Jan. 26, 2023 — To root out racial bias in the U.S. appraisal system, some experts say there’s no point in nibbling at the edges. Instead, they suggest tearing the system down and starting fresh.
“I think not many people understand how this byzantine system works,” Rohit Chopra, the Consumer Financial Protection Bureau (CFPB) director, said Tuesday.
Chopra spoke during the first-ever Federal Financial Institutions Examination Council’s Appraisal Subcommittee (ASC) hearing, which focused on appraisal bias.
The CFPB director borrowed the term byzantine from a report released in January 2022, commissioned by the Appraisal Subcommittee and led by the National Fair Housing Alliance. The report’s main conclusion is that the appraisal industry essentially regulates itself, in contrast to other sectors in housing finance.
Click here to watch a recording of the hearing.
It happens because the Appraisal Foundation, an industry-run private nonprofit, establishes standards and criteria for appraisers, which are then adopted by each state. However, appraisers, lenders, banking institutions and industry trade groups dominate the seats on the Foundation board. There are no consumers or fair housing advocates.
During the hearing, Craig Steinley, president of the Appraisal Institute, said that individual appraisers do not pay fees for the Appraisal Foundation. “It’s not a membership organization of individuals. It’s a membership organization of other organizations. We do [pay fees] by the standard materials from the Foundation.”
In response, Chopra said: “I think it’s something we need to think about whether it is appropriate for this type of fee structure and for there to be payments, including related to governance. I think that raises a lot of questions: for this Subcommittee, for the regulators and potentially for future hearings.”
Increasing accountability to decrease appraisal bias
While Congress tasks the Appraisal Subcommittee with monitoring and reviewing the Appraisal Foundation, it has no enforcement authority.
The Subcommittee is an independent executive branch with seven members on the board, including representatives from the Federal Reserve and the Office of the Comptroller of the Currency. The Subcommittee has authority over the state programs on appraisals.
“We conduct regular compliance reviews of the state programs to determine their level of compliance with the Appraisal Foundation and other federal requirements,” Jim Park, the ASC executive director, said during the hearing. “If a state is found to be out of compliance, the ASC has the enforcement authority to ensure they return to compliance.”
Park added, “However, the ASC oversight authority over the Foundation is limited to monitoring and reviewing their work. The ASC has no enforcement authority as it relates to the Foundation or its boards.”
According to Junia Howell, visiting assistant professor of sociology at the University of Illinois Chicago, there’s a “moral” problem with the current structure.
“As Director Park said at the beginning, there’s not a single other regulatory structure like this in the country, and maybe even in the world,” Howell said. “I would suggest that there needs to be a different structure that possibly increases some accountability.”
The Mortgage Bankers Association (MBA), the trade group representing mortgage lenders in the discussion, agrees with the need for changes.
“The MBA would support reforms which would lead to more independent oversight of appraisers,” Michael Fratantoni, MBA’s senior vice president of research and technology and chief economist, said.
Courtesy of Flávia Furlan Nunes, Housingwire.com
Join the Federal Financial Institutions Examination Council’s Appraisal Subcommittee (ASC) for a hearing about appraisal bias. Invited witnesses representing key stakeholder groups will share their views with the ASC during the hearing.
The hearing will take place on Tuesday, January 24, 2023 from 10:00 a.m. – 12:00 p.m. EST. Members of the public are invited to listen to the hearing and provide written comments. Comments can be submitted to [email protected] until February 8, 2023.
The hearing will be held in-person at the Consumer Financial Protection Bureau (CFPB) Headquarters at 1700 G Street NW, Washington, DC 20552. For those that can’t attend in-person, the hearing will also be livestreamed.
This event is open to the public and requires an RSVP. Please register if you plan to attend or view the hearing. RSVP here.
If you require a reasonable accommodation in order to attend this event, please contact [email protected] 72 hours prior to the start of this event.
This announcement will be updated with more details as they become available.
More information about the Appraisal Subcommittee can be found here .
Link to CFPB posting can be found here.
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The Federal Financial Institutions Examination Council (FFIEC) is offering a new Industry Outreach webinar on Friday, November 18, 2022, that focuses on multifactor authentication. The event sponsored by the FFIEC Task Force on Supervision–Cybersecurity and Critical Infrastructure Working Group. The FFIEC Industry Outreach is an alternative delivery program that provides timely updates on changes in supervisory guidance or regulations and information on current issues in the financial industry. The target audience for the FFIEC Industry Outreach program includes representatives from financial institutions, trade associations, third party providers, and consultants.
Federal and state financial institution examiners are also welcome to participate in FFIEC Industry Outreach programs. Participants can view PowerPoint slides and listen to the presentations via computer or phone.
Date: November 18, 2022
Time: 1:00 pm – 2:00 pm EST
Registration Information
If you are unable to hear the audio portion of the event via the link above, the following number can be used as a backup:
Dial-in: 888-251-2949 or 215-861-0694
Access Code: 4342711#
If the automated recording indicates the conference is full, please use overflow information:
Dial-in: 888-251-2949 or 215-861-0694
Access Code: 6920265#
Disclaimer: Use of these materials by participants, including video and audio recording of this presentation, is strictly prohibited except by written permission of the FFIEC or its members. The views expressed in this presentation are individual views, intended for informational purposes, and are not formal opinions of, nor binding on, the FFIEC or its members.
The Federal Financial Institutions Examination Council (FFIEC) released its 2021 Annual Report this week. Click here to read the full report.
Introductory Message from FFIEC Chairman Todd Harper
I am honored to represent the National Credit Union Administration on and currently. Lead the Federal Financial Institutions Examination Council. So, on behalf of the Council, I am pleased to present our 2021 FFIEC annual report, which reviews the Council’s activities and those of its task forces and its working groups.
Throughout the last year, the Council member agencies continued to collaboratively address common issues affecting our regulated entities and the consumers they serve. Even before becoming the Council’s chair in April 2021, my regulatory philosophy has been that effective financial institutions’ regulators need to be:
- Fair and forward-looking;
- Innovative, inclusive, and independent;
- Risk focused and ready to act expeditiously when problems are identified at financial institutions; and
- Engaged appropriately with all stakeholders to develop effective regulation and efficient supervision.
This regulatory philosophy aligns with the work of the Council in promoting uniformity in the regulation, reporting, and supervision of financial institutions.
During 2021, the Council continued its work related to ensuring a smooth transition away from the LIBOR, strengthening the financial sector’s cybersecurity infrastructure, and supporting examiner education. Additionally, we prioritized two other matters. First, we renewed our focus on appraisal system regulatory governance, infrastructure, equity, and quality. Second, we broadly examined economic equity and justice within the banking system.
In its second year, the COVID-19 pandemic continued to inform our discussions and virtual examination processes. And, the Council notably maintained its focus on the supervisory area of cybersecurity and updated chapters in the Council’s examination manual. On the Bank Secrecy Act and anti-money laundering. We also introduced new communications tools and began work to modernize the Council’s website.
To read the entire message from Chairman Harper, please click here and navigate to page 11 of the pdf.
(Jan. 28, 2022) Best practices for requesting examination information from banks, credit unions and other federally supervised financial institutions, and a common authentication solution for secure access to the regulators’ supervision systems, were issued late last week by the Federal Financial Institutions Examination Council (FFIEC).
The exam council said the statement announcing the best practices and authentication solution “presents the results of the final phase of the Examination Modernization Project in which FFIEC members addressed the feedback provided by supervised entities regarding examination requests and authentication requirements for FFIEC members’ supervision systems.”
Principles for examination information requests, according to the exam council, include:
- Information requests should be risk-focused and relevant to the examination.
- Supervised institutions should be given sufficient time to produce new or additional requested information.
- Examiners should coordinate information requests among the examination team to avoid duplicative and/or redundant requests.
- Information requests should be made through the supervised institution’s designated regulatory examination point-of-contact, if applicable, to avoid placing burden on other institution staff.
- Information requests and supplemental information requests should be clearly articulated in writing.
Regarding the authentication solution, the statement asserted that a common approach will allow supervised institutions and the exam council’s member agencies to securely authenticate to supervision systems, while eliminating the need for multiple credentials to access regulator systems.
However, each regulator is given the flexibility to deploy the authentication solution as it deems fit, the statement indicated.
“The agreed-upon transition strategy provides each FFIEC agency the flexibility to implement common authentication as needed, at its own planned pace and as resources become available,” the exam council said. “As FFIEC members continue to align their technological capabilities where permissible and possible, additional opportunities for burden reduction will be evaluated.”
LINK:
(Jan. 14, 2022) Clarifying processes available for federal regulators to consider temporary waiver relief for appraisals by making “a clear distinction” between a request by a state appraiser regulatory agency and via petition by others is the aim of a rule proposed this week by the appraisal subcommittee of the FFIEC.
The appraisal subcommittee (ASC) said the reason behind the distinction is in federal law. According to the proposal published in the Federal Register, the ASC may, under the law, grant a temporary waiver only when the ASC or a state appraiser regulatory agency has made the statutorily required written determination with two parts. Those parts are: There is a scarcity of certified or licensed appraisers to perform appraisals in connection with federally related transactions (FRTs) in a state, or in any geographical political subdivision of a State; and such scarcity is leading to significant delays in the performance of such appraisals for FRTs.
“Accordingly, the proposed rules seek to clarify the procedural differences in processing a Request for Temporary Waiver accompanied by a written determination as compared to a Petition requesting the ASC exercise its discretion to initiate a temporary waiver proceeding,” the proposal states.
The proposal, the ASC said, clarifies who can file a request for a temporary waiver, what a request for the waiver should contain; ASC review of a request for temporary waiver for purposes of determining sufficiency of the document’s content and receipt by the ASC; and what is required in the event a request for temporary waiver is not deemed to be received, and thereby is either denied or referred back to the state appraisal agency.
For petitions, the ASC said the proposal clarifies: Who can file a petition requesting that the ASC exercise its discretionary authority to issue an order (thereby initiating a temporary waiver proceeding); what a petition should contain; the need to forward a copy of a petition to the state appraisal agency of the affected state; what the ASC may review for purposes of determining whether the petition may be processed for further action; what is required in the event a petition does not meet the requirements of its Contents of a Petition and thereby is either denied or referred back to the petitioner; and what further action may be taken.
The proposal would also expand the timeframe for an ASC determination of a temporary waiver (or waiver request) to 90 days from the current 45. It also clarifies the distinction between mandatory waiver termination versus discretionary waiver termination.
Comments are due on the proposal on March 14 (60 days).
LINK:
Appraisal Subcommittee; Appraiser Regulation; Temporary Waiver Requests
(Dec. 3, 2021) One new section – focusing on assessments of money laundering practices — and updates to three existing parts of the Bank Secrecy Act/Anti-Money Laundering (BSA/AML) Examination Manual were released this week by the FFIEC.
The manual provides instructions to examiners for assessing an institution’s BSA/AML compliance program and its compliance with BSA regulatory requirements. The changes released this week include the new section focusing on how credit unions and other financial institutions assess money laundering and terrorist financing risks (if any) posed by their customers.
The other updates revise the manual’s current sections on charities and nonprofit organizations; independent automated teller machine (ATM) owners or operators; and politically exposed persons.
The exam council said examiners are reminded that no specific customer type automatically presents a higher risk of money laundering, terrorist financing, or other illicit financial activity. “Further,” the council noted, “banks that operate in compliance with applicable BSA/AML requirements and reasonably manage and mitigate risks related to the unique characteristics of customer relationships are neither prohibited nor discouraged from providing accounts or services to any specific class or type of customer.”
Additionally, the exam council said the updates should not be seen as new requirements or suggest a new or increased focus on certain areas. “Rather, these sections provide information and considerations related to certain customers that may indicate the need for bank policies, procedures, and processes to address potential money laundering, terrorist financing, and other illicit financial activity risks,” the council noted. “These sections provide further transparency into the BSA/AML examination process.”
LINK:
Federal and State Regulators Release Updates to the BSA/AML Examination Manual
(Nov. 12, 2021) NCUA late last week placed the tiny Pomona Postal FCU of Pomona, Calif., into conservatorship, saying the credit union’s most recent call report shows it had 717 members and $4.2 million in assets. The 57-year-old credit union had about a 51% loan-to-share ratio, according to NCUA data … Bob Gallman, president and CEO of the Louisiana Credit Union League since 2017, has announced his retirement, effective next March; he has notched more than 45 years in the credit union system … Guidance for dealing with climate change risk management “supervisory expectations” will be released this year, the acting comptroller of the currency said this week. “We expect to issue framework guidance by the end of this year, to be followed next year with detailed guidance for each risk area,” Acting Comptroller Michael J. Hsu said. “The detailed guidance will build on a range-of-practices review that will launch this week, industry and climate groups’ input, and lessons from other jurisdictions” … Providing “relevant and timely information” specifically for examiners and financial institution practitioners is the aim of a revamped notification system announced this week by the FFIEC (which, since April, has been chaired by NCUA Chairman Todd Harper). According to the Exam Council, its “FFIEC Announcements” email notifications will be distributed to the council’s email subscribers notifying them of updates to its website and “Infobases.” Each issuance, the council said, will be designated with the word “Announcement” in the header, followed by a sequential numbering order of a four-digit year and a two-digit issuance number. See the link for more or to sign up.
LINKS:
NCUA Places Pomona Postal Federal Credit Union Into Conservatorship
Acting Comptroller Discusses Climate Change Risk
FFIEC Implements New “Announcements” Communication Tool
(Oct. 29, 2021) Credit unions, banks and other lenders should use census tract information provided in the 2020 Census for mortgage-related data collected beginning next year, CFPB said this week. In a “HMDA Reminder,” the bureau noted that Regulation C (which implements the Home Mortgage Disclosure Act, or HMDA) requires financial institutions to provide census tract information for certain purposes.
“To determine what to report for this data point, a covered financial institution must look to the ‘most recent decennial census conducted by the U.S. Census Bureau’ and ‘use the boundaries and codes in effect on Jan. 1 of the calendar year covered by the loan/application register that it is reporting,’” the bureau said.
Census tract data provided by the 2020 census must be applied to data collected beginning Jan. 1, 2022, the bureau added.
Additionally, according to the agency, the FFIEC’s “Geocoder” will use census tract information from the 2020 census also beginning with the new year. (Geocoder is a web-based tool designed to help financial institutions meet the legal requirement to report information on mortgage, business, and farm loans.)
LINK:
(Sept. 17, 2021) An updated “filing instructions guide” (FIG), as well as an updated supplemental guide for quarterly filers, for reporting Home Mortgage Disclosure Act (HMDA) data for 2022 has been posted by the FFIEC, the group said late last week.
According to the FFIEC, the updated FIG and supplemental guide will help institutions file annual HMDA data collected in 2022 with the Consumer Financial Protection Bureau (CFPB) in 2023.
The exam council said there are no significant changes to the submission process for data collected in 2022 and reported in 2023.
LINK:
Filing instructions guide for HMDA data collected in 2022
(Aug. 13, 2021) Revised guidance on effective authentication and access risk management principles and practices related to digital banking services and information systems was issued this week by NCUA and other federal financial institution regulators.
The guidance, issued by the regulators as FFIEC members (including the State Liaison Committee (SLC)), replaces direction issued in 2005 and 2011 on Internet-based services, focusing not only on customer access but also access by employees and third parties, the exam council said.
“This Guidance acknowledges significant risks associated with the cybersecurity threat landscape that reinforce the need for financial institutions to effectively authenticate users and customers to protect information systems, accounts, and data,” the guidance states in its introduction. “The Guidance also recognizes that authentication considerations have extended beyond customers and include employees, third parties, and system-to-system communications.”
The exam council said the revised guidance:
- Highlights the current cybersecurity threat environment including increased remote access by customers and users, as well as raids that leverage compromised credentials; and mentions the risks arising from push payment capabilities.
- Recognizes the importance of the financial institution’s risk assessment to determine appropriate access and authentication practices to determine the wide range of users accessing financial institution systems and services.
- Supports a financial institution’s adoption of layered security and underscores weaknesses in single-factor authentication.
- Discusses how multi-factor authentication or controls of equivalent strength can more effectively mitigate risks.
- Includes examples of authentication controls, and a list of government and industry resources and references to assist financial institutions with authentication and access management.
LINK:
FFIEC Issues Guidance on Authentication and Access to Financial Institution Services and Systems
(July 16, 2021) Welcome to accounting and consulting firm SingerLewak as the latest NASCUS associate member. Partner Sheila Balzer in the firm’s Denver operations is the leader for its expertise in state credit union operating and loan systems … Former Fed official Nellie Liang (and Fed Board nominee by former President Donald Trump (R)) was confirmed by the Senate Thursday as Treasury under secretary for domestic finance – responsible for policy on financial institutions, financial markets, and more – with nearly three-fourths of the Senate voting in favor. The under secretary’s office serves as a key contact for NCUA and other independent federal financial regulators … NASCUS was on the scene this week as the State Liaison Council (SLC) of the FFIEC was briefed, and as the FFIEC itself met, in Washington. NASCUS is a member of the SLC, which advises the FFIEC to “encourage the application of “uniform examination principles and standards by state and federal supervisory agencies.”