Appraisals and ValuationsMortgageReal Estate

HUD is developing an appraisal review process to investigate racial bias

New guidelines for Reconsideration of Value (ROV) focus on borrowers seeking FHA financing

The U.S. Department of Housing and Urban Development (HUD) has begun developing a process for borrowers seeking Federal Housing Administration (FHA) financing to request an appraisal review when they suspect racial bias. 

“We must eliminate bias in home valuations so that everyone can equally reap the benefit of wealth – and intergenerational wealth – that come along with homeownership,” HUD Secretary Marcia L. Fudge said during an event at the Brookings Institute.  

Since June 2021, Fudge has led an interagency task force created by the Biden administration to combat inequality in appraisals. The group created an action plan representing a wide-ranging set of equity reforms to the home appraisal process. 

HUD’s in-development appraisal review process, which was announced on Thursday, is part of the Reconsideration of Value (ROV), the FHA policy that lenders must follow when a borrower raises concerns about unlawful discrimination in residential property valuations. 

According to HUD, lenders will have clear guidance on reviewing the borrowers’ request for a reconsideration of value when applying for FHA-insured mortgage financing. 

Lenders will also receive guidance on obtaining a second appraisal when material deficiencies are documented — such as violations of Fair Housing or bias on a property valuation report — and the appraiser is unwilling to resolve them. 

Some recent research found correlations between appraisals and the widening valuation gap between homes in minority neighborhoods and those in white neighborhoods. In addition, new cases regarding racial bias on appraisals became public over the last year.

In the most recent case, filed in August 2022, a Maryland couple sued the appraisal firm 20/20 Valuations, its appraiser and the mortgage lender loanDepot after their home was appraised at a far lower value than it was a few months later when they removed indications that a Black family lived there.

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