Stewart in the Studio

E19: UAD 3.6 – What it Means for Your Organization

In this episode of Stewart in the Studio, SVI’s chief appraiser, Rick Garrie, breaks down what UAD 3.6 really means, why it matters, and what lenders, appraisers and AMCs should be doing now to get ready. From retiring outdated forms to overhauling LOS systems and APIs, the November twenty twenty six deadline will be here before you know it. Don’t wait until it’s too late. This conversation will help you stay ahead of the curve.

So, hey, Rick. Tell us a little bit about your journey into appraisal. How did you get into that side of the business and, you know, what drew you into the field?

I had gotten out of high school, went to college for a little bit, and went into the air force. Worked on planes for four years. Came out, thought I’ll be able to go and work on planes that didn’t transfer over. So I had somebody who was working for a county assessor, and they were looking for appraisers. And so I went over to them, and they hired me as an appraiser at the county’s assessor’s office. Shortly after that, I spent there about five years, and an appraiser came in the This was back in the old days where appraisers still came in the assessor’s office to get their data. And he came in. He says, hey, are you looking for a job? I said, actually, I am. He goes, come see me Monday. I went and saw him Monday, and by the following Monday, I was in his office working for him.

And from there, you know, it was just something that I absolutely loved.

Well, everybody knows somebody in this business. Right? So, Rick, what’s your role today as chief appraiser for Stewart Valuation Intelligence? Obviously, you know, Stewart Valuation Intelligence is one of the big AMC players out there nationally. So tell us kinda what your role is and how long you’ve been with the company.

Yeah. So I’ve been with the company for thirteen years come January. And my role you know, I wear a lot of different hats. My primary role is managing the review team. When an appraisal comes in, we go through the report. We review it for the lenders before it goes out to the lenders. Everything after the appraiser delivers it to us is kind of under my team’s control. So we do a lot of dispute resolution. We work with reconsiderations of value. We work with appraisers on complex issues. That’s my primary role, but like I said, I wear a lot of hats. So, I work also very closely with our compliance department, product development department, and our ops department to make sure that we’re following all the federal regulation standards, everything necessary to be a successful and compliant AMC.

So let’s start with what is, you know, UAD three point six. And from a lender standpoint, I mean, this is really, you know, a big change for the lenders too. Why should we care about UAD three point six and what’s driving this change?

Well, we’ve needed a standardized reporting format for a long time. You know, the appraisal forms that we’ve had, you know, forever, they’ve not changed much since they came out in the eighties, you know, nineties. You know, there’s been small changes. And, you know, as we’ve gathered this additional data and becomes more available, we’ve needed a way to standardize it, to put it into a format that is consistent and captures all the data we need.

Today, the standard format or the standard appraisal is a three page appraisal report, and the meat of the appraisal comes after that. And appraisers can kinda do it however they want. You know, it’s hard to understand. And the current forms rely heavily on the individual appraiser to identify what they deem necessary to include in the report, and that’s changing. There’s gonna be a standardized amount of information in how it’s reported that is gonna be required. The dataset will enable the retirement of the current appraisal forms, and it’s gonna replace them with data driven, flexible, dynamic reporting that results in standardized reporting fields. You know, lenders will receive reports that discuss on the same minimum level and of the data and the analysis.

So it sounds like it’s less about which form do I use from the appraiser standpoint and which which box is it going to try to fit in, Whereas more, you’re just getting the data to represent what’s going on and you’re not you’re not having to try to fit a round peg in a square hole, so to speak. So the GSEs are moving from these static forms to dynamic reporting. How does that really affect our operations and then how does that affect the lender side of it?

The way it’s gonna affect it most is just in the systems. They’re gonna need to be updated to adapt to the retirement of using appraisal form numbers in the ordering, the fulfillment, in our performance reporting, and in the QC of the appraisal reports. It’s the day to day operations are gonna change in all of those areas to be able to handle this new non form number data driven type of appraisal.

You know what’s really interesting, Rick, is I never really tied this together until you just said that. But stop and think about this. Many of the larger loan origination systems out there still reference everything as HUD line numbers. And the HUD one form has been gone for, you know, about a decade now. Right? But things are still referred to by those HUD line numbers because the CFPB, when they came out with the closed loan estimate and closing disclosure, they did away with those line numbers. But sort of culturally, I guess, within mortgage companies, mortgage lenders, and banks, credit unions that deal in this space is the common vernacular often sort of training wise is around those HUD line numbers depending on which LOS they’re involved in. So I’m guessing the same thing could kind of happen here where you’re still talking about, oh, that would be on the ten o four, you know, and that really won’t be a thing going forward is what you’re saying.

That’s a hundred percent accurate. And what’s interesting is that all the form numbers, they tie to certain property characteristics and property types anyway. So like the 1004, it’s a it’s a form for a single family property. And so we can transition from using numbers to actually describing what the property is that we’re looking at, you know, rather than saying a 1004, or you’re gonna do a single family PUD property, or it’s a condominium, or it’s a multifamily property. And because it’s all gonna be done through the same reporting format, the numbers are no longer needed. And I think it’s gonna really be more accurate. It’s gonna make people think before they order.

So kinda getting more in the weeds operationally. Lenders have their loan origination systems or LOSs, And those LOSs are all going to need to support this new MISMO 3.6 XML format. And that’s, you know, very data centric obviously. So MISMO is the Mortgage Information Standards Maintenance Organization. That’s a part of MBA. That group works heavily with data standards among others. And they’ve got this 3.6 XML data format specification, which is going to be required to move to this UAD 3.6. So that’s a mouthful, but is that directionally correct?

Yes. Okay. Yes. So what so with that, you know, lenders obviously, there are bunch of LOSs out there. Just from the high points, what should lenders be asking their vendors right now? Should lenders all call their LOSs and say LOS providers and say, hey. Are you on Mismo 3.6 XML?

I do think that there are some specific questions that people should be asking. One of them is, have you begun to updating your proprietary systems to accommodate for order fulfillment? Where are they at in the process? Have they even begun the process of updating the system? Have you been in touch with any third party technology providers and confirmed what, if any, API updates you need to make? There there’s some LOS systems that are basically being rewritten.

They’re not trying to amend their current API. They are completely rewriting it to be compliant with this and to be functional, and you need to know that. You need to know what your LOS system is doing. Are they updating APIs? Are they creating new ones? Some of the other things that they need to be asking is what are you doing to ensure that your appraisers are ready to utilize and adopt the new URAR?

So, Rick, you basically described this as the discovery phase. I mean, there’s still a lot of unknowns. What unknowns are keeping you up at night as we approach these deadlines? And for that matter, what are the deadlines?

So September eighth is the first deadline, and that is the limited production phase. And what that is is lenders can apply with Fannie, Freddie, work with them to set up to do a limited production. It’s kind of a testing phase. That goes from September to January.

And to be in this phase, you actually have to go through work through a worksheet with Fannie, Freddie to make sure that you’re ready, you’ve got everything up to date. Then in January, where they switch over, where they just kinda open the system. That means that lenders, appraisers will be able to work and submit either or, the old 2.6 or the 3.6. And that continues on until November of twenty twenty six.

And at that time, GSEs are gonna require all new submissions to be in the new UAD 3.6 format. So what keeps me up at night, there are still a lot of unknowns. Everybody’s at a different pace right now. There’s been very little lender interest in the limited production phase, but everybody wants you to be ready for for that phase.

Right? And the appraisal software companies, they haven’t completed the software yet. You know, we’re getting very close. So the appraisers haven’t seen necessarily a working version.

They’ve only seen examples. They’ve, you know, only seen kind of what it’s supposed to be. So appraisers are gonna be a little bit behind the eight ball. That kinda keeps me up at nine.

The different LOS systems, because this is completely different, you know, accepting this, pulling it in. All of those unknowns that that you can’t account for in testing until it’s in live production, that keeps me up at night.

This is actually better for the lender because the lender is going to basically be in their LOS. They’re gonna say, I’m ordering a single family appraisal. And then if it comes back that it’s a PUD or a condo or something else, you’re gonna have that data, and you’re going to basically say, here’s the here’s the type of appraisal we’re doing based on that. Yeah. Okay.

Yeah. We’ll be able to you know, I I think it’s gonna make communication a lot better between the lender and the AMC and the appraiser.

And right now, there’s a lot of lender orders a specific form type. Right? And the appraiser completes it on that based on information, and then new information comes available later, and then they want the appraiser to switch it back. This system should eliminate most of that because the process is going to determine the property.

Good. So that sounds like an overall improvement. So then leading into the sort of the quality and compliance aspect, what with more structured data fields and fewer narratives, kinda like you said, we moved toward data. How does this affect review processes?

It’s gonna reduce the frequency of post submission corrections from the AMC to the appraiser. The data fields, I don’t know if you’ve seen the new forms, but they’re very interesting because they they take sections of the appraisal that you’re working on, and all the data you gathered, and then below it is the narrative that that kinda ties it all together. It’s gonna reduce the frequency of post submission corrections from lender because the commentary is gonna be tied to to specifically the data that you’re looking at. So as I said today, you know, you’ve got three pages of report. All the information is displayed there, and then you may have page after page after page of of text addendums that ties all that information together. So it’s hard to go back and forth and and see that. So it’s gonna make the the review process, both for the appraiser, the AMC, and the lender, a much more consistent type of review than before. And it’s gonna help to make sure that certain things are addressed.

Everybody wins. That’s so that’s the way it sounds.

So about compliance on that same topic, what role in the will the UAD compliance API play in reducing resubmissions?

So this is gonna ensure that the UAD required fields are completed and in the correct format prior to submission to the AMC. In today’s environment, there are UAD checks, but they they aren’t necessarily formed. They’re not updated. There’s a lot of different scenarios.

With the API, the compliance API, those are gonna be tied together, tied to what is required. So appraisers are working very hard. They they work extremely hard, extremely fast, and you fat finger something, and you can move on. Well, this is gonna help catch that beforehand. So it’s gonna eliminate a lot of those those small clerical, frustrating mistakes for the lender, the AMC, and the appraiser.

Good. So how confident are you around the QC platform and being ready by by September?

Our QC platform, I’m one hundred percent confident that we’re gonna be ready by September. We are currently in the testing phase of our platform now. We’re using examples that have been released by Fannie to to get the platform up to speed. We’re like I say, we’re in the testing phase right now, and we’ll have that completed by August first, which gives us a whole another month to tweak, play, really dial it in. And as the software companies start to release the software, we’ll be able to create some additional test files that we’ll be able to send through. So hundred percent, we’ll be we’ll be ready with our review platform by August first. By September eighth, we’ll have it dialed in.

Okay. And then we have July twenty twenty five for ULDD phase five, then limited production in September. Is this realistic? I you know, it sounds like when you go to the conferences, there’s some heartburn around this.

We’re gonna be ready to fulfill orders in the new UAD 3.6 during the limited production phase. We’re working through a lot of testing right now, working with LOS systems to get everything updated.

So what’s your biggest concern about the November twenty twenty six mandatory deadline? I mean, I know that’s far it seems far away, but that we we thought that with TRID and other things too with other big industry changes mandated by the GSEs. It sounds far away, but it’ll be here before we know it. What’s Yeah. You you mentioned a few concerns, but what’s your biggest concern?

Training. You know, this is a big big change for everybody. And it’s not just a change for the appraisers. It’s not just a change for the AMC. It’s not just a change for the lender. It’s everybody.

And the communication between them and the expectations are are we are unknowns. So you you asked me what my biggest concern about the deadline is. My biggest concern is that everybody’s gonna wait till the last minute to really get into this. My biggest concern is something happens q one, q two of next year, the industry gets busy. That is not a good time to make this kind of change because there are gonna be growing pains during a busy market. And that because it’s busy, it’s it’s very important to get started early to make sure that you’re ready for that November twenty twenty six deadline.

And then so let’s get back to the vendors. You mentioned ongoing coordination with vendors. Are you seeing any red flags in their preparedness?

Well, without the forms to start playing with and getting through, that that’s a a little bit, you know, of a red flag. But, you know, I think that, you know, appraisers are smart. Most appraisers can take a copy of USPAP without any forms. It should be able to walk through it and make an appraisal. That that’s kinda what we’re doing here. We’re just reporting it a little bit different. Some of the the red flags that I’m seeing is, you know, we monitor a lot of the appraiser social media groups. And right now, you know, as appraisers are starting to get familiar real familiar with 3.6, they’re seeing a lot of you know, these are all of the available fields that you’re you could you could see when you fill out an appraisal. And it is a lot, but it’s a dynamic form that if you answer this, then you have to answer this. So they’re not gonna have to fill out every one of those fields on every report. And I I think that without getting in and seeing that, it’s it’s hard to comprehend when you see it as a big picture and not as a specific assignment. So I’m I’m that’s a little bit of a red flag is their concern over this.

Okay. So how should lenders be vetting their AMC partners for UAD 3.6 readiness?

I think that you touched on it. You know? We’ve we’ve got to facilitate the communication for the mutual changes and systems.

You gotta start conducting testing together prior to the go live date. You have to start working through these together. So vetting your AMC, you know, we’ve gone all over the you know, over some of the things that the AMC needs to be doing, but the fact of the matter is is that they can’t do it alone. Just because your AMC is ready doesn’t mean you’re ready. And just because you’re ready doesn’t mean your AMC is ready. So you really need to facilitate that communication.

Good. Okay. So I think you kind of touched on my next question is if you could give lenders three action items to tackle this month and they had a pencil and paper handy, what would they be? It sounds like the first one is make sure the APIs are ready, you know, get the testing lined up. But what would you say are your top three for for lenders listening now?

I think you touched on confirming with your your LOS provider when they’ll be ready to facilitate UAD 3.6, the ordering, processing.

Confirm what changes, if any, you need to make to align with your LOS provider that include the APIs, making sure that all of that is up to date. There’s a lot of technical changes that have to happen, and you want to be making sure that you’re doing that on your side. And then commit as an organization to be ready to go live as soon as possible in advance of the mandatory date of twenty twenty six. Because if you wait till that last minute, it’s gonna be a struggle.

Got it. Okay. And what resources should our listeners be bookmarking right now? I mean, what materials are out there for them to kind of go through and and pass on to staff and things like that?

Well, the GSEs have a fantastic amount of information out there. The GSE UAD information page and Marvin, I could share the link after after this, but it’s a lender information page. So they’ve got a lender preparedness webinar recording. They’ve got all of the UAD 3.6 documentation. They’ve got industry training for the new UAD, both for lenders, appraisers, and they have a lender readiness kit that basically walks you through the process of of being ready. And that is you know, I would go to Fannie Mae, the GSE’s lender readiness pages, and that’s the best information that you’re going to to see today.

And any final thoughts on positioning this as an opportunity rather than just compliance? I know that that’s a hard one because when we’re forced to do something to comply, it seems like it’s kinda like, okay. We’ve gotta just do this and suffer through it. Is there any opportunity here?

I think there is. You know, the appraisal industry has taken a little bit of a hit the last few years in their reputation for a variety of reasons. Whenever the market the housing market goes one way or another, appraisers are often blamed. I think that this gives us an opportunity as a as an appraisal industry to gain that public trust back. That that’s one of the first things you see in used path is, you know, maintain public trust. And I think that this is gonna help that with the consistency that everybody’s gonna have everybody’s gonna be treated the same. Everybody’s gonna have the same information.

I think there’s an opportunity there, and I think that there’s an opportunity for lenders to look at their process. They want to get the appraisal completed and done and the the loan close. So in their review process of the appraisal, more aligning with what is actually required by the GSEs because they’re they’re gonna have a lot of information now. And so you don’t have to I think that there’s a lot of overlays that have been placed over the years, you know, to try and get a more credible report.

Well, the formatting and the reporting is going to lead to a more credible report to begin with. Right? So I think it’s an opportunity for lenders to really go back, develop really good training programs for their underwriting. The the underwriting, the the review of the appraisal has been the same for thirty years.

Right? This is an opportunity to for us as an industry to hit the reset button, not just with the reporting, not just with the data that we’re collecting, but really focusing in on what’s important. The the value opinion that’s being stated, is it accurate, and really just resetting how we do things. And I think there’s an opportunity there for us to to come out the other side because it’s gonna be a growing pains.

We can come out the other side less risk, more consistency, and and, you know, regaining some of that public trust that may have been lost over the years with the current system.

So, Rick, you provided a ton of great information here, but what should our listeners be bookmarking right now so they can have a reference point to go back to and then share with their their internal teams?

Yeah. They should bookmark, you know, stewartvaluation.com. You can go there, check out our blog post. It’ll have all the links to all of the best resources.

Right. So one simple place to remember, stewartvaluation.com, and use that as your reference point for getting ready for UAD 3.6 Rick, thanks so much for being on the show today, and we’ll talk to you next time. That’s it for Stewart in the Studio, where mortgage professionals turn for fresh thinking and real world solutions.

Find more episodes and insights at Stewart.com/lender. We’ll see you next time.