The Department of Housing and Urban Development’s long-awaited action plan on appraisal bias outlines administrative actions the federal government will quickly take to address mis-valuations.
But the report fails to offer a clear plan to release appraisal data from the government sponsored enterprises. Doing so would help to better diagnose and solve the problem, fair housing advocates, trade associations and researchers have long argued.
The report was a collaboration between a bevy of federal agencies. That is one reason its explanation of the historical drivers of racial disparities in home valuations — including redlining institutionalized by the federal government — is so significant. But the report also outlines potential legislative changes, and actions task force agencies will take in the near-term to solve the dysfunctions of the appraisal industry’s regulatory framework.
Observers said the fact that the report outlined commitments, rather than recommendations, demonstrates the seriousness of the task force’s effort.
Perhaps the strongest critique to emerge in the report is of the appraisal industry’s regulatory governance, which was spotlighted in a recent report by the National Fair Housing Alliance.
The task force report said that the appraisal industry “lacks clarity around its antidiscrimination obligations,” and so the Consumer Financial Protection Bureau, the Department of Justice, the Department of Veterans’ Affairs and HUD will issue specific guidance on how fair housing law applies to the appraisal industry.
One challenge in assessing the scope of appraisal bias is rooted in the informal process of challenging an appraised value. HUD will now use the VA’s reconsideration of value process as a model and track reconsideration of value processes for Federal Housing Administration lenders.
On the heels of a Federal Housing Finance Agency blog post that found numerous mentions of protected classes in the free-form text entry portion of appraisal reports, the forms used by Fannie Mae and Freddie Mac will get an overhaul to rely on more objective data points. FHFA will also direct the GSEs to make the nondiscrimination clause more prominent.
The report also raised concerns of whether automated valuation models have the potential to bake-in and amplify racial bias, in part by relying on historical sales comparison values. An interagency proposed rule on AVMs, mandated by Dodd-Frank, will include a nondiscrimination standard, the report stated.
Most, but not all, of the changes outlined in the report can be pursued through administrative action, rather than legislation. The report will consult with Congress to develop legislation to make significant changes to the regulatory framework of the appraisal industry.
The report wrote that “the existing governance structure needs to be fundamentally reassessed to meaningfully advance equity in the industry.”
CFPB Director Rohit Chopra, in a statement, said the watchdog agency will be taking an active leadership role in the Appraisal Subcommittee.
“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,” Chopra wrote.
The task force report also underscored the importance of data in better understanding appraisal bias. It also acknowledged the lack of publicly available historical appraisal data.
But the action plan did not present any new data analysis of appraisal bias. It instead surveyed research by Freddie Mac and Fannie Mae, the FHFA and the Brookings Institution.
The action plan did not include, even in aggregate, any analysis of historical appraisal data from Fannie Mae or Freddie Mac, or government agencies that have similar loan-level data, including the Federal Housing Administration.
The task force said it would make some data available to federal agencies, by creating a database of a subset of historical appraisal data for government channel loans.
The Department of Veterans Affairs, HUD and the United States Department of Agriculture will use the data to “track appraiser performance over time, hold appraisers accountable, and understand if issues of bias may be taking place across federal home loans.” The performance data will also be shared with appraisers, the report said.
But there is no public plan to do the same with historical appraisal data from the government-sponsored enterprises, which provide financing for the bulk of the single-family mortgage market.
Michael Neal, a principal research assistant at the Urban Institute who has studied racial bias in automated valuation models, said he was pleased that the report emphasized how important data is to understanding how racial bias manifests.
“I think it’s a step forward,” Neal said. “But there is more that we can continue to assess and explore. It’s key to acknowledge that data is not being shared across government agencies.”
Janneke Ratcliffe, managing director of the Urban Institute’s Housing Finance Policy Center, said that she hoped there would be further progress toward getting access to Fannie Mae and Freddie Mac’s appraisal data. Researchers, academics, trade associations have argued for the data’s release.
“We are eager to see progress on making the UAD type data publicly available,” Ratcliffe said.
The report said that FHFA has already begun sharing data with other federal agencies to further research and enforcement, but it remains to be seen what actions will result.
Meg Burns, executive vice president of the Housing Policy Council, which represents leading mortgage originators and servicers, explained that releasing the data is a complex process, because of the privacy concerns of disclosing loan-level data.
She said HPC has repeatedly advocated that FHFA and the GSEs “formulate some strategy to begin to enable the release of their data,” which she said the task force action plan begins to do. But there are limits to what a report can do, and she was not surprised that it did not contain a plan for releasing the GSE data.
“This document can’t just mandate some immediate change in the availability of that data,” Burns said. Burns said the report suggests it’s under consideration.
Lisa Rice, CEO of the NFHA, said that having access to the GSE data is necessary to carry out effective monitoring, oversight, compliance, governance and enforcement — not just to make the case that appraisal bias is systemic.
“The agencies looking at the FHA data, the VA data, the USDA data, that is the first step,” Rice said. “The next step is looking at the GSE data. It has to be.”
But Rice is intimately familiar with how difficult it has been to gain access to the GSE data. In a long list of unsuccessful attempts, going back to the foreclosure crisis, the NFHA only gained access to a limited subset of data after it sued Fannie Mae for fair housing act violations.
“Now here we are, dealing with appraisal bias, we’re trying to get the data, and we can’t get it,” Rice said. “They are under conservatorship, and the conservator can make them do all kinds of things, even things they don’t want to do. Maybe they haven’t had a conservator who makes them think they need to give up data. Who knows, that might change.”
Editor’s note: This story has been updated to reflect Michael Neal’s position at the Urban Institute
This may not be easy for some to read, but I will say what many if not most are thinking, and I will keep it simple (by the way most appraisers & Realtors are unaware of the alleged racial bias is being investigated in the appraisal industry). No data, because there is no bias unless you demonstrate otherwise. That being said we can and should address ANY & ALL AVAILABLE INFROMATION/FINDINGS and provide measures to address problems or concerns that may exist. Furthermore, don’t tell me, imply or impose upon me that you, govt/bureaucracy, know my heart, and I am biased and a racist in my business dealings and by extension in my personal life (perhaps we have an auto on-off switch between business vs personal dealings? Whatever!).
The data they (gov’t/bureaucracy researchers) may have perhaps reflect an interpretation of bias, by bias people looking to further perpetuate the idea of innate bias and racism. More important, there are already remedies/laws: Equal Protection Clause of the US Constitution, Fair Housing Act of 1866, The Fair Housing Act, American Disabilities Act, Equal Credit Opportunity Act, additional individual state laws, ex Ca. Unruh Civil Rights Act, and then there is case law that have cleared up grey areas, plugged holes, adds teeth & protection to lending and real estate discriminatory practices or action.
I will close by saying, it is my experience (30yrs) and opinion, the industry participants and people in general loath racism. If upon review of the findings it is established there are problems, or even concerns, and the existing laws or regulations do not cover & provide protections, then we look for the solution. But do not accuse, make inferences or imply I am racially biased or discriminatory WITHOUT CLEAR DATA to support your supposition!