HUD Proposes Appraisal Reforms to Curb Bias
The NCUA and other agencies would be required to more closely examine lenders’ use of appraisals.
Credit unions and other lenders would come under closer scrutiny of their use of appraisals to protect borrowers from racial discrimination under proposals that the U.S. Department of Housing and Urban Development (HUD) sent to President Joe Biden Wednesday.
The NCUA, FDIC and other agencies participated in drafting the Interagency Task Force on Property Appraisal and Valuation Equity (PAVE) Action Plan.
A HUD news release said the plan, “when enacted, represents the most wide-ranging set of reforms ever put forward to advance equity in the home appraisal process.”
“The PAVE Action Plan is aimed squarely at dismantling racial bias in the home lending and appraisal process and promoting generational wealth creation through homeownership,” HUD said.
In it, HUD would require the NCUA, FDIC and other federal regulators of lenders to:
- Ensure that the use of appraisals by appraiser and lenders is directly included in supervisory Fair Housing Act and ECOA compliance requirements.
- Consider appraisal practices in every review of relevant existing and future policies and guidance.
- Revise inter-agency agreements to promote increased collaboration among agencies to enforce fair lending standards, including those related to appraisals.
- Work with other agencies to develop a shared database to allow the agencies and the public to better monitor lender compliance with fair appraisal standards.
- Issue guidance on how lenders should handle requests by borrowers for reconsideration of low appraisal values.
- Track how lenders handle these reconsideration-of-value (ROV) requests.
“An ROV offers consumers who suspect that their appraisal may have been influenced by racial or ethnic bias an avenue by which they might be able to request a different valuation that results in a better outcome,” the report said.
“The guidance would include examples of effective practices in using ROVs, and whether there are any measures that lenders can take to encourage greater use of ROVs,” it said. “Prudential regulators will also review authorities and determine the potential for rulemaking related to ROV processes, as rulemaking would drive additional accountability beyond that of guidance.”
Biden announced the creation of the Task Force last June. It is co-chaired by HUD Secretary Marcia L. Fudge and White House Domestic Policy Advisor Susan Rice. The task force engaged more than 150 stakeholder groups including appraisers, appraisal management companies, lenders, civil rights and advocacy groups, academic institutions, philanthropy organizations and individuals who have experienced instances of appraisal bias.
“For generations, millions of Black and brown Americans have had their homes valued for less than their white counterparts simply because of the color of their skin or the racial makeup of the neighborhood,” Fudge said.
“Black and brown homeowners in communities just like mine have not felt that they have had a voice or that the Federal government was doing enough to redress the issue of racial bias in the appraisal process. With the PAVE Task Force, the Biden-Harris Administration is taking a whole-of-government approach to fixing this problem,” she said.
Elizabeth Sullivan, CUNA’s senior director of advocacy and counsel, said CUNA supports the goals of the PAVE Task Force and looks forward to seeing its work come to fruition.
“Homeownership is one of the most important steps in establishing the financial well-being of America’s credit union members, and appraisal bias unfairly and inequitably prevents people of color from taking that critical step,” she said. “America’s credit unions will continue their mission to ensure the financial well-being that can be gained from homeownership is equally accessible to all.”
Bob Broeksmit, president of the Mortgage Bankers Association, said he welcomed the report.
“While the role of mortgage lenders in the appraisal process is limited by design, MBA and its members are committed to working with policymakers and other stakeholders, including appraisers, to develop solutions that ensure borrowers receive a fair and accurate estimate of the value of their homes,” Broeksmit said.