Who Should Complete the FNMA Form 1033?

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September 20, 2021 | By Rick Chirdon, Chief Appraiser

As the summer winds down, three months have now passed since Fannie Mae announced the updated risk assessment requirements for lenders. With the changing state of the industry, and increasing audit scrutiny and requirements, it is important to reflect on this time.

Buyer Beware

We have all heard the statement, “Buyer Beware” somewhere in our research for a purchase we are about to make. It is a warning given to us to analyze our options before making a final decision. This statement certainly applies regarding completion of the Form 1033 checklist, especially when deciding whether you are completing the report internally or externally with the assistance of an outside vendor.

The Fannie Mae Announcement Recap:

As we know, lenders must complete a collateral risk assessment for all mortgage loans with an appraisal using a random 10% sample. Currently, a lender must obtain an appraisal field review to evaluate the appraisal for 10% of the loans selected for quality control review in the random sample. A desk review must be completed for the remaining 90% of the sample.

The development and activation of the Post-Closing QC Collateral Risk Assessment Analysis (Form 1033) in May 2021, is an optional way for lenders to streamline the internal regulatory audit process, ease the cost factors involved, and assist in reporting completion turnaround delays given the current state of the real estate appraisal industry.

There are specific analyst requirements and qualifications for being able to complete the Form 1033. It is the lender’s responsibility to ensure that the Form 1033 has been completed to the required expectations as noted in the Fannie Mae Selling Guide Announcement (SEL-2021-04) May 5, 2021.

The Form 1033 at first glance may look like a glorified checklist. The temptation may be for the analyst or internal underwriter to simply review the original appraisal and, if it appears logical, check off the boxes and move forward. That outlook could create a dangerous scenario for the lender.

It should be the analyst’s position to take each check-listed line item at full merit and be able to assess, validate, verify, and rebut the data obtained on the subject matter, prior to answering the checked box applicable with reasoning. Any lesser consideration for form completion could put the validation of the lender’s audit at performance risk.

Internal or External? That is the question.

There are many advantages and disadvantages of completing this Form 1033 internally versus using an outside vendor. From cost savings to turn times, bias, and due diligence – there is a lot to unpack prior to making this decision. To save you time we have outlined both scenarios. Let’s analyze the pros and cons of completing the Form 1033 internally vs. using an outside vendor.

Completing the Report Internally

Internal Advantages:

  • You control the timeframe and all documents – You do not need to search for any documents relating to the loan because you already have everything you need. This streamlines the process and eliminates the opportunity for miscommunication.
  • No outside expenses – Since everything is kept in-house with your own staff, you do not need to onboard a new vendor or negotiate pricing.

Internal Disadvantages:

  • Not the best return on investment – Your underwriters have a variety of responsibilities, and many could argue they offer a higher ROI completing front-office work rather than back-office work, like the FNMA Form 1033.
  • Slower turn times – Not only do your underwriters have more important tasks to be completing, but they also need to be trained in this new process. And since they will not be fully dedicated to completing these reports, you will experience longer turn times.

Completing the Report Externally with an Outside Vendor

External Advantages:

  • Faster turn times – An outside vendor with experience can complete these reports faster because they already have trained staff, a tried-and-true system, and efficiencies in place with dedicated analysts.
    • At SingleSource, our QC staff has an average tenure of over 8 years in the industry and have been performing similar work for bulk transactions. These transferrable skills allow us to get started right away.
  • Access to more value tools and data – As a national AMC, vendors like SingleSource have access to more value tools and data to confirm information as part of the report, more readily than your internal teams.
  • Cost savings in the long run – Since you don’t have to train your underwriters and potentially take them away from other more important tasks, you will experience long term cost savings.
  • Offer an outside unbiased perspective – Although Fannie Mae does allow for the Form 1033 to be completed internally by underwriters, by doing so, you are submitting a completed audit report Form 1033 to Fannie Mae that was assessed internally on a loan that you completed. Are you reviewing your own performance without any bias?
    • This scenario may bring additional audit scrutiny into the overall regulatory mix down the road. In the past, the Field Review Form 2000 and the desktop reviews were utilized to bring an outside perspective to the audit scenario. It may be beneficial to have that same outside view performed on completion of the Form 1033 in the long run.
    • It is expected that Fannie Mae will be analyzing the information provided from the Form 1033 to issue additional directives. The program could be re-evaluated for usage if the risks become too great due to non-performing, misuse, or incomplete form use. However, we all know that the FNMA Form 1033 could be a great tool and product if used with the right reporting purpose and mindset in play, especially considering the “Appraiser” market we are currently in.

External Disadvantages:

  • You must do your due diligence in vetting vendors – Before you hand over these reports to an external party, you must understand how the reporting is being completed and who is completing it. Does the vendor have trusted and qualified analysts completing the report properly?
  • Conflict of interest? – The same vendor who completed the original appraisal should not complete the Form 1033 analysis, to avoid conflict of interest.
    • Furthermore, the vendor you are working with should be asking for the following documents to ensure a proper analysis is completed:
      • Original appraisal (OA)
      • Purchase agreement (if a purchase)
      • Title report – to confirm it matches the OA
      • CU/SSR report
        • Any actions that corrected an SSR report issue, addendum or such information
    • If your outside vendor is not asking for these documents or is completing these reports for an unusually low price – this should raise a red flag in your vetting process.

Finally, some food for thought; remember that the “Buyer Beware” statement applies to making sure you decide which method best fits your organization – to complete these Form 1033 reports internally or externally. Know upfront, when you are going externally, the reporting completion expectations being performed by the vendor, what you are paying for, and that proper time is allotted for true reporting analysis by a qualified analyst.

SingleSource takes great pride in being the best in the diligence space. Through our wide range of product offerings in real estate valuations, from full appraisals to hybrid valuations, BPOs, data products, and more, we provide an option for every customer’s needs. Contact us today to learn more.

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