Appraisers face tougher oversight from financial regulators | Credit Union Journal

CFPB Director Rohit Chopra said his agency and others would exercise their “dormant authority” to apply regulatory scrutiny to the appraisal industry.

Stefani Reynolds/Bloomberg

Banking regulators are refining their tools to identify and combat discriminatory practices in the home appraisal industry.

The Federal Reserve Board, Federal Deposit Insurance Corp., Office of the Comptroller of the Currency, Consumer Financial Protection Bureau, and National Credit Union Administration plan to devise new ways to monitor racial bias assessment processes, ethnic and sexual. , according to a report released this week by a White House task force aimed at addressing longstanding biases in ratings.

The agencies will also review mortgage lenders to identify patterns of bias, work with other government agencies to enforce new rules, and create a shared database of historical appraisals to benefit research and enforcement efforts. They will also take steps to improve the reappraisal process for buyers who feel their properties have been unfairly discounted and design guidance for computer-generated appraisals.

Financial regulators have overseen home appraisal practices for decades as members of the Federal Financial Institutions Examination Council’s Appraisal Subcommittee. Yet the new report — by the Property Assessment and Valuation Equity, or PAVE, task force that convened last summer — says their approaches have been largely passive. The various bodies were described as siled from each other and limited to review roles.

The implementation and enforcement of best practices has largely been left to The Appraisal Foundation, a private, nonprofit organization authorized by Congress that serves as the profession’s governing body. After the PAVE report was released on Wednesday, CFPB Director Rohit Chopra said his agency and others would exercise their “dormant authority” to apply regulatory scrutiny to the appraisal industry.

“Congress has assigned significant responsibilities to the evaluation subcommittee, and it is important to meet those expectations, Chopra said in a statement. “In particular, we will look closely at the work of The Appraisal Foundation, which wields enormous power to set standards and levy fees on the professional appraiser community.”

A Foundation spokesperson said on Thursday that it had “undertaken a wide range of initiatives” to reduce bias in the profession. The organization hailed the task force’s report as “a new element in this critical and ongoing conversation”.

The PAVE Task Force Action Plan established a framework for regulators to work with government-related entities that participate in the mortgage market – such as the Department of Housing and Urban Development, Department of Veterans Affairs, Federal Housing Finance Agency and the US Department of Agriculture – to bring consistent oversight to an industry that has largely been left to self-regulation.

These measures have been welcomed by fair housing advocates and assessors, many of whom are concerned about systemic issues that have plagued the industry for years. Chief among these issues is the fact that nearly 98 percent of appraisers are white and nearly 70 percent are male, making it one of the least diverse occupations in the nation, according to the Bureau of Labor Statistics.

Early results from PAVE show that homes in majority-minority neighborhoods were priced below their contract prices more often than homes in majority-white neighborhoods. In predominantly Latino and Black areas, 15.4% and 12.5% ​​of homes, respectively, were undervalued. Meanwhile, just 7.4% of homes in predominantly white areas were priced below their selling price. Lower appraised values ​​mean less equity for owners, giving them less cushion in times of trouble and a lower return on sale.

Jonathan Miller, a New York-based evaluator, said the industry’s makeup has left it prone to cultural blind spots and made it ill-equipped to address a long history of discriminatory practices, which date back to the 1930s red line.

“In many professions there is pervasive racism, but the problem is that the appraisal industry is last for professions in terms of diversity,” Miller said. “Not everything that is in place right now is effective. The last thing we need is the same people ‘solving the problem’.

“This is a refreshing reset in how our industry is viewed,” he added of the new oversight.

The PAVE report also found instances of reviewers using racist language in the narrative portion of their written reports to explain their ratings. He cited an example of a predominantly white neighborhood described as “not particularly ethnically diverse” and another in which a “predominantly Hispanic” population had “assimilated their cultural heritage” into the area.

Racial disparities in homeownership have widened during the pandemic, Fed Governor Christopher Waller said Thursday during a webinar hosted by Rutgers University and Tel Aviv University on American housing and Israeli. Although black homebuyers accounted for 7.3% of home purchase loans in 2020, the highest rate since 2007, black and Latino homeownership rates were down. decline at the end of 2021, he said. Waller attributed the reduction to the pandemic’s disproportionate economic impact on minority groups.

“Indeed, research shows that minority homeowners were significantly more likely to miss mortgage payments and experience mortgage forbearance than white homeowners,” he said. “While federal and private-sector forbearance programs have helped many households retain their homes, families with more permanent or severe income losses may have had to sell their homes and vacate the property.”

The task force called for a peeling back of standards that have made it costly and time-consuming for individuals to enter the field of assessment. Miller said these barriers to entry have left appraisers in short supply, leading to higher costs for consumers and longer times to close.

In response, some institutions have sought to remove raters and replace them with algorithm-generated ratings called automated rating models, or AVMs, which are plagued with their own problems: “AVMs are created by human beings and use point data like evaluators use and are therefore also vulnerable to bias, in addition to being much less accurate,” Miller said.

The working group will seek to implement standards for the design of such models in the future. Chopra said the CFPB has already started seeking input from small businesses to draft a rule on how to govern these algorithms.

The new regulatory initiatives outlined by the PAVE task force were not universally celebrated. Senator Pat Toomey of Pennsylvania, the Senate Banking Committee’s top representative, criticized the initiative as unnecessary government intervention, noting that discrimination is already illegal in the housing and lending industries.

“Government intervention begets more government intervention,” Toomey said during a Thursday hearing on the task force’s findings. “And here we are today with Democrats pushing for an ‘action plan’ that will add even more regulation on top of an already byzantine and antiquated set of assessment regulations.”

Source link


Comments are closed.