Appraisals and Valuations

Susan Rice to co-chair HUD appraisal task force

Inter-agency effort will deliver a report to Biden in six months

The interagency task force to combat inequity in appraisals, led by Housing and Urban Development Secretary Marcia Fudge, will be co-chaired by former United Nations ambassador Susan Rice.

A former national security advisor in the Obama administration, Rice now chairs President Joe Biden’s Domestic Policy Council, which has broad authority to further the president’s domestic agenda. In that role, Rice also leads the administration’s effort to advance racial justice and equity.

The Property Appraisal and Valuation Equity task force will deliver a report to Biden within six months to describe the “extent, causes, and consequences of undervaluing of properties,” a HUD official told HousingWire. The effort will culminate in a roadmap of actions for consumers and industry stakeholders, as well as policies for agencies and others to implement.

Although Rice spent much of her career in foreign policy, she has already made racial equity central to her domestic policy agenda. Days into her tenure as DPC chair, Rice drew attention to the racial homeownership gap.

“For too many American families, systemic racism and inequality in our economy, laws, and institutions still put the American Dream far out of reach,” Rice said at a press conference in late January. “Today, the average Black family has just one tenth the wealth of the average white family, while the gap between white and Black in homeownership is now larger than it was in 1960.”

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Melody Taylor will serve as the task force’s executive director. Taylor, who is an expert in fair housing, was previously HUD’s regional director for its Mid Atlantic Office of Fair Housing and Equal Opportunity.

The task force will also include the Secretaries of Agriculture, Labor, Education and Veterans Affairs.

Members from the Comptroller of the Currency, the chairman of the Board of Governors of the Federal Reserve, the chairman of the Federal Trade Commission, the chairman of the Federal Deposit Insurance Corporation, the chairman of the National Credit Union Administration and the Federal Financial Institutions Examination Council, the director of the Consumer Financial Protection Bureau, the director of the Federal Housing Finance Agency and the Appraisal Subcommittee will also form part of the effort.

Researchers have argued that appraisals are a significant driver of the widening valuation gap between homes in minority neighborhoods and those in white neighborhoods. In light of that research, the Biden administration has trained its focus on the appraisal industry in its effort to combat racial inequality in home buying.

In June, Biden directed Fudge to lead a “first-of-its-kind interagency effort” during a visit to Tulsa, Oklahoma, to honor the 1921 Tulsa race massacre.

Biden said the effort would “seek to utilize, quickly, the many levers at the federal government’s disposal, including potential enforcement under fair housing laws, regulatory action, and development of standards and guidance” to combat any appraisal bias in the homebuying process.

Taylor, in an interview with HousingWire, said that any overhaul of the appraisal industry — which is overwhelmingly white and aging — will not “happen overnight.” The task force, she said, welcomes the participation of industry stakeholders as well as housing advocates and will take a “balanced approach.”

Despite the body of academic research and news coverage, there are questions about the extent of bias in the appraisal industry. A long history of federal redlining led to neighborhood boundaries and unequal property values, and appraisal practices reenforced those standards. Many appraisers say disparities in valuation are caused by factors outside their control. As HousingWire previously reported, there is also little hard evidence of widespread racial bias in appraisals – there are few formal complaints, federal investigations or lawsuit payouts.

Until recently, the Appraisal Institute, the profession’s primary trade organization, did not acknowledge any racial bias. But in the last year, however, it has recognized some degree of “unconscious valuation bias.” The trade organization says it is increasing training on unconscious bias, recruiting more minorities into the field, and reviewing data on potential bias. The Appraisal Institute has stopped short of saying that there is systemic racism within the industry.

Another challenge is that homebuyers place an immense amount of pressure on lenders, and thus indirectly on appraisers, to complete the loan process quickly, appraisers say. There are additional concerns about the current regulatory framework, which mandates a firewall between the loan originator and the appraiser — but many appraisers are deeply unhappy with that system.

Lisa Rice, CEO of the National Fair Housing Alliance, said that the appraisal industry has not received sufficient attention from federal regulators.

“Part of the problem is that regulators have been in crisis management mode since the advent of the Great Recession and the foreclosure crisis,” Rice said. “Many communities still have not bounced back from the Great Recession. Regulators have been focused on trying to address those challenges and making sure the marketplace is secure.”

Taylor said that while there are “other drivers” that also contribute to racial disparity in housing, data show the influence of appraisal on the disparity is key. She also said that the appraisal industry may still struggle with pressure from lenders.

“We have to think about significant contributing factors to disparity, and where there are influences in the lending industry relating to appraisals,” Taylor said.

A growing number of homeowners in recent years have claimed that racial bias is embedded within the appraisal industry. Black homeowners routinely remove any signs that would reveal their race from their homes to prepare for an appraisal. An Oakland woman, in a complaint filed with HUD, claimed that her home was appraised for more than $400,000 less than its appraised value six months later.

From 2019 to 2020, HUD received only 12 complaints of appraisal bias, the Washington Post reported. A spokesperson for the agency would not confirm how many more it has received since then.

Taylor said that appraisal bias should not be discounted because of a lack of formal complaints.

“More discrimination occurs than is reported through the front door,” said Taylor. “Part of the reason for that is people don’t know who to call.”

Taylor added: “The other part is, you’re in the middle of a transaction, and buying a home is not easy. You’re signing documents, looking at things, and people are telling you the property you’re going to purchase is over or undervalued. How do [borrowers] navigate that space?”

Fudge and Taylor will participate in a virtual event hosted by HUD on Thursday, July 29, where they will discuss the task force and bias in the home valuation process.

Editor’s note: In a previous version of this article, Lisa Rice’s title was incorrect. She is the CEO of the National Fair Housing Alliance, not its executive vice president.

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