Late last year, news services reported on the results of the efforts of a black couple living in Northern California to challenge what they believed was an initial, discriminatory low-ball appraisal of their home. To test their theory, the couple “whitewashed” their home by removing artwork and replacing family photos with those of a white neighbor, who acted as the homeowner during a second appraisal from another company. The couple filed a discrimination lawsuit against the initial appraiser after the second appraisal came in almost half a million dollars higher. Recent reporting over the last few years has also highlighted long-standing studies focused on the disparity in the valuations of homes in majority-white communities when compared to those in communities of color.
Against this backdrop, Federal agencies have sharpened their focus on discriminatory practices in general in the provision of financial services to communities of color, and in 2021 President Biden announced the creation of a new interagency taskforce (the Interagency Task Force on Property Appraisal and Valuation Equity, or PAVE) specifically to focus on inequities in home valuation practices. PAVE recently released a report setting out the steps its thirteen member Federal agencies and offices would take to address the causes and impacts of discriminatory practices. Both the OCC and the Bureau of Consumer Financial Protection made separate announcements supporting the work of PAVE and the actions called for by the plan.
Acting Comptroller of the Currency, Michael J. Hsu, issued a statement noting the OCC’s commitment to using its supervisory authority to ensure fair access to financial services and the fair treatment of customers and to taking actions outlined in the PAVE report. The statement indicates that the OCC will take necessary steps over the coming months to enhance its supervisory efforts to identify discriminatory practices in property valuations, to educate consumers on their rights regarding appraisals, and to support efforts to find ways to address biases in valuation processes negatively impacting communities of color. The OCC statement is available here.
The Bureau of Consumer Financial Protection issued a similar statement. Bureau Director Rohit Chopra indicated that the Bureau would take steps to further PAVE’s work, including through its research, supervision of both financial institutions and their service providers, and enforcement proceedings. The statement also referenced the Bureau’s work to develop a proposed rule to ensure that the use of algorithmic valuations do not result in unfair and inaccurate results. Director Chopra’s statement is available here.
The PAVE Action Plan includes measures to be taken by its Federal member agencies and offices that are designed to:
- Strengthen the guardrails against unlawful discrimination in the residential valuation process by:
- Clarifying that the Fair Housing Act and ECOA apply to the appraisal industry.
- Updating the agencies’ and GSE’s appraisal-specific policies and guidance to reflect how nondiscrimination requirements apply to appraisers within their programs.
- Issuing guidance and implementing new policies to improve the processes for reconsideration of a valuation if it is lower than expected.
- Strengthening appraisal dataset and collection forms to reduce opportunities for appraisers to apply subjective criteria.
- Using rulemaking to address the potential for bias in the use of technology-based valuation tools.
- Developing a legislative proposal for the governance structure of the appraisal industry to improve transparency and public participation in the development of appraisal standards and appraiser qualification criteria and to promote diversity within the profession.
- Enhance fair housing and fair lending enforcement efforts by:
- Strengthening the coordination of supervisory and enforcement agencies to identify discriminatory appraisals and valuation processes.
- Increasing collaboration between agencies involved in the enforcement of and compliance with fair lending and fair housing laws.
- Expanding examination procedures of mortgage lenders to include identification of patterns of appraisal bias.
- Build a well-trained, accessible, and diverse appraiser workforce by:
- Updating the qualification criteria for appraiser qualifications related to education, experience, and examination requirements to lower barriers to entry in the appraiser profession.
- Increasing engagement with state regulatory agencies to remove barriers to entry and advance diversity in the appraiser workforce.
- Requiring anti-bias, fair housing, and fair lending training for all appraisers who conduct appraisals for federal programs and promoting training for all appraisers.
- Empower consumers to act by:
- Updating government resources for consumers who may have experienced appraisal bias.
- Incorporating appraisal bias information into first-time homebuyer education courses.
- Training housing counselors to assist potential victims of appraisal bias.
- Providing funding for testing, education, and outreach.
- Executing a coordinated public awareness campaign to inform consumers of their rights and availability of resources.
- Informing FHA borrowers about the process to request a reconsideration of a valuation when the initial valuation is lower than expected.
- Give researchers and enforcement agencies better data to study and monitor valuation bias by:
- Developing data-sharing arrangements among government agencies and pursuing joint strategies to make appraisal-related data more widely available, foster research, and better enable enforcement.
- Launching a standing interagency effort to identify and fill gaps in the current state of research to help inform future policy and enforcement priorities.
- Defining metrics to identify and measure patterns of mis-valuation in the property valuation process.
In addition to these actions, the Task Force also indicated that it would take steps to evaluate additional policy measures, including for:
- the expanded use of alternatives to traditional appraisals,
- the use of value estimate ranges instead of an exact amount,
- the potential use of alternatives and modifications to the sales comparison approach, and
- the sharing of aggregated historical appraisal data to foster development of unbiased valuation methods.
The Action Plan reflects the policy prioritization Federal agencies are placing on addressing discrimination in access to and provision of financial services for communities of color. Although the Action Plan does reference the potential for the development of further legislative or regulatory proposals, it more strongly reflects the Federal agencies’ views that they largely already possess the legislative and regulatory authority and supervisory tools needed to meaningfully affect these policy goals. These tools, as reflected by the OCC and Bureau statements, will include pending increased examination focus on appraisal practices and the potential for enforcement measures.
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