Stewart in the Studio

Stewart in the Studio E19 - UAD 3.6 What it Means for Your Mortgage Operation

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Big changes are coming to the appraisal industry—and the clock is ticking. In this episode of Stewart In The Studio, 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. 

Speaker 1:

This is Steward in the Studio, the podcast where mortgage professionals stay ahead of the curve, with expert guidance from Steward's thought leaders. I'm your host, marvin Stone, and each month we dive into trends, topics and tech to transform your business. Let's do this. Big changes are coming to the appraisal industry and the clock is ticking is ticking. In this episode of Steward in the Studio, svi's Chief Appraiser, rick Gehry, 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3.6 really means, why it matters and what lenders, appraisers and AMCs should be doing now to get ready, from retiring outdated forms to overhauling LOS systems and APIs.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 2026 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.

Speaker 2:

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 office 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.

Speaker 1:

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 kind of what your role is and how long you've been with the company.

Speaker 2:

Yeah, so I've been with the company for 13 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. We you know 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 you know I work also, you know, very closely with our compliance department, product development department. You know work real close with our compliance department, product development department. You know work real close with our ops department to make sure that we're following all the federal regulation standards, everything necessary to be a successful and compliant AMC.

Speaker 1:

So let's start with what is, you know, UAD 3.6. 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 3.6 and what's driving this change?

Speaker 2:

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, you know, since they came out in the 80s, you know 90s. You know there's been small changes and you know, as we've gathered this additional data and becomes more available, you know we've needed a way to standardize it, to put it into a format that is consistent and captures all the data we need. You know, 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 kind of do it however they want.

Speaker 2:

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 going to be a standardized amount of information in how it's reported. That is going to be required. The data set will enable the retirement of the current appraisal forms and it's going to 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 of the data and the analysis.

Speaker 1:

So it sounds like it's less about which form do I use from the appraiser's standpoint and which box is it going to try to fit in. Form do I use from the appraiser's standpoint and 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 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?

Speaker 2:

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

Speaker 1:

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-1 form has been gone for 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 loan estimate and closing disclosure, they did away with those line numbers. But sort of culturally, I guess within mortgage companies, mortgage lenders, 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 1004, you know, and that really won't be a thing going forward, is what you're saying.

Speaker 2:

That's 100% 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 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, well, you're going to do a single family PUD property, or it's a condominium or it's a multifamily property, and because it's all going to be done through the same reporting format, the numbers are no longer needed and I think it's going to really be more accurate.

Speaker 1:

Accurate it's gonna make people think before they order, so kind of 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 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. So with that, you know lenders, obviously there are a 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?

Speaker 2:

I do think that there are some specific questions that people should be asking. One of them is have you begun 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 and confirmed what, if any, api updates you need to make? 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?

Speaker 1:

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?

Speaker 2:

So September 8th 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 and 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 they switch over where they just kind of open the system. That means that lenders, appraisers, will be able to work and submit either or the old 2.6 or the new 3.6. And that continues on until November of 2026. And at that time GSEs are going to require all new submissions to be in the new UAD 3.6 format.

Speaker 2:

So what keeps me up at night? There are still a lot of unknowns. Everybody is 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 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 only seen kind of what it's supposed to be. So appraisers are gonna be a little bit behind the eight ball. That kind of keeps me up at night. The different LOS systems, because this is completely different. Accepting this, pulling it in All of those unknowns that you can't account for in testing until it's in live production that keeps me up at night.

Speaker 1:

This is actually better for the lender, because the lender is going to basically be in their LOS. They're going to 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 going to have that data and you're going to basically say here's the type of appraisal we're doing based on that.

Speaker 2:

Yeah. Yeah we'll be able to. You know, I think it's going to make communication a lot better between the lender and the AMC and the appraiser. And right now there's a lot of a 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 type Good, so that sounds like an overall improvement.

Speaker 1:

So then, leading into the sort of the quality and compliance aspect, with more structured data fields and fewer narratives, kind of like you said, we've moved toward data. How does this affect review processes?

Speaker 2:

It's going to 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 take sections of the appraisal that you're working on and all the data you gathered and then below it is the narrative that kind of ties it all together. It's going to reduce the frequency of post-submission corrections from lender because the commentary is going to be tied to specifically the data that you're looking at. So, as I said today, you know you've got three pages of the report. All the information is displayed there and then you may have page after page after page of text addendums. That ties all that information together. So it's hard to go back and forth and see that. So it's going to make the review process, both for the appraiser, the AMC and the lender, a much more consistent type of review than before and it's going to help to make sure that certain things are addressed, everybody wins.

Speaker 1:

That's the way it sounds. Certain things are addressed Everybody wins. That's the way it sounds. So about compliance? On that same topic, what role will the UAD compliance API play in reducing resubmissions?

Speaker 2:

So this is going to 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 aren't necessarily performed, they're not updated. There's a lot of different scenarios. With the API, the compliance API, those are going to be tied together, tied to what is required. So appraisers are working very hard, they work extremely hard and extremely fast and your fat finger something and you can move on. Well, this is going to help catch that beforehand. So it's going to eliminate a lot of those small clerical frustrating mistakes for the lender, the AMC and the appraiser.

Speaker 1:

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

Speaker 2:

Our QC platform. I'm 100% confident that we're going to 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 get the platform up to speed. Like I say, we're in the testing phase right now and we'll have that completed by August 1st, which gives us a whole other 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, 100%, we'll be ready with our review platform by August 1st. By September 8th we'll have it dialed in.

Speaker 1:

Okay, and then we have July 2025 for ULDD Phase 5, then limited production in September. Is this realistic? It sounds like when you go to the conferences, there's some heartburn around this.

Speaker 2:

We're going to 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.

Speaker 1:

So what's your biggest concern about the November 2026 mandatory deadline? I know that's far, it seems far away, but 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. You mentioned a few concerns, but what's your biggest concern?

Speaker 2:

Training. This is a 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 unknowns. So you asked me what my biggest concern about the deadline is. My biggest concern is that everybody's going to wait till the last minute to really get into this. My biggest concern is something happens. Q1, q2 of next year, the industry gets busy. That is not a good time to make this kind of change, because there are going to be growing pains during a busy market and that, because it's busy, it's very important to get started early to make sure that you're ready for that November 2026 deadline.

Speaker 1:

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?

Speaker 2:

Well, without the forms to start playing with and getting through. That's 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 it appraisal. That's kind of what we're doing here. We're just reporting it a little bit differently.

Speaker 2:

Some of 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 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 going to have to fill out every one of those fields on every report. And I think that without getting in and seeing that, it's hard to comprehend when you see it as a big picture and not as a specific assignment. So that's a little bit of a red flag as they're concerned over this, but yeah, Okay.

Speaker 1:

So how should lenders be vetting their AMC partners for UAD 3.6 ready in this?

Speaker 2:

I think that you touched on it. We've got to facilitate the communication for the mutual changes and systems. You've got to start conducting testing together prior to the go live date. You have to start working through these together. So vetting your AMC. We've gone all over some of the things that the AMC needs to be doing, but the fact of the matter 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.

Speaker 1:

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 lenders?

Speaker 2:

listening now I think you touched on confirming with 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 includes 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 2026. Because if you wait till that last minute it's going to be a struggle.

Speaker 1:

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 pass on to staff and things like that.

Speaker 2:

Well, the GSEs have a fantastic amount of information out there the GSE UAD information page and, marvin, I can share the link 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 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 see today.

Speaker 1:

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 kind of like okay, we've got to just do this and suffer through it. Is there any opportunity here?

Speaker 2:

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 an appraisal industry to gain that public trust back. That's one of the first things you see in USPAP is you know, maintain public trust, and I think that this is going to help that with the consistency that everybody's going to have. Everybody's going to be treated the same, Everybody's going to 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 loan closed, so in their review process of the appraisal, more aligning with what is actually required by the GSEs, because they're going to have a lot of information now and so you don't have to.

Speaker 2:

I think that there's a lot of overlays that have been placed over the years 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 Right. So I think it's an opportunity for lenders to really go back, develop really good training programs for their underwriting. The underwriting, the review of the appraisal, has been the same for 30 years, Right. This is an opportunity 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 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 come out the other side, because it's going to be a growing phase. We can come out the other side less risk, more consistency and regaining some of that public trust that may have been lost over the years with the current system.

Speaker 1:

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 internal teams?

Speaker 2:

Yeah, they should bookmark. You know stewardvaluationcom. You can go there, check out our blog post. It'll have all the links to all of the best resources.

Speaker 1:

Great, so one simple place to remember stewardvaluationcom 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 Stuart, in the Studio where mortgage professionals turn for fresh thinking and real-world solutions. Find more episodes and insights at Stuartcom. Slash lender. We'll see you next time.