Farrell on UAD 3.6's $300 price gaps, 3-to-5-day delays and what to tell realtors
The mortgage industry has been preparing for major changes to appraisals coming in November. While some companies are both ready for those changes and using the new form, others won’t make the deadline.
Fannie Mae and Freddie Mac have given lenders that aren't ready for the Uniform Appraisal Dataset (UAD) 3.6 mandate a temporary exception, so not every lender will be on the same format.
A broker comparing two lenders now has new questions to ask before comparing rates, starting with which appraisal format the loan will use. The answers can change what an appraisal costs and how long it takes to come back.
Michael Farrell (pictured top), president of the National Association of Mortgage Brokers (NAMB), said brokers need to know which format each lender uses. Farrell holds a seat on the Appraisal Foundation Advisory Council.
"From a broker perspective and an independent originator perspective, you need to be cognizant of which lenders you're taking the client through and what their business decision is, and are they using 3.6 or 2.6?" Farrell told Mortgage Professional America.
What the exception changes
Under the agencies' temporary policy, lenders granted relief can keep submitting legacy UAD 2.6 appraisals through May 19, 2027, while the Nov. 2 mandate for UAD 3.6 stays in place. Starting March 1, loans backed by those older reports lose collateral representation and warranty relief for value, and the agencies' collateral review tools stop returning standard risk scores.
"It has put a tourniquet on what could have been a major roadblock," Farrell said. "Again, the extension is welcome. But with the extension comes the awareness of now, you've got options. It's not a hard line for using 3.6 as of November 2nd. It's now, you can use 3.6 or 2.6 if you got the exception approved by Fannie."
The exception is granted to lenders, so a broker's wholesale partners can end up on different formats. A client's costs and timeline then depend on which partner handles the loan.
"When you go to disclose the client as to the cost of the appraisal, we need to make sure that we are disclosing properly and that we are disclosing to the highest of what that outcome could be if the decision was to use the 3.6 over 2.6," he said.
Aggregators that buy loans from third-party originators must make sure those originators submit UAD 3.6 appraisals or request the exception themselves. Fannie Mae and Freddie Mac have said the exception is one-time and won't be extended.
"It creates a little bit of dysfunction as to, okay, which direction are we going?" Farrell said. "And we've got to advise the client. At the same time, now you're going to have some lenders that may want to wait to the very end because they're going to use the 2.6 and it's a cheaper cost to the consumer. And a faster turn time and competitive edge."
Farrell said the Appraisal Foundation and the Appraisal Institute expect 23% to 25% of field appraisers to age out of the field instead of adopting the new format. He put the average age of a field appraiser at over 62.
"We're enabling a possible problem of complacency," he said. "And when you think about the age of the appraisers and the decision, ‘Do I retire or do I adapt? Well, now I've got a 6-month reprieve. I can continue as is and not do anything.’"
What to tell realtors
Cost is the first place brokers will see how the two formats compare. Farrell has run into it firsthand.
"In the last 2 weeks we ordered an appraisal and the AMC comes back and says, ‘Do you want a 2.6 appraisal? The cost will be $555, or a 3.6 appraisal and the cost will be $850,’" Farrell said. "And the reason and rationale for the $300 difference, clear as day: not enough field appraisers ready to accept orders. It's a supply and demand scenario."
Capacity for the new format is limited by how many appraisers can take assignments. Farrell said many want to make the switch but are waiting on their software.
"So two things are going to happen. Price is going to go up. And timelines are going to be extended," he said. "We're expecting a $200 to $300 difference in cost and a 3-to-5-day delay on getting orders finalized. Who's going to pay the price of that? It's the consumer."
Farrell said NAMB wants its members ready to be the UAD experts in every transaction. The aim is to keep clients and agents from being surprised later.
"We have to educate the realtors and the consumers on what the expectations are," he said. "Realtors, you are writing contracts for 30 days. And we're meeting those contracts. You may need to write them for a longer period of time to allow the processing to have the appraisal, which is going to take longer.
“You also need to ready the seller that the appraisers coming in are going to take longer to do the inspections because there's more data points that are being asked for in the 3.6 report."
Farrell said brokers who spread the word about the coming headwinds can set themselves apart.
"Be proactive, engage, absorb the knowledge and the information so you can be the point of reference and the subject matter expert to your realtors and to the consumers," he said.
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