Loan Collateral Advisor SM FAQs August 24, 2016 These FAQs are intended to help you answer customer questions related to Loan Collateral Advisor SM. Q1: What is Loan Collateral Advisor? A: Loan Collateral Advisor, a component of Freddie Mac Loan Advisor Suite, is a web-based tool that analyzes appraisal reports and provides a view of appraisal quality and valuation risk at no cost to our customers. Q2: How does Loan Collateral Advisor work? A: Appraisals submitted to Freddie Mac through the Uniform Collateral Data Portal (UCDP) automatically flow to Loan Collateral Advisor for assessment. Loan Collateral Advisor performs verifications and assessments on the submitted data, leveraging multiple sources to assess the overall appraisal quality and valuation risk of the appraisal. All results are returned within the tool, including scores that represent a view of appraisal quality and valuation risk. The tool gives you robust search capabilities and the ability to export data to view your appraisal submissions, trends and other information. Q3: How will I benefit from using Loan Collateral Advisor? A: Loan Collateral Advisor can help you increase your operational efficiencies and reduce the risk of repurchases related to faulty appraisals. It provides real-time assessment feedback to help you manage and remediate appraisal quality issues. The clear and actionable feedback will help you identify potential issues earlier in the process, so you can determine the level of review required; thereby increasing your operational efficiency by allowing you to focus your resources on potential appraisal quality issues. Q4: Will Loan Collateral Advisor help me reduce repurchases? A: Loan Collateral Advisor is designed to help reduce risk of repurchases by providing you with information that can help you identify and address appraisal deficiencies before you deliver a loan to Freddie Mac. Q5: Will Loan Collateral Advisor give me reporting information? A: Loan Collateral Advisor provides details and data on your appraisal portfolio and allows you to export results to use in reporting. In the future, you will also be able to use the tool to view message-trend analysis. Q6: When will Freddie Mac introduce Loan Collateral Advisor to the industry? A: Loan Collateral Advisor is available, and we are onboarding customers through a consultative sales approach.
Q7: What do the scores mean, and when are the scores returned? A: Loan Collateral Advisor scores, and other feedback in the tool, represent a proprietary assessment of appraisal quality and valuation risk. The scores are returned on Form 70/1004 appraisal submissions. This scoring construct was developed independently to provide a more transparent view of the tool s risk assessment, which can be leveraged for efficient workflow management. The scoring scale is between one and five, with one representing the lowest appraisal quality risk or valuation risk. Please refer to our Loan Collateral Advisor scoring guidance job aide on: http://www.freddiemac.com/loanadvisorsuite/loancollateraladvisor/resources.html Q8: Why are there two distinct scores, and when are the scores returned? A: Loan Collateral Advisor returns two scores to provide greater transparency into specific risks pertaining to appraisal quality and valuation. This offers more flexibility with respect to driving workflow by allowing lenders to isolate the areas that present the most risk. Lenders can separate quality issues from valuation issues and focus appraisal underwriting and quality control efforts accordingly. Q9: What does the Appraisal Quality Risk Score measure? A: The Appraisal Quality Risk Score represents the tool s view of risk relative to the quality, data accuracy and completeness of the appraisal. Multiple components of the appraisal are evaluated to help lenders validate that appraisals adhere to our standards and guidelines. The score represents the level of risk that the appraisal report contains significant manufacturing defects or deficiencies. The lower the score, the lower the quality risk. Q10: What factors influence the Appraisal Quality Risk Score? A: The Appraisal Quality Risk Score is influenced by multiple factors, including the integrity of the appraisal data, the relevance of the comparable sales selected relative to the pool of available sales, the reasonableness and supportability of the adjustments and the value conclusion. Q11: What does the Valuation Risk Score measure? A: The Valuation Risk Score is a measure of the tool s assessment of the accuracy of the appraised value of the subject property relative to Home Value Explorer (HVE ), our automated valuation model. Q12: What factors influence the Valuation Risk Score? A: The Valuation Risk Score is influenced by and considers both overvaluation and undervaluation risk. The closer the alignment of the subject property s appraised value with HVE, the lower the risk of either overvaluation or undervaluation and, therefore, the lower the risk score. Loan Collateral Advisor feedback messages will be returned in the event of overvaluation risk or undervaluation risk. The message will indicate if the risk is based on overvaluation or undervaluation for all scores greater than one. Q13: Why was a Valuation Risk Score not returned? A: The Valuation Risk Score is based on the alignment of the submitted appraised value with HVE, so there may be instances when a score is not returned due to either HVE being unavailable or HVE not having a value for a specific property. Feedback messages will advise you of the reason for the missing Valuation Risk Score. 2
Should you receive a HVE is unavailable message, you can resubmit the appraisal to UCDP at a later time and it will be reevaluated by Loan Collateral Advisor. In the case where HVE does not have a value on the subject property, and a Valuation Risk Score is not returned, you can proceed with your appraisal review using the Appraisal Quality Risk Score as a tool in your normal underwriting review. Q14: Why is it possible to get a good / low-risk Valuation Risk Score in combination with a bad /high-risk Appraisal Quality Risk Score? A: The Appraisal Quality Risk Score and the Valuation Risk Score are independent assessments, so there may be instances when one score is high and one is low. For example, an appraisal may be submitted for review that exhibits high appraisal quality risk. It will receive a high Appraisal Quality Risk score. The same appraisal may have an appraised value finding that is well aligned with HVE, our measure of value, and receives a low Valuation Risk Score. Both scores are meaningful and may indicate that although there is a high risk of a deficiency for the appraisal, the value appears accurate. The lender can use resources to investigate the specific deficiencies in the appraisal but may elect not to spend resources investigating the value. Q15: Can high-risk Loan Collateral Advisor scores cause a Not Successful UCDP submission status? A: No. A Not Successful UCDP status results from critical data errors/omissions related to compliance with the Uniform Appraisal Dataset and certain Freddie Mac proprietary findings. The UCDP submission status is not a direct function of Loan Collateral Advisor scores. Q16: Will an appraisal that scores poorly be selected for quality control review? A: Loan Collateral Advisor results are one of the many factors considered in our targeted sampling methodology. Q17: Will Freddie Mac issue repurchases based solely on a poor score(s)? A: No. Repurchase actions are the result of significant defects identified during a quality control underwriting review of the loan file. Q18: Will the scores be used to evaluate specific appraisers? A: Freddie Mac is not currently using Loan Collateral Advisor results to measure appraiser performance. Q19: Are appraisals rescored when resubmitted to UCDP with changes? A: Yes. Appraisals resubmitted to the UCDP are re-evaluated in Loan Collateral Advisor. Q20: Can lenders share scores with appraisers? A: No. Loan Collateral Advisor was developed as an appraisal review tool to support the lender s appraisal underwriting and quality control functions. The results are to be used in conjunction with human due diligence and can be used to inform discussions with appraisers. Lenders may not ask appraisers to revise reports based solely on Loan Collateral Advisor scores or provide messages directly from the system. Q21: If I currently use UCDP, will I automatically have access to Loan Collateral Advisor? A: No. Loan Collateral Advisor is separate from UCDP. Loan Collateral Advisor is a component of Freddie Mac Loan Advisor Suite SM and requires a separate sign-up process. 3
Q22: Do I need to underwrite appraisals that score well in Loan Collateral Advisor? A: Yes. Lenders continue to be responsible for underwriting and delivering investment quality mortgages and remain responsible for the life-of-loan representations and warranties and other documented exclusions (e.g., appraiser independence requirements). Loan Collateral Advisor results may be leveraged for more efficient workflow and to ensure that the time and resources allocated to an appraisal review are aligned with the tool s risk assessment. Lender process changes with respect to prioritizing work around Loan Collateral Advisor results are based on the lender s risk tolerance. Q23: Will I receive additional proprietary feedback messages in Loan Collateral Advisor? A: Yes. Today, Loan Collateral Advisor integrates with UCDP so that appraisals submitted to Freddie Mac via UCDP automatically flow to Loan Collateral Advisor for assessment. UCDP messages will also flow to Loan Collateral Advisor. Following a few seconds of assessment, Loan Collateral Advisor will then provide clear, actionable proprietary messages on its view of the appraisal. Users will continue to see the UCDP messages in UCDP. In Loan Collateral Advisor, users will see both the UCDP messages and new Loan Collateral Advisor proprietary messages. In the future, Loan Collateral Advisor and UCDP will be seamlessly integrated to allow for two-way transmission of Loan Collateral Advisor messages. All messages in either system will be able to be seen and used in either system. [For a list of the current Freddie Mac proprietary messages in UCDP link to: http://www.freddiemac.com/singlefamily/sell/pdf/ucdp_proprietary_messages.pdf Q24: What types of messages does Loan Collateral Advisor produce, and how am I expected to care for them? A: There are three types of messages: fatal, severe, and warning. Fatal: Some of the existing UCDP messages currently result in a fatal edit that must be cleared in order to obtain a successful UCDP submission status. Severe: A new category of edits that Freddie Mac will leverage to evaluate our proposed collateral representation and warranty relief offering. The severe messages identify key areas of deficiency. However, the severe edits are similar to the warning edits in that lenders are not obligated to clear or override them as a requirement for delivery. Warning: Most of the new Loan Collateral Advisor messages will initially be introduced as warning edits. Lenders will not be obligated to clear or override them as a requirement for delivery. Some warnings may indicate an atypical or unusual situation that a lender/underwriter should be aware of, but does not cause an appraisal to fail requirements. The messages are provided to assist the lender in its workflow processes and its analysis of the appraisal. In the future, should some warning messages be reclassified as fatal messages, lenders will be given sufficient notice to make the appropriate process adjustments if necessary. Q25: Will I be able to export results from Loan Collateral Advisor? A: Yes. You can export the appraisal review results and messages through the Loan Collateral Advisor user interface. 4
Q26: Will appraisal management companies have access to Loan Collateral Advisor? A: Appraisal management companies do not have access to Loan Collateral Advisor at this time, but we are considering a future offering. Q27: What is the Collateral Representation and Warranty Relief indicator in Loan Collateral Advisor? A: Freddie Mac is enhancing our technology tools to support a potential collateral representation and warranty relief offering. The new fields you see are placeholders and are not active at this time. We are working closely with our regulator, the Federal Housing Finance Agency, to evaluate future plans for an offering. Q28: When will Freddie Mac make the Collateral Representation and Warranty Relief offering available to the industry? Freddie Mac is working closely with our regulator, the Federal Housing Finance Agency, to determine plans for a future collateral representation and warranty relief offering. No decision has been made at this time; however, we are exploring opportunities to provide collateral representation and warranty relief. 5