CFPB Blog on Appraisal Discrimination
On February 4th, the Consumer Financial Protection Bureau (CFPB) published a blog about the illegality of appraisal discrimination. The blog clarified that appraisal discrimination is prohibited by federal law. The CFPB noted that it is concerned about “reports of appraisers who don’t follow the law and base their value judgments on biased, unfounded assumptions about borrowers and the neighborhoods in which they live.”
The blog publicized a letter sent to the Appraisal Standards Board of The Appraisal Foundation, which establishes the rules and standards appraisers must follow in performing their duties. The letter, which was a joint effort between the CFPB, NCUA, and several other federal agencies, pointed out a potential inconsistency between an ethics rule and advisory opinion issued by the Appraisal Standards Board. Under guidance from the Appraisal Standards Board, “an appraiser may not rely on ‘unsupported conclusions relating to characteristics such as race, color, religion, national origin, sex, sexual orientation, gender, marital status, familial status, age, receipt of public assistance income, disability, or an unsupported conclusion that homogeneity of such characteristics is necessary to maximize value.’” The letter noted that the Appraisal Standards Board’s guidance, however, did not prohibit relying on “‘supported conclusions’” relating to those characteristics—characteristics that align with protected bases under the Fair Housing Act and the Equal Credit Opportunity Act. The letter explained that reliance, even on supported conclusions, could be problematic under the fair lending laws:
For example, an appraiser’s use of or reliance on conclusions based on protected characteristics, regardless of whether the appraiser believes the conclusions are supportable, constitute illegal discrimination. These laws also prohibit neutral policies or practices that disproportionately harm a protected group except when justified by business necessity and absent a less discriminatory alternative. Any determination that entities and individuals may have engaged in prohibited discrimination will depend on the statute, its implementing regulations, and other factors.
While the letter is directed at the appraiser community, and while we wait for more guidance about the regulatory expectations with respect to how to manage risk associated with appraisal bias and appraisal discrimination, credit unions might wonder what they can look to for more information in this area. NCUA’s appraisal rule and the federal banking agencies appraisal rules all require that appraisals receive an adequate review. The 2010 Interagency Appraisal and Evaluation Guidelines explain that the purpose of the appraisal review requirement is to “able to assess the reasonableness of the appraisal or evaluation, including whether the valuation methods, assumptions, and data sources are appropriate and well-supported.” The guidance provides more information about supervisory expectations regarding the appraisal review function, including policy and procedure requirements, the qualifications of reviewers, and the level of the review. Credit unions can also look to the resources linked to in the CFPB blog for reports and studies related to the issue of appraisal discrimination.