14 of 29

15 Part B According to the GSEs, the Uniform Appraisal Dataset (UAD) includes all data points required for a complete appraisal report and standardizes key data points to enhance data quality and promote consistency in appraisal data. In Part B, a series of illustrations is used to promote understanding the concept of standardization and how it will affect the way assignment results are reported on pre printed report forms. Learning Objectives The learning objectives are: Recognize the impact of the Uniform Appraisal Dataset on common GSE report forms. Identify which appraisal report forms are affected by the Uniform Appraisal Dataset. Identify the objectives behind the Uniform Appraisal Dataset. Helpful Thoughts Although Part B does not review all the changes that will impact you when reporting an appraisal report, it will highlight the key changes and illustrations of the standardization that Part A discusses under the Uniform Appraisal Dataset. We highly encourage you to attend the next webinar in this series to truly understand your obligations from the Subject section to the Sales Comparison Approach on page two of the GSEs pre printed appraisal report forms. Handout: First Look Webinar: Series 1_ Developers: Heyn, Molitor Gennrich, LLC Page 15 of 29

16 Part B. The Uniform Appraisal Dataset (UAD) I. What is the Uniform Appraisal Dataset At the beginning it was noted that the new lending initiative, the Uniform Mortgage Data Program (UMDP) has another requirement that directly affects appraisers and lenders, as well as the AMCs. It is known as the Uniform Appraisal Dataset or UAD, and its key element is the development of common appraisal data definitions that will be incorporated into the UAD complaint appraisal report forms. As a reminder, the UAD includes all data points required for a complete appraisal report and standardizes key data points to enhance data quality and promote consistency in appraisal data. For ease of adoption for lenders, vendors and appraisers the GSEs are not making significant changes to the actual appraisal report forms. Instead, the primary focus is on developing clear appraisal definitions (datasets) that will produce standardized responses to key data fields in the report. These data fields will be the ones that the GSEs have determined to be material to understanding the value and for which the data, in their opinion, has previously been insufficient. In other words, the look of the appraisal report forms will be minimally changed at least for now. However, don't be misled by the fact that the "look and feel" of the forms is not significantly different. The method in which appraisers will complete the report forms will be significantly different. A. The four UAD Compliant Appraisal Report Forms Initially the only forms that will be revised and to which the uniform dataset applies are: Uniform Residential Appraisal Report (Form 1004/70) and Exterior Only Inspection Residential Appraisal Report (Form 2055/2055) Individual Condominium Unit Appraisal Report (Form 1073/465) and Exterior Only Inspection Individual Condominium Unit Appraisal Report (Form 1075/466) The GSEs will also accept other appraisal report forms completed using the uniform dataset standards, where applicable. In other words, if you happen to use the standardized responses on GSE report forms other than the ones identified it will be acceptable to the GSEs. Handout: First Look Webinar: Series 1_ Developers: Heyn, Molitor Gennrich, LLC Page 16 of 29

17 If you're wondering why these specific report forms were targeted in the initiative, it's simply because the vast majority of loan types sold to the GSEs require one of these four report forms. The GSEs collectively refer to these report forms as the four UAD appraisal report forms. The GSEs have been working early on with the appraisal software vendors to allow for sufficient time to update packages. The GSEs suggest contacting your software vendor on timing and the release of new packages to meet the initiatives requirements. II. Rationale for the Uniform Appraisal Dataset Question: Why was the Uniform Appraisal Dataset developed as part of the Uniform Mortgage Dataset Program? Answ er: There are three distinct reasons the UAD was developed as part of the UMDP: 1. The short term rationale is to improve the quality and consistency of appraisal data on loans delivered to the GSEs. 2. It also opens the door to the creation of a database that would allow the GSEs to push information back to lenders and appraisers. In other words, information harvested from a large number of appraisals could be very useful to individual appraisers. 3. Another reason for the new lending initiative was the overwhelming appraisal fraud uncovered in the loan packages the GSEs purchased from the early 2000s to The GSEs have learned a hard lesson about risk management and the necessity to be proactive and part of the game early on; versus being reactive and sitting on the sidelines waiting for something bad to happen. As noted earlier, the GSEs plan is to get involved up front, before or upon delivery of a loan portfolio from a lender. Their intention is to ferret out inappropriate activity, intentional or unintentional, on the part of any party involved in the transaction. This "early detection" approach will better allow them to spot fraudulent appraisal reports and loan transactions, keep an eye on suspected "bad actors" and monitor neighborhoods with histories of fraudulent activity. It will also enable them to vet loan files to identify incompetently completed appraisal reports, poor underwriting and inaccurate information related to a borrower's income or employment history. Remember, the Uniform Mortgage Data Program, of which the Uniform Appraisal Dataset is a part of, is a broad based initiative that is intended to cover all three "C s" of the underwriting process; Creditworthiness and Capacity to repay as well as Collateral assessment. Handout: First Look Webinar: Series 1_ Developers: Heyn, Molitor Gennrich, LLC Page 17 of 29

18 A. Concept of the Uniform Appraisal Dataset As stated earlier, according to the GSEs, the Uniform Appraisal Dataset (or UAD) includes all data points required for a complete appraisal report and standardizes these key data points. The concept is that standardization of certain data points will support consistent appraisal reporting regardless of geographic location or any localized reporting conventions, because it disallows vague or disparate data, which was commonplace in many of the fraudulent appraisal reports associated with bad loans purchased by the GSEs. If you are wondering, How often will the UAD be updated or changed? The answer is tied to the Uniform Loan Delivery Dataset (ULDD). This dataset, specific to the lender, is designed to accommodate all types of loan attributes and transactions. The ULD dataset focuses on root data that is, for the most part, already captured by lender systems at varying points in the loan production process. So how often the UAD will be updated depends on how often the ULDD is updated, as such updates effect the reporting of appraisal information. B. Uniform Appraisal Dataset Announcement: December 2010 On December 16, 2010, the GSEs published the full details of the UAD, which included the following: A UAD business overview (which is for lenders and appraisers) that clarifies the key elements and implementation dates for the two appraisal related programs: Uniform Appraisal Dataset and Uniform Collateral Data Portal; and, A set of UAD implementation specifications. The specifications consist of MISMO XML based mapping information and other technical details. Recognize that these specifications are for appraisal software vendors, AMCs, and high volume lenders, not appraisers. Specifications consists of a list of standardized definitions and responses for a key subset of fields on the four residential appraisal report forms initially covered by the UAD and instructions to understand the requirements. The information is useful to appraisers to help understand the changes in the completion of the new UAD compliant forms. These specifications will be used to translate the data entered on the appraisal report form into the MISMO XML file format for use with the Uniform Collateral Data Portal; which will also be used by appraisal software vendors and any lender or lender s agent, like an AMC, who are responsible for transferring the appraisal dataset to the GSEs electronically. Handout: First Look Webinar: Series 1_ Developers: Heyn, Molitor Gennrich, LLC Page 18 of 29

19 III. Uniform Appraisal Dataset Illustrations The following is a brief overview of several of the key standardized data points and definitions (known as specifications by the GSEs) from the December announcement, specifically the UAD Specifications Appendix D: Field Specific Standardization Requirements & Instructions, dated December 16, This is not intended to be an all encompassing set of illustrations of the UAD changes, as that is beyond the scope of the webinar to which this handout is related, and will be dealt with in depth in the second part of this webinar series. Rather, the illustrations offer a glimpse at the type of changes appraisers will face in adapting to the new UAD. The new UAD specifications will mostly be facilitated by forms processing appraisal software. One example of how this might work: an appraiser enters a date in a format other than what the UAD specifications call for, in this case the software would simply convert the format "on the fly to the UAD compliant format. In other words, if the UAD calls for a date to be expressed in an YYYY MM DD format and the appraiser enters June 10, 2011 on the report form, the software program will automatically convert the entry to The majority of software vendors will likely fulfill the specifications of the UAD. However, it is unclear what may occur with the smaller vendors. We encourage you to contact your vendors early on to find out how they plan to comply with the UAD specifications. Handout: First Look Webinar: Series 1_ Developers: Heyn, Molitor Gennrich, LLC Page 19 of 29

20 Illustration 1 Our first example is the standardized data point requirements for the reporting of currency numbers and dates in an appraisal report. Entry is whole values only Ex Correct Entry full date MM DD YYYY EX Correct To get all values and dates the same in an appraisal report the following standardizations were created: Money or currency can only be represented as whole values. The entry does not need to contain the dollar sign or any commas or periods (because cents are not allowed). The computer program will reformat any entry you make into the UADcompliant format so you don t need to learn this; however, you should understand that no matter what your entry is, this will be the format it will show up looking like on the report form. Dates, no matter how you enter them, each will be translated into this format of MM first, followed by a dash, then DD second, followed by a dash, then ending with the YYYY. As stated earlier, the software should translate the date entered into this format so it isn t anything "new" to learn. Source: Appendix D: Specifications pg. 9 Handout: First Look Webinar: Series 1_ Developers: Heyn, Molitor Gennrich, LLC Page 20 of 29

21 Illustration 2 Another example of a standardized requirement deals with variations in reporting the measurement of an area, such as the basement area and percentage finished. Basement Area & Finish: Numeric only; If none, enter 0 Ex Correct To limit too many variations of how this information is entered the similar data fields have been standardized, for example: If a basement exists, you must indicate the basement size in SF and the % of the basement that is finished. The entries will be formatted as whole numbers without: commas or periods. You will be allowed up to a 5 digit entry for the basement area; and a 3 digit entry for the % of basement finished. If there is no basement, you enter 0 in both fields. There are no other entries that will be accepted. Source: Appendix D: Specifications: pg. 16 The standardization requirements also promote consistent terminology so that nearly identical information is expressed in a uniform manner. In the following Illustration 3, the appraiser must initially determine, from a list provided, if the subject property s view is neutral, beneficial, or adverse. Then, the appraiser must also choose, from another list, which view factor best describes the subject property s view, such as water, residential, power lines, etc. Although the appraiser has the ability to choose Other from the list, the GSEs believe they have provided the majority of answers to the question what is the subject s view in order to promote standardization of this feature. Handout: First Look Webinar: Series 1_ Developers: Heyn, Molitor Gennrich, LLC Page 21 of 29

22 Illustration 3 There were too many variations to say the same thing across geographic areas so the GSEs standardized these types of entries. For flexibility, a variety of these types of standardizations also allow for the choice Other, as in the following illustration. Step 1: View Rating must choose from a pull down menu the effect the view has on the value, for example: Step 2: View Factor must choose, one but not more than two view factors, to clarify answer in Step 1, from another pull down menu, for example: Other : If view factor not listed must type in description, for example: N = Neutral Res = Residential Railroad Tracks = RRTracks B = Beneficial Mtn = Mountain Text must fit in allowable A = Adverse PwrLn = Power Lines space Source: Appendix D: Specifications: pg. 12 Same info populated in Site & comp grid sections Text descriptor like None, N/A, Typical, Average, not acceptable In this example, Step 1 is a View Rating. It is a logical question, and you must pick one. The answer you chose is describing the view from an overall effect on value and marketability to the subject property. Step 2 describes the View Factor, based on your answer to Step 1. For example, if the View Rating is adverse, then in Step 2 the answer may be Power Lines. o In Step 2 there are 9 additional choices, like woods view, city skyline view, gold course view, Other Other is only used if none of the other choices are accurate. If you chose Other you must provide a descriptor that an intended user can understand and the text must fit in the allowable space. At the end of Appendix D are several pages of acceptable abbreviations that your software will have loaded and if you type in a similar word to one of the abbreviations it will replace it with that abbreviation so recognize this will happen and understanding those abbreviations will be to your benefit. Any other answers, typed in under Other such as None, N/A Not Applicable or Not Available, Typical, or judgment factors like average, good, fair are NOT acceptable and will cause your report to be rejected in your software s review mode. Handout: First Look Webinar: Series 1_ Developers: Heyn, Molitor Gennrich, LLC Page 22 of 29

23 Illustration 4 Here is another example of the use of drop down menus to create consistency. In this illustration, if you choose Purchase from the list of Assignment Types you will be required to identify the type of Purchase from another list of choices under the Contract Section. Step 1: Choose the Assignment Type If the type is Purchase choose from another pull down menu Step 2 Step 2: Under the Contract Section choose what type of sale, for example: REO Sale Estate Sale Relocation Sale Let s review the example. Under Step 1: You decide is the Assignment Type is a Purchase, Refinance or Other. If you decide it is a Purchase Under Step 2: In the Contract Section you will likely be provided by your software vendor a drop down menu to indicate the type of sale/purchase and the specifications state that only one selection can be chosen. Besides the ones noted in the example the following are included: Short Sale, Court ordered Sale, Non arms length sale, and Arms length sale; there is Other option. This is critical information to understand the issues of the subject s sale and too many times in the past this information was not provided or the way it was described varies too significantly. Source: Appendix D: Specifications: pg. 7 & 9 Handout: First Look Webinar: Series 1_ Developers: Heyn, Molitor Gennrich, LLC Page 23 of 29

24 Illustration 5 In many cases, the data must be presented in a specified order or string. In other words, if the appraiser responds Yes to the question, Is the subject property currently offered for sale? he or she will then be required to provide specific data in a prescribed order and use specified terminology and abbreviations. STEP 1 STEP 2 Step 1: Choose Yes or No by designating x in checkbox Answer: Yes or No String Sequence Example: Step 2: If the answer is Yes the following is required Days on Market (DOM); Offering Price(s); Offering Date(s); Data source used DOM68; Originally offered for sale 11/15/2010 for $165,000; Reduced and offered for sale 01/28/2011 for $150,000; Data source: MLS MRIS#AB45678 Let s review the example. In this example, you start the string sequence question by answering Yes or No. If the answer in Step 1 is No the subject property is not currently offered for sale in the second line just identify the source you determined this from MLS, owner of record, RE Agent, etc. If the source is MLS the specifications also request you to provide the MLS organization name. If your source is a person we d suggest identifying the name and contact information. If the answer is Yes the subject property is currently offered for sale the specifications require a string of questions to be answered, which will likely be prompted by your appraisal software. The following are the applicable string of questions in this example: 1. Enter the DOM (only one entry) defined by Fannie Mae and Freddie Mac in Appendix D as the total number of continuous days from the date that a property is listed or advertised for sale through the date that it is taken off the market or contracted for sale. If the subject wasn t advertised specifications suggest you enter a 0. If the subject s DOM is unknown, use the abbreviation: Unk. Handout: First Look Webinar: Series 1_ Developers: Heyn, Molitor Gennrich, LLC Page 24 of 29

25 2. Offering Price(s) (can be multiple entries and correlates with the Offering Date entry) the specifications want the original offering price and a history of price changes identified, if applicable. 3. Offering Date(s) (can be multiple entries and correlates with the Offering Price entry) the specifications want the date(s) each time the property was offered for sale. 4. Data source is again a necessity If the data source is MLS, the specifications want not only the MLS organization name, but also the specific MLS#. If the property was FSBO or marketed outside the MLS state whatever, of this information, is available in the normal course of business. In the past many appraisers were not providing this information so by prompting you to answer a sequence of questions the GSEs ensure this information is provided. Source: Appendix D: Specifications: pg. 8 Handout: First Look Webinar: Series 1_ Developers: Heyn, Molitor Gennrich, LLC Page 25 of 29

26 Illustration 6 As we mentioned earlier, there will be standardized ratings and definitions for items such as the Condition, Quality, and Updating/Renovations of the property. In this example let s look at the Condition rating and definition for C1. Definitions that specifically describe overall Condition, Quality, and Updating or Remodeling are provided and required to be used for the subject and comparable sales As stated earlier, it's beyond the scope of this webinar to which this handout is associated to go into much detail on the new condition and quality rating requirements. We suggest taking our follow up webinar in this series that specifically will go into these details; for now, however, here is the gist of these changes: For Exterior/Interior Complete Reports The specifications require you choose one Condition Rating from 6 choices all defined in the Appendix D Announcement (which will be referenced in the handout). The rating must represent the overall condition of the subject inside and outside. To ensure you will choose the most accurate Condition Rating you will have to become familiar with each definition. In this example, C1 represents new construction. Appendix D provides more information and detail about what defines (per the GSEs) new construction and one key factor is the property must be sited on a new foundation. So being familiar with these definitions is crucial. Handout: First Look Webinar: Series 1_ Developers: Heyn, Molitor Gennrich, LLC Page 26 of 29

27 Here is where the report forms have been revised A new question will be added under the Improvement Section and related to the Condition Rating in which you answer, Yes or No to the question: Has the subject had any material work done to the kitchen(s) or bathroom(s) in the prior 15 years. If you answer No the report form should reiterate this with a simple statement like: no updates have occurred in the prior 15 years. If you answer Yes, additional information is necessary. o o o First, from a drop down menu you identify what type of work the improvements do or do not represent from three choices: 1) not updated 2) updated 3) remodeled. Second, from another drop down menu you ll be asked to identify the timeframe in which the majority of this work was completed; for example, less than 1 yr; 1 5 years ago; 6 10 years ago, etc. Lastly, you ll provide a written explanation of the work completed; How this may read under the Improvement Section to the Condition question on the report form: C1; Kitchen not updated; Bathrooms not updated; [written description of work completed]. Exterior Only Report Form Choose a Condition Rating & provide a written description of the overall property from information gathered. Quality Ratings: For Quality ratings you ll choose from six choices (Q1 Q6) for the subject and comparables. You can find this question in the comparable grid section under Quality of Construction; a written description to support the quality rating can be added into the sales comparison grid comments. Source: Appendix D: Specifications: pg. 18 Handout: First Look Webinar: Series 1_ Developers: Heyn, Molitor Gennrich, LLC Page 27 of 29