Federal Agencies Focus on Discriminatory Home Appraisal Practices | Moore & Van Allen LLC

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Late last year, news services reported on the results of efforts by a black couple living in northern California to challenge what they believed to be a discriminatory initial valuation 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 landlord during a second appraisal. another company. The couple filed a discrimination complaint against the original appraiser after the second appraisal went up by almost half a million dollars. Recent reports over the past few years have also highlighted longstanding studies focused on the disparity in home valuations in majority white communities versus those in communities of color.

In this context, federal agencies have focused attention on discriminatory practices generally in the provision of financial services to communities of color, and in 2021 President Biden announced the creation of a new interagency task force (the Interagency Property Assessment and Equity Working Group, or PAVE) to focus specifically on inequities in home valuation practices. PAVE recently released a report outlining the steps its thirteen member federal agencies and offices would take to address the causes and impacts of discriminatory practices. The OCC and the Consumer Financial Protection Bureau 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 oversight authority to ensure fair access to financial services and fair treatment of customers and to take action described in the PAVE report. The statement indicates that the OCC will take the necessary steps over the coming months to strengthen its monitoring efforts to identify discriminatory practices in real estate appraisals, educate consumers about their rights regarding appraisals and support efforts to find ways to negatively address biases in evaluation processes. impacting communities of color. The OCC statement is available here.

The Bureau of Consumer Financial Protection issued a similar statement. Bureau Director Rohit Chopra said the Bureau would take steps to advance the work of PAVE, including through its research, oversight of financial institutions and their service providers, and compliance procedures. execution. The statement also referenced the Bureau’s work to develop a proposed rule to ensure that the use of algorithmic ratings does not lead to unfair and inaccurate results. Director Chopra’s statement is available here.

The PAVE Action Plan includes actions to be taken by its member federal agencies and offices that aim to:

  • Strengthen safeguards against unlawful discrimination in the residential assessment process by:
    • Clarify that the Fair Housing Act and ECOA apply to the appraisal industry.
    • Update agency and GSE evaluation-specific policies and guidelines to reflect how non-discrimination requirements apply to evaluators in their programs.
    • Issue guidance and implement new policies to improve processes for reconsidering an assessment if it is lower than expected.
    • Strengthen evaluation data sets and collection forms to reduce opportunities for evaluators to apply subjective criteria.
    • Use rulemaking to address the potential for bias in the use of technology-based assessment tools.
    • Develop a legislative proposal for the governance structure of the appraisal industry to improve transparency and public participation in the development of appraisal standards and qualification criteria for appraisers and to promote diversity in the within the profession.
  • Improve fair housing and fair loan enforcement efforts by:
    • Strengthen the coordination of control and enforcement agencies to identify discriminatory assessments and assessment processes.
    • Increase collaboration among agencies involved in enforcement and compliance with fair lending and fair housing laws.
    • Expand mortgage lender review procedures to include identifying patterns of pricing bias.
  • Create a well-trained, accessible and diverse evaluator workforce by:
    • Update appraiser qualification criteria related to education, experience, and exam requirements to reduce barriers to entering the appraisal profession.
    • Increase engagement with state regulators to remove barriers to entry and advance diversity within the appraiser workforce.
    • Require anti-bias, fair housing, and fair lending training for all assessors who conduct assessments for federal programs and promote training for all assessors.
  • Empower consumers by:
    • Update government resources for consumers who may have experienced rating bias.
    • Incorporate information about valuation bias into first-time homebuyer education courses.
    • Train housing counselors to help potential victims of rating bias.
    • Provide funds for testing, education and awareness.
    • Conduct a coordinated public awareness campaign to inform consumers of their rights and the availability of resources.
    • Inform FHA borrowers of the process for requesting a reconsideration of an appraisal when the original appraisal is lower than expected.
  • Provide researchers and enforcement agencies with better data to study and monitor evaluation bias by:
    • Develop data-sharing agreements among government agencies and pursue joint strategies to make assessment-related data more widely available, foster research, and better enable application.
    • Launch an ongoing interagency effort to identify and fill gaps in the current state of research to help inform future policy and application priorities.
    • Define metrics to identify and measure patterns of misvaluation in the property appraisal process.

In addition to these actions, the Task Force also indicated that it would take steps to assess additional policy measures, including to:

  • expanded use of alternatives to traditional expertise,
  • the use of value estimate ranges instead of an exact amount,
  • the potential use of alternatives and modifications to the sales comparison approach, and
  • sharing aggregated historical valuation data to support the development of unbiased valuation methods.

The action plan reflects the policy priority that federal agencies place on addressing discrimination in access to and provision of financial services to communities of color. While the action plan refers to the potential for developing new legislative or regulatory proposals, it more strongly reflects the view of federal agencies that they already largely possess the necessary legislative and regulatory authority and oversight tools. to significantly affect these policy objectives. These tools, as reflected in statements from the CCO and the Bureau, will include an increased focus of pending review on assessment practices and the potential for enforcement action.

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