Banks & Realtors Urge US Agencies to Change Home Appraisal Process

Regulators Seek Standardized Home Appraisal Revaluations as Part of Push to Eliminate Appraisal Bias

Banks and realtors have just urged federal regulators to limit the number of times a potential homebuyer or seller can challenge an appraisal of the property’s value. Mortgage lenders ask independent appraisal firms to reevaluate a home value when a consumer complains that the value is too high or low.

 In June, 2023, Five agencies - the Consumer Financial Protection Bureau, the Federal Reserve, the Federal Deposit Insurance Corp., the Office of the Comptroller of the Currency, and the National Credit Union Administration - proposed regulations to make it easier for consumers to ask for "reconsiderations of value (ROV)," especially if they suspect racial biases negatively influenced the value first placed on a home.

In response, the National Association of Realtors (NAR) and the Independent Community Bankers of America (ICBA) wrote that permitting consumers to have an unlimited number of new appraisals could muck up the homebuying process. ICBA said that there are more effective ways to reduce bias. NAR urged the agencies to use a program ("the Tidewater process") established by the Veterans Affairs Department (VA) as a way to limit ROV requests by allowing three reconsideration requests on homes purchased with a VA-backed loan.

Consumer advocates - National Consumer Law Center, the National Community Reinvestment Coalition, the Consumer Federation of America, the National Fair Housing Alliance, the National Urban League, and others - mostly supported the proposal, but suggested that regulators should more clearly state that the guidance applies to both under-valuations and over-valuations. The Housing Policy Council, an industry group, said asking the same appraisal company to re-do ignores possible causes of alleged discrimination. Instead of using the original appraiser, regulators should tell banks to use other tools to reevaluate when disputes happen.

Both consumer and industry advocates urged the regulators to consult with the other mortgage agencies and entities that run government-backed housing programs - the Federal Housing Finance Agency, Fannie Mae, Freddie Mac, the VA, and the Department of Agriculture - regarding changes to the appraisal system.

*****

Read the September 22, 2023 Bloomberg Law News article.

 Fair Lending News:

CFPB Releases 2022 Fair Lending Annual Report to Congress

On June 26, 2023, the Consumer Finance Protection Bureau(CFPB) released its Fair Lending Annual Report to Congress, describing its fair lending activities in enforcement and supervision; guidance and rulemaking; interagency coordination; and outreach and education for calendar year 2022.

In 2022, the CFPB’s fair lending work centered on the consumers and communities most affected by unlawful discrimination:

• Working with our federal and state partners to address redlining as well as confronting deep-seated discrimination in the home appraisal industry. 
• The CFPB also released several reports shining a light on factors that may influence fair access to credit, including how medical debt affects tens of millions of consumers’ credit profiles, how people in under-resourced rural areas struggle to access financial services, and the challenges faced by justice-involved individuals and families.
• We also issued several rules and guidance documents reaffirming the importance and applicability of fair lending protections for prospective applicants, applicants for credit, and existing account holders. Through our enforcement and examination activity, interpretive rules and advisory opinions, circulars, and other tools, we continue to make clear that fair lending must be a top priority for all financial institutions.

The Fair Lending Annual Report to Congress fulfills the CFPB’s statutory responsibility to, among other things, report annually to Congress on public enforcement actions taken by other agencies with administrative enforcement responsibilities under the Equal Credit Opportunity Act (ECOA), and assessments of the extent to which compliance with ECOA has been achieved. It also fulfills the statutory requirement that the CFPB, in consultation with HUD, report annually on the utility of the Home Mortgage Disclosure Act’s requirement that covered lenders itemize certain mortgage loan data.

Through 2023 and beyond, the CFPB will continue to stand up for those consumers and small businesses who are the least resourced to fight back against exploitation.

As noted in the Future of Fair Lending section at the end of the Report, we are focused especially on the increased use of advanced and emerging technologies in financial services. Consumers and small businesses are not well-resourced to fight back against—and may not even know they are subject to—algorithmic bias, digital surveillance and data harvesting, dark patterns, and advanced technologies that are black boxes. The CFPB has increased its expertise in data science and analytics to ensure that we can identify fair lending violations at each stage of the credit lifecycle. And we will continue to take a whole-of-government approach to protect consumers from harmful uses of automated systems marketed as artificial intelligence. As the CFPB reiterated in conjunction with the release of our joint statement with the Department of Justice, Federal Trade Commission, and U.S. Equal Employment Opportunity Commission, we will hold creditors and service providers accountable for fully complying with fair lending and other federal consumer financial laws, regardless of the technology they choose to use.

The CFPB also continues to fight against bias in home appraisals and redlining. Families and entire communities are harmed by biased, inaccurate appraisals, as well as geographic discrimination, or redlining. Whether it takes the form of excluding neighborhoods with certain demographics from mainstream credit or targeting them with predatory products, the CFPB is combatting these unlawful practices to achieve meaningfully restorative outcomes for the affected consumers and communities.

The CFPB remains committed to protecting individuals, small businesses, and communities from discrimination, holding institutional and individual bad actors accountable, and ensuring robust and comprehensive remedies for violations of the laws under our jurisdiction. In the years to come, we look forward to advancing our work to ensure a fair, equitable, and nondiscriminatory credit market, with equal economic opportunity for all consumers and their communities.