Showing posts with label appraisals. Show all posts
Showing posts with label appraisals. Show all posts

Monday, March 24, 2025

Abell Foundation Report Discovers Systematic Racial Bias in Home Appraisals in the Baltimore Metropolitan Area

 

A just-released report, authored by the Reinvestment Fund and funded by a grant from  the Abell Foundation, examined newly available public data from the Federal Housing Finance Agency’s (FHFA) Uniform Appraisal Dataset (UAD) to analyze potential racial bias in home appraisals in the Baltimore metropolitan area during 2013-2022. The report found that neighborhoods with larger non-white populations tend to have a higher percentage of homes with appraised values that are lower than the contract sale price than what is observed in predominantly white neighborhoods. Conversely, predominantly white, non-Hispanic neighborhoods tend to experience a higher percentage of homes with appraised values that exceed the contract price.

While these racial differences in appraisal accuracy have lessened somewhat in recent years, negative patterns are continuing. Analysis of the public appraisal data suggests the presence of systematic appraisal bias that undervalues homes in predominantly Black communities in Baltimore City and the surrounding counties. Key observations from the neighborhood level analysis are:

• Neighborhoods with a predominant percentage of residents who are not-white, not-Hispanic tend to have higher rates of under-appraising than neighborhoods that are predominantly white, not-Hispanic.

• Neighborhoods with a predominant percentage of residents who are not-white, not-Hispanic tend to have lower rates of over-appraising than areas that are predominantly white, not-Hispanic.

• Between 2018 and 2022, these patterns show signs of improvement, but they remain observable in the data.

It is important to consider that the available federal and local data are limited because a disproportionate share of appraisals regarding Black borrowers is excluded, meaning that any evidence it provides of racial bias in appraisals potentially understates the problem.

The report also provides a summary of policies Maryland could institute to reduce the impact of appraisal bias. Among the recommendations of the Maryland’s Task Force on Property Appraisal and Valuation Equity in late 2024 were: (1) Institute a reconsideration of value process in Maryland modeled after one used by the Department of Veterans Affairs which allows lenders or other interested parties to provide relevant information to an appraiser before a valuation is made and requires appraisers to contact the requester of the appraisal for additional information in cases where the appraised value appears likely to be lower than the agreed sales price; (2) Require timely reporting of sales of newly constructed residential properties to ensure that the comparable sales appraisers use to determine value reflect changes in communities; (3) Create a unit within the state government to provide a third-party review in cases where the reconsideration of value process is insufficient; and (4) Remove barriers to entry to the appraisal profession for minorities.

One recent example of this problem is that in March 2024, a Black couple - both professors at Johns Hopkins University - who claimed mortgage lender loanDepot denied a refinancing of their mortgage because it relied upon a racially biased, considerably low appraisal of their Baltimore home agreed to a legal settlement in which the lender vowed to change how it handles complaints of racially biased appraisals. The settlement filed in the U.S. District Court for Maryland also includes an undisclosed financial amount for the couple. It does not include any admission of liability or facts by loanDepot nor does it resolve complaints against the independent appraiser, who has denied liability and countersued for defamation.

Read the March 25, 2025 Abell Foundation report.

Read the March 26, 2024 Insurance Journal article.

Tuesday, August 20, 2024

Agencies Finalize Interagency Guidance on Reconsiderations of Value for Residential Real Estate Valuations

On August 20th, five federal regulatory agencies issued final guidance addressing reconsiderations of value (ROVs) for residential real estate transactions. The guidance advises on policies and procedures that financial institutions may implement to allow consumers to provide financial institutions with information that may not have been considered during an appraisal or if deficiencies are identified in the original appraisal. 

According to VivalLaw, the guidance will allow lenders and borrowers to request and provide additional information to supplement appraisals in assessing real estate value

The agencies are:

DEPARTMENT OF THE TREASURY
Office of the Comptroller of the Currency
12 CFR Part 34
[Docket ID OCC-2023-0007]
 

FEDERAL RESERVE SYSTEM
12 CFR Part 225
[Docket No. OP-1809]
 

FEDERAL DEPOSIT INSURANCE CORPORATION
12 CFR Part 323
RIN 3064-ZA36
 

NATIONAL CREDIT UNION ADMINISTRATION
12 CFR Part 722
[Docket ID NCUA-2023-0061]
 

CONSUMER FINANCIAL PROTECTION BUREAU
12 CFR Chapter X
[Docket No. CFPB-2023-0033]

ROVs are requests from a financial institution to an appraiser or other preparer of a valuation report to reassess the value of residential real estate. Deficiencies identified in valuations, either through an institution’s valuation review processes or through consumer-provided information, may be a basis for financial institutions to question the credibility of the appraisal or valuation report.

The guidance offers examples of ROV policies and procedures that a financial institution may implement to help institutions identify, address, and mitigate discrimination risk; describes the risks of deficient residential real estate valuations; and explains how financial institutions may incorporate ROV processes into risk management functions. The agencies finalized the guidance largely as proposed, with the addition of clarifying edits based on public comments received on the proposed guidance published in July 2023.

The guidance ultimately recommends that financial institutions should develop ROV policies that identify, address, and mitigate deficient values. The guidance recommends policies that:

  • Consider ROVs as a possible resolution for consumer complaints or inquiries related to residential property valuations.

  • Consider whether any information or other process requirements related to a consumer’s request for a financial institution to initiate an ROV create unreasonable barriers or discourage consumers from requesting the institution initiate an ROV.

  • Establish a process that provides for the identification, management, analysis, escalation, and resolution of valuation-related complaints or inquiries across all relevant lines of business.

  • Establish a process to inform consumers how to raise concerns about the valuation early enough in the underwriting process for any errors or issues to be resolved before a final credit decision is made.

  • Identify stakeholders and clearly outline each business unit’s roles and responsibilities for processing an ROV request.

  • Establish risk-based ROV systems that route the request to the appropriate business unit.

  • Establish standardized processes to increase the consistency of consideration of requests for ROVs.

  • Ensure relevant lending and valuation-related staff, inclusive of third parties (e.g., appraisal management companies, fee-appraisers, mortgage brokers, and mortgage servicers) are trained to identify deficiencies (including practices that may result in discrimination) through the valuation review process.

The FFIEC in its previous principles has stressed: "Valuation discrimination or bias can cause consumer harm, lead to violations of law, and have a detrimental impact on communities. In addition, valuation discrimination or bias could result in deficient and unreliable collateral valuations that undermine an institution’s credit decisions and negatively impact its safety and soundness."

Read the final guidance.

Read the July 19, 2024 VitalLaw article.