The federal government’s effort to address appraisal bias has stalled and needs a jump start. The Biden administration chose June 1, 2021, the historic 100th anniversary of the Tulsa race massacre, to announce the Property Appraisal and Valuation Equity (PAVE) task force making a historic commitment on a somber anniversary. Now, more than three years since the PAVE task force launched, we are all still waiting on the promise of a fundamental change in the appraisal industry to finally bear fruit.
There is widespread agreement that disparities in appraisal values across the country are impeding the promise of homeownership as an equity building engine. Both Freddie Mac and Fannie Mae analysis of their substantial data found statistically significant differences in valuation based upon race. This systemic undervaluation makes it harder for Black and Latino consumers to purchase or refinance a home and to ultimately build equity at the same rate as their white counterparts and causes consumers to lack trust in the fairness of the appraisal process.
One of the biggest obstacles to reform of the appraisal system stems from the agency-like authority granted to The Appraisal Foundation (TAF) by Congress. This non-profit, which functions as a protective trade association dominated by the largest appraisal companies in the United States, dictates standards for the industry and qualifications for appraisers, including continuing education requirements.
Although TAF recently updated some of its policies and practices in response to public pressure and begrudgingly promised in a conciliation agreement with the Department of Housing and Urban Development (HUD) it would spend additional money to increase diversity in the appraisal industry, there is no public information supporting that its efforts are sufficiently detailed or have had any impact. TAF’s ethics, training and governance documents are hidden behind a paywall. If anything, HUD’s settlement with TAF only serves to perpetuate a broken system run by an ineffective trade association. TAF still controls the standards for training, certification, and who can enter the profession. The appraisal industry remains overwhelmingly white (94.7%) and mostly older and male. With the exception of agricultural managers, there is no other occupation in the United States with this degree of concentrated homogeneity in its demographic composition—a stark contrast from the current and future homebuying population.
The Federal Housing Finance Agency (FHFA) which oversees Fannie Mae, Freddie Mac and the Federal Home Loan Bank Boards that all provide liquidity to the mortgage market, did take some constructive steps to increase transparency and enhance the ability of homeowners to appeal their valuation if they believe it was discriminatory.
Commendable as they are, at their core, the FHFA’s efforts spotlight an uncomfortable reality, that it is still primarily homeowners, and fair housing groups working with those homeowners, who are tasked to challenge bias in the appraisal process.
If the government wants to seriously advance its goals of combating bias in the appraisal process it should take the steps listed below to jump start the effort:
- HUD should clear the pipelines of appraisal bias complaints, as well as other fair housing cases filed with the agency that have been sitting without a determination by the agency for long past the 100-day period required for a decision by HUD procedures.
- The Department of Justice (DOJ) should file complaints against appraisal companies and lenders who are not adequately monitoring customer service and valuations for bias. To date, the DOJ has only filed statements of interest in cases filed by homeowners. The DOJ could do more.
- The Federal Financial Institutions Examination Council (FFIEC), which is comprised of federal agencies with oversight over both the appraisal and the mortgage lending industry, should publish far more robust examination procedures than the cursory statement of principles it issued on February 12, 2024.
- Although the FHFA has been amongst the most proactive agencies in addressing bias in the appraisal process, the agency should shine a light on the appraisal market by releasing a wider set of appraisal data on a significantly greater set of appraisals than the limited snapshot it has released to date.
- The federal government could also foster greater transparency and accountability by having the Appraisal Subcommittee of the FFIEC that oversees TAF direct TAF to make its governance, accrediting and training materials public, instead of allowing them to hide this information behind a paywall.
- Now, to the most difficult part, which would require bipartisan political action. Congress should amend the Financial Institution Reform, Recovery, and Enforcement Act of 1989 (FIRREA) to release the appraisal process from monopolistic and anti-competitive trade group TAF. TAF has not demonstrated it has the will or the inclination to transform the appraisal industry. TAF is working primarily in its own self-interest. Congress should end this monopoly.
All of the above steps would advance the public interest of rooting out bias in the appraisal process, allowing homeownership to equitably build wealth, irrespective of the race or background of the homeowner. If the Biden administration truly wants to transform the appraisal industry, it should stop pumping the brakes and push down on the accelerator.
Marisa Calderon is president & CEO of Prosperity Now.
Brad Blower is founder and principal of Inclusive Partners LLC.
This column does not necessarily reflect the opinion of HousingWire’s editorial department and its owners.
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