Appraisals and Valuations

Appraisal bill would combat legacy of redlining

Task force chaired by CFPB designee would report to Congress

Legislation in Congress would try to solve for inconsistencies in appraisal underwriting, a lack of diversity in the profession, and the legacy of property valuation discrimination.

United States Rep. Emanuel Cleaver, D-Mo., and Rep. Ritchie Torres, D-N.Y., last week introduced the “Real Estate Valuation Fairness and Improvement Act of 2021,” to root out discrimination in appraising and correct the legacy of redlining.

Both the Federal Home Owners’ Loan Corporation and the Federal Housing Administration “devalued property or refused to make loans secured by property in communities of color,” the bill reads. “The harmful consequences of this discrimination remain unresolved.”

The legislation would form a task force composed of members of federal agencies and regulators. The Consumer Financial Protection Bureau would designate the chairperson of the body.

The Federal Housing Finance Agency, along with Freddie Mac and Fannie Mae, would designate members to the task force, as would the National Mortgage Association, the Federal Housing Commissioner, the Treasury, the Office of the Comptroller of the Currency, the Federal Deposit Insurance Corporation and the Federal Reserve.

Once formed, the task force would “harmonize” collateral underwriting standards, the bill reads. It would seek to solve problems in the appraisal industry, such as determining collateral value in areas where there is limited market activity, and identifying barriers of entry to the profession for minorities. The bill would also mandate that all of the agencies participating in the task force contribute and share data to issue periodic reports to Congress.

The first report to Congress would be due no later than two years after the bill’s enactment.

The bill would also convene an advisory committee to oversee the task force, made up of civil rights advocates, industry experts, consumer advocates and experts in alternative valuation models.

The bill would also appropriate $50 million each year for five years to provide grants to State agencies, nonprofit organizations, and institutions of higher education to promote diversity and inclusion in the appraisal profession.

In a letter to lawmakers, Bill Killmer, senior vice president of legislative and political affairs at the Mortgage Bankers Association, wrote that the appraisal profession is in “dire need of change to survive into the next generation.” 

“A  shortage of appraisers is currently felt in many rural, lower income, and predominantly minority  areas, and in the coming years this shortage threatens to spread into new markets and become  far more severe in existing markets,” Kilmer wrote. He added that the task force should have broader representation from lenders.

The Appraisal Institute, a trade association which represents appraisers, expressed its support for the legislation, and urged lawmakers to pass the bill. But the Appraisal Institute’s president, Rodman Schley, cautioned against pinning the blame for discrimination just on appraisers.

“We must confront and combat potential bias in appraisal, and we support vigorous enforcement if discrimination is proven,” said Schley. “However, we must not lose sight that structural biases within the broader marketplace and among all stakeholders within real estate and lending continue to play significant roles that impact the realities of the real property market.”

A 2018 study from the Brookings Institute found that in the average U.S. metropolitan area, homes in neighborhoods where the share of the population is 50% Black are valued at roughly half the price as homes in neighborhoods with no Black residents. The difference in appraisals has led to a $156 billion cumulative loss in value nationwide for majority-Black neighborhoods, the study claimed.

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