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The Biden Administration Wednesday announced its action plan aimed at reducing home appraisal bias, as part of a larger effort to address the sprawling racial wealth gap. NAFCU has been supportive of the Administration’s efforts to eliminate bias in the home appraisal process and offered input on this topic in a letter sent Wednesday to the Senate Banking Committee ahead of today’s hearing on strengthening oversight and equity in the appraisal process.

In the letter, NAFCU Vice President of Legislative Affairs Brad Thaler offered support for alternative appraisal processes such as appraisal bifurcation, desktop appraisals, and exterior only appraisals, which can help with flexibility. Thaler urged Congress to require HUD to permanently permit the FHA and VA to accept desktop and exterior only appraisals for all approved mortgages. “When alternative processes, aside from traditional appraisals, can be employed, we believe lenders should be allowed the flexibility to use them at their discretion to find the best way to meet the needs of their members,” wrote Thaler.

Thaler also pointed out the increased appraisal challenges credit unions continue to face in servicing rural areas noting that the appraisal process is often less efficient in rural communities than anywhere else. “The ability to use desktop appraisals or other alternatives as well as automated valuation models and appraisal waivers in rural areas will decrease the strain placed on NAFCU’s member credit unions and their member-borrowers when it comes to financing the purchase of a home through the mortgage loan process,” included Thaler.

In addition, Thaler expressed the association’s strong support for efforts to expand the diversity of the appraiser workforce, as well as the use of Automated Valuation Models (AVMs) and the FHFA’s effort to create a more streamlined and accurate valuation process. “There is a need for consistent reliable technology to simplify the appraisal process, make it more efficient, and reduce bias and discrimination. At the same time, regulatory agencies charged with ensuring the integrity of algorithmic valuation models should take care not to develop rules that will chill innovation or prevent smaller community financial institutions from embracing new technology due to compliance costs,” added Thaler.

Of note, in June of 2021, the Administration charged an interagency task force, Property Appraisal and Valuation Equity (PAVE), with evaluating causes, extent, and consequences of appraisal bias and subsequently offering solutions to combat racial and ethnic bias in home valuations.

In their final report, PAVE shared findings and pledged to regularly update policies and issue new guidance within the appraisal industry. The report found an evident market value gap between majority-Black and majority-White neighborhoods for over several decades, noting that undervaluation often results in a negative impact on both the seller and buyer, sometimes leading to higher required down payments that can cause the sale to fall through. 

Undervaluation can also result in a downward price renegotiation, ultimately reducing the seller’s financial gains. The impact of a lower home valuation can be carried forward because of comparable sales.

As part of the report, PAVE included a series of actions to address appraisal bias including:

• assessing expanded use of alternatives to traditional appraisals or modernizing and streamlining the appraisal process, something NAFCU has heavily advocated for:

• building a well-trained, accessible, and diverse appraiser workforce;

• enhancing fair housing/fair lending enforcement and driving accountability in the industry; and

• empowering consumers to take actions regarding appraisal bias. 

Of note, PAVE also announced plans to work with Congress on a legislative proposal to tackle the way appraisers are regulated. Several agencies on the PAVE task force last month wrote to The Appraisal Foundation (TAF), a private non-governmental entity with the sole power to set professional standards for appraisers, regarding appraisal discrimination, calling out TAF for failing to “include clear warnings about the requirements of federal law in the standards it sets, and in the training it provides for appraisers.” 

In response to the report, CFPB Director Rohit Chopra announced that the bureau will be assuming an active leadership role in the Appraisal Subcommittee of the FFIEC. “In particular, we will be closely scrutinizing the work of The Appraisal Foundation, which wields enormous power to set standards and levy fees on the professional appraiser community,” stated Chopra. “In addition, along with other federal financial regulators, we will be working to implement a dormant authority in federal law to ensure that algorithmic valuations are fair and accurate.”

Federal Housing Finance Agency (FHFA) Director Sandra Thompson also shared her support stating, “Today’s report affirms the persistence of bias in the housing finance system and provides a roadmap for the federal government to work across agencies, and with Congress, the civil rights community, and industry stakeholders to take meaningful steps against factors that contribute to the mis-valuation and devaluation in property appraisals experienced by borrowers and communities of color.”

NAFCU remains engaged with Congress, the NCUA, CFPB, FHFA,  HUD, and other agencies to provide input on creating sound solutions against appraisal bias as well as ways to modernize the appraisal process.