A liberal think-tank, regulators, the government-sponsored enterprises, the President of the United States, even fintech firms have all called attention to appraisal bias.
But among them, one agency is taking the lead in spearheading the issue.
Earlier this year, President Joseph Biden charged Department of Housing and Urban Development Sec. Marcia Fudge with leading an inter-agency task force to root out bias in appraisals. Discrimination in appraisals “robs Black families of billions of dollars in home equity and household wealth,” HUD Sec. Marcia Fudge has said.
The task force, co-chaired by Fudge and the director of the United States Domestic Policy Council, Susan Rice, has convened high-level officials from entities including the Federal Reserve, the Office of the Comptroller of the Currency, the Consumer Financial Protection Bureau, the Department of Justice and the Federal Housing Finance Agency.
The task force appointed Melody Taylor, HUD’s regional director for its Mid Atlantic Office of Fair Housing and Equal Opportunity, to be its executive director. In her role as regional director, Taylor oversees programs and policies related to fair housing, economic opportunity, civil rights and nondiscrimination in the implementation of HUD programs.
Yet there are outstanding questions about the nature of bias in appraisals. It’s unclear how frequently bias figures in, if it is mostly conscious or introduced inadvertently, and what role historical discrimination plays.
Freddie Mac recently produced a novel analysis of appraisal reports — the first public research of their data — which found that appraisals in minority neighborhoods are more likely to fall short of the contracted sales price.
Fannie Mae has said it too is working on an analysis of its appraisal report data. Neither of the GSEs have made their trove of appraisal data publicly available for researchers to comb through.
Taylor agreed to answer HousingWire’s written questions about the progress of the interagency task force, and how HUD’s understanding of bias in appraisals is taking shape as they forge a final action plan. Here’s how Taylor, via email, responded to our queries.
Georgia Kromrei: How many complaints of appraisal bias has HUD received this year? What about last year?
Melody Taylor: One of the functions of HUD’s Office of Fair Housing and Equal Opportunity is to ensure equal treatment in housing for all, including identifying any biases that buyers and renters experience. Due to confidentiality filings, HUD does not disclose information about the complaints we receive. However, there are numerous avenues for an individual to file a complaint of bias, for example through HUD’s hotline Appraisal Sub-Committee Hotline, Consumer Federal Protection Bureau and state and local agencies that enforce housing laws. The Task Force is learning that many consumers are unfamiliar or unaware of many channels available to them. We believe that more consumer education, and in turn, more data is needed to understand the full extent of inequity in home appraisals across this country.
What is clear is that racial bias in home appraisals exists, and our primary focus is on rectifying that bias.
GK: In what types of transactions is there appraisal bias? (cash-out refis, refis, reverse mortgages, purchase mortgages, jumbo loans, etc.)
MT: We know that racial bias can happen in any type of transaction, but the Task Force is working to unpack the data to identify patterns and to understand where we need to focus our efforts. The Final Action Report will prioritize evidence-based recommendations that yield a high return on investment and make a lasting impact on those most affected by inequity in home appraisals.
GK: What does a typical incident of appraisal bias look like?
MT: Bias throughout the home appraisal process – including human bias, algorithmic bias, and homebuyer steering – can lead to misvaluation and undervaluation of properties. The cumulative impact of these disparities in home appraisals can be detrimental, particularly for families and communities of color.
Recent studies have shown that homes in majority-Black neighborhoods are often valued at tens of thousands of dollars less than comparable homes in similar – but majority-White – communities.
GK: How do regulatory agencies determine the appraiser was biased, and not some other actor in the transaction? (the lender, or the real estate agent, for example)
MT: The Task Force is exploring racial bias in appraisals. Understanding the role that each actor can – and should – play in the transaction will be an element of the Final Action Report. No presumptions are being made regarding the specific source(s) of the bias that is evident in the data.
GK: Are there alternative approaches to the system of using sales comparisons — which rely on historical sales, subject to discriminatory practices and devaluation due to those practices — that would account for the legacy of practices like redlining, while still meeting lenders’ needs to accurately determine collateral risk?
MT: This is another area of interest for the Task Force. We know that persistent undervaluation of properties owned by families of color is part of a long legacy of discriminatory policies and practices. We also know that a single approach will not remedy the compounding effects on generational wealth and the sprawling racial wealth gap. As such, we are exploring a wide array of evidence-based approaches that will bring us closer to property appraisal and valuation equity.
GK: Are there concerns of overvaluation in some transactions, as well as undervaluations?
MT: Overvaluation is, indeed, a concern. The Task Force is working to identify patterns and to understand all instances of property misvaluation.
GK: Fannie Mae’s seller guide tells lenders that when there are multiple opinions of market value, “The Seller must comply with the Appraiser Independence Requirements and adhere to a policy of selecting the most reliable appraisal, rather than the appraisal that states the highest value.” Freddie Mac’s policy is for the lender to select “the most reliable appraisal, rather than the appraisal that states the highest value.” In a recent comment letter to the Federal Housing Finance Agency, the National Community Reinvestment Coalition wrote that, “The Woodstock Institute has received troubling reports that when homeowners seek a second appraisal when they believe the first one was discriminatory, the Enterprises only use the first, lower appraisal.” Earlier this month, the CFPB sued a reverse mortgage lender for “deceptive and inflated home estimates” it included in direct mailers. It said values were inflated by as much as 28%, but did not provide a basis for those calculations. Could the GSE selling guidelines and enforcement actions by regulators encourage undervaluation?
MT: [Recommend we do not answer, as we should not be commenting on GSE policy]
GK: What sources of data is the task force drawing upon in understanding the problem and crafting solutions, and will any of that data be made publicly available?
MT: The Task Force has organized a working group to look specifically at industry-leading data and research to inform policy decisions and final recommendations outlined in the Report. With accessible and high-quality data, we are in a better position to identify patterns and instances of racial bias in the appraisal and home buying process. Every effort will be made to improve data sharing in service of advancing racial equity for all Americans.
GK: How is the task force thinking through potential risks of bias in automated valuation systems, in desktop appraisals, or in hybrid “bifurcated” appraisals?
MT: The Task Force is aware of the potential risks. We are analyzing this issue – in consultation with a wide range of partners – to inform the recommendations outlined in the Final Action Report. We look forward to sharing our findings once the report is released.
GK: Who were the participants in the PAVE listening session?
MT: More than 70 leaders from industry, advocacy, fair housing, and academic organizations convened for the first stakeholder listening session convened by the Biden-Harris Interagency PAVE Task Force. The depth and breadth of participants’ experience informed rich discussions about current appraisal practices, and their industry expertise offered meaningful recommendations for how each stakeholder can play an important role in solutions that will ultimately be outlined in the Final Action Report.
GK: Appraisers have said lack of incentives for trainees – as well as the large time outlay to become an appraiser – has hindered diversification in the profession. What are some ways the appraisal industry can make progress on diversity? Are there changes that could reduce barriers to entry that the task force is considering?
MT: The Task Force is working closely with partners across the appraisal industry to identify opportunities to improve diversity, equity, and inclusion in the profession. We look forward to sharing our findings once the report is released.
GK: Will there be a media update on the PAVE task force, including an opportunity to ask questions, before the task force issues its final report?
MT: The PAVE Task Force is working to finalize the Final Report over the next few months. We will update stakeholders and the press with relevant information as we can.