D1-3-04, Lender Post-Closing Quality Control Review of Appraisers, Appraisals, Property Data Collectors, and Property Data Collection (09/04/2024)

The lender must continually evaluate the quality of its appraisals and property data collection through the normal underwriting review of all appraisal reports and property data collection, and by utilizing prudent collateral risk assessment processes as part of the QC process. The lender should also utilize third-party tools and information (such as analytical tools and public record databases) to help identify areas of inaccuracy or inconsistencies that may be indicators of appraisal deficiencies.

The lender’s QC plan must include requirements for monitoring and assessing the overall quality of work performed by an appraiser and property data collector, including a process for loan-level QC reviews of origination appraisals and property data collection. Fannie Mae holds the lender fully accountable for the quality of the QC appraisal and property data collection reviews regardless of whether the work is performed by the lender itself or by an outsourced QC service provider.

The lender must also develop and maintain a documented process to monitor the appraisers and property data collectors it uses.

• For appraisers, the process (at a minimum) must include an annual review of an appraiser’s state licensing or certification status and a procedure for suspending or terminating business with individual appraisers. Additionally, the lender must have a procedure for referring appraisers to the applicable state appraiser licensing and regulatory board.
• For property data collectors, lenders must (at a minimum) ensure annual background checks and evidence the data collector has successfully received professional training for property data collection and fair lending law compliance. Lenders must also have a procedure for suspending or terminating business with individual property data collectors.

See  B4-1.3-12, Appraisal Quality MattersB4-1.3-12, Appraisal Quality Matters, for information concerning Fannie Mae’s right to refuse to accept appraisals prepared by specific appraisers.

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. However, 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 and verify the appraisal report complies with B4-1.1-04, Unacceptable Appraisal PracticesB4-1.1-04, Unacceptable Appraisal Practices;

• conclude that the rationale for the reconciliation of value is supported;

• prescribe corrective actions for defects identified in the appraisal process; and

• 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 origination appraisal, it may order either a desk review or field review from a licensed appraiser. The desk review or field review must account for all of the points in the above requirements.

The lender must complete a collateral risk assessment for all mortgage loans with a property data collection as a part of its random QC sample. The collateral risk assessor must be competent in assessing property eligibility and characteristics including condition and quality, and must be able to specifically

• assess the accuracy of the data obtained through the property data collection;
• identify any property eligibility issues and items of safety, soundness, or structural integrity;
• determine whether the lender appropriately required repairs or inspections; and 
• prescribe corrective actions for defects identified in the quality control process.

For appraisals, the lender must determine whether any defects identified through its collateral risk assessment process results in the value not being supported or the loan being ineligible. For property data collection, the lender must determine whether any defects result in the property not being in acceptable condition or the property being ineligible. If the lender determines that the mortgage loan was not eligible as delivered, the lender must advise Fannie Mae of these findings using the self-report functionality in Loan Quality Connect. For additional information, see D1-3-06, Lender Post-Closing Quality Control Reporting, Record Retention, and AuditD1-3-06, Lender Post-Closing Quality Control Reporting, Record Retention, and Audit.

Examples

• Appraisal: The lender sells a two-unit property loan to Fannie Mae and, after reviewing the appraisal, the lender determines that the property is a mixed-use property. Because mixed-use properties are limited to one-unit, the loan is ineligible as sold to Fannie Mae and the lender must self-report the loan.
• Property data collection: The lender sells a one unit property loan to Fannie Mae and, after reviewing the property data collection, determines the property was a two-unit property. Because property data collection is limited to one-unit dwellings, the loan is ineligible as sold to Fannie Mae and the lender must self-report the loan.
• Property data collection: The lender sells a value acceptance + property data loan to Fannie Mae and, after reviewing photos of the property, determines the roof needs repair. Because roof repairs constitute a soundness or structural integrity issue, the loan is ineligible as sold to Fannie Mae and the lender must self-report the loan.

In both of these property data collection examples, the lender should have a feedback loop to ensure that underwriting teams learn how to properly manage such issues. In the first example, the lender should have switched to a traditional appraisal on the two- to four-unit form, and in the second example, the lender should have required roof repairs prior to loan closing.