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March 25, 2022
Federal agencies plan to hold industry players more accountable for bias in appraising homes owned by people of color
Courtesy of Brentin Mock, Bloomberg.com
March 23, 2022 — President Joe Biden’s administration unveiled a comprehensive action plan on Wednesday to tackle this disparity and root out racial bias and discrimination in home valuations. The plan, announced by Vice President Kamala Harris, lays out a range of actions aimed at modifying such practices, along with recommendations for how to restructure the governance, oversight and workforce of the appraisal industry.
The plan was produced by the Property Appraisal and Valuation Equity (PAVE) task force, co-chaired by Rice and Fudge, which the Biden administration created by executive order last year, on the 100th anniversary of the Tulsa Race Riots. That tragic event led to the evisceration of wealth of some of the richest African Americans in the country at the time. The task force held hearings and consulted with more than 150 appraisers, researchers, civil rights activists and fair housing advocates to create the plan. Rice went so far as to say the new action steps would “transform” the industry, and Lisa Rice, president of the National Fair Housing Alliance agreed.
“It’s very broad-reaching and it covers a number of issues that we know are systemic and that present structural barriers to people who are trying to access mortgage credit,” said NFHA’s Rice. “The PAVE report also looks at alternatives to traditional appraiser practices such as the sales comparison approach, which is the most common approach used in the residential appraiser space. So, the scope of these recommendations would transform the industry.”
The main actions identified in the PAVE report are:
- Make the appraisal industry more accountable.
- Empower consumers with information and assistance.
- Prevent algorithmic bias in automated home valuations.
- Cultivate an appraiser profession that is well-trained and looks like the communities it serves.
- Leverage federal data and expertise to inform policy, practice, and research on appraisal bias.
Federal agencies are putting more attention on the appraisal industry as a growing body of research shows racially biased home valuations are a determining factor in widening the racial wealth gap. A study from Freddie Mac, or the Federal Home Loan Mortgage Corporation, last year analyzed more than 12 million housing appraisals to find that the percentage of undervalued appraisals increased in majority-Black and Latino neighborhoods as the white population percentage decreased.
Related Article From Reuters: U.S. housing costs should play role in guiding Fed policy, Waller says
The state of the U.S. housing market should help guide the Federal Reserve as it sets monetary policy and there appears no let-up in sight for higher home costs, Fed Governor Christopher Waller said on Thursday.
Read NASCUS’s Comment Letter to Appraisal Subcommittee: March 14, 2022 — The National Association of State Credit Union Supervisors (“NASCUS”) submitted a letter in response to the Appraisal Subcommittee (ASC) of the Federal Financial Institutions Examination Council (FFIEC) proposal to amend existing rules of practice and procedure governing temporary waiver proceedings.
U.S. House Committee on Financial Services Calls on Regulators and Industry to Hold Appraisers Accountable and Announces Plans for Legislation
February 25, 2022 — Congresswoman Maxine Waters (D-CA), Chairwoman of the House Financial Services Committee, sent a letter to Marcia Fudge, Secretary of the United States Department of Housing and Urban Development (HUD) as well as the Appraisal Subcommittee, the Appraisal Foundation, and the Appraisal Institute regarding ongoing appraisal bias and discrimination, calling on the federal regulators and the Appraisal Institute to investigate appraiser misconduct and potential illegal discrimination.
The letter highlights longstanding racial inequities plaguing America’s home valuation system, particularly in Black-majority communities and other communities of color. To illuminate the severity of this issue, Chairwoman Waters references an email recently sent by an appraiser who uses racial slurs to describe Black people and implies that appraisers and lenders will deny business to people of color the more discrimination is reported. In response to this email and ongoing reports of discrimination, Waters urges Secretary Fudge, the Appraisal Subcommittee and the appraisal industry to launch a full investigation and announces her plan to introduce legislation to address ongoing discrimination.
“Some may say that the words of one appraiser do not reflect or represent the profession. However, years of data, ongoing research, and numerous settled lawsuits provide ample evidence to the contrary. The email I reference shines a spotlight on the racist stereotypes and harmful lines of thinking prevalent in an industry which systematically devalues the homes of Black people and other people of color…” wrote Chairwoman Waters. “Given this email incident and ongoing reports of appraisal discrimination, I will be introducing legislation to address systemic appraisal discrimination.”
NCUA Joins With Other Agencies, Depts. In Saying Appraisal Foundation Has Failed to Provide ‘Clear Warnings’
Posted by CU Today – FEB. 08, 2022
The NCUA has joined with numerous other federal agencies and departments in a letter to The Appraisal Foundation saying it has failed to “include clear warnings about the requirements of federal law in the standards it sets, and in the training it provides for appraisers.”
The letter, which also included as signatories the CFPB, Office of the Comptroller of the Currency, FDIC, Department of Housing and Urban Development, Federal Housing Finance Agency and Federal Reserve, was sent to The Appraisal Foundation (TAF)–a private non-governmental entity with the sole power to set professional standards for appraisers” in relation to its authority regarding appraisal discrimination.
The agencies provided specific feedback on TAF’s proposed changes for the 2023 Edition of the Uniform Standards of Professional Appraisal Practice (USPAP), pointing to a provision under the USPAP that states an “appraiser may not rely on unsupported conclusions relating to characteristics such as race, color, religion, national origin, sex, sexual orientation, gender, marital status, familiar status, age, receipt of public assistance income, disability or an unsupported conclusion that homogeneity of such characteristics is necessary to maximize value.”
‘A Key Issue’
The signatories on the letter, all part of the interagency task force on Property Appraisal and Valuation Equity (PAVE), stated the provisions do not prohibit appraisers from relying on “supported conclusions” based on such characteristics, and suggested that such “reliance may be permissible.”
“This has been a key issue for the administration as President Joe Biden tasked HUD with identifying solutions to appraisal bias,” NAFCU noted. “Fannie Mae and Freddie Mac have also committed to fighting racial inequity in housing and have issued analyses on trends regarding appraisal bias and valuation gaps as can be seen in this report by Freddie Mac.”
By Patrice Alexander Ficklin – FEB. 04, 2022
Homeownership is one of the best paths for building intergenerational wealth. But for some homebuyers and owners, a home’s valuation may be skewed by one’s skin color or the demographics of the surrounding community. A biased home appraisal can worsen racial inequities and distort the housing market. That’s why, for more than 50 years, federal law has forbidden racial, religious, and other discrimination in home appraisals. But we still see reports of appraisers who don’t follow the law and base their value judgments on biased, unfounded assumptions about borrowers and the neighborhoods in which they live.
We have also seen the organization that sets the standards for appraisers, The Appraisal Foundation (TAF), fail to include clear warnings about the requirements of federal law in the standards it sets, and in the training it provides for appraisers. TAF is a private, non-governmental organization, and the only entity with the power to set professional standards for appraisers. However, TAF has yet to highlight these important laws even though it frequently revises its standards. These actions undermine a fair and competitive market free of bias and discrimination.
Today, we joined senior staff from across the federal government to submit a joint letter to TAF emphasizing that federal prohibitions against discrimination under the Fair Housing Act and Equal Credit Opportunity Act extend to appraisals.
The CFPB Outlines Options To Prevent Algorithmic Bias In Home Valuations
Standards will help protect homebuyers and owners during the valuation process
February 23, 2022 — The Consumer Financial Protection Bureau (CFPB) today outlined options to ensure that computer models used to help determine home valuations are accurate and fair. The options will now be reviewed to determine their potential impact on small businesses.
“It is tempting to think that machines crunching numbers can take bias out of the equation, but they can’t,” said CFPB Director Rohit Chopra. “This initiative is one of many steps we are taking to ensure that in-person and algorithmic appraisals are fairer and more accurate.”
When underwriting a mortgage, lenders typically require an appraisal, which is an estimate of the value of the home. While traditional appraisals are conducted in-person, many lenders also employ algorithmic computer models. These models use massive amounts of data drawn from many sources to value homes. The technical term for these models is automated valuation models. Both in-person and algorithmic appraisals appear to be susceptible to bias and inaccuracy, absent appropriate safeguards.
Obtaining an accurate estimate of a home’s worth is one of the most important steps in the mortgage process for homebuyers. Inaccurate valuations, both too high and too low, can pose risks to consumers. Given their crucial role, the Dodd-Frank Wall Street Reform and Consumer Protection Act tasked the CFPB and other regulators with implementing rules on these models.