FACT SHEET: Biden-Harris Administration Takes Sweeping Action to Address Racial Bias in Home Valuations
Homeownership remains a central part of the American dream and the primary contributor to generational wealth building and housing stability for millions of families. For far too long, bias in home valuations has limited the ability of Black and brown families to enjoy the financial returns associated with homeownership, thereby contributing to the already sprawling racial wealth gap.
Two years ago today, on the centennial of the Tulsa Race Massacre, President Biden announced the creation of the Interagency Task Force on Property Appraisal and Valuation Equity (PAVE): a first-of-its-kind interagency effort to root out bias in the home appraisal process. As its first order of business, the Task Force developed and released the most wide-ranging set of actions ever announced to advance equity and root out racial and ethnic bias in home valuations – the PAVE Action Plan. Since its release in March 2022, the Biden-Harris Administration has made critical progress towards fully implementing the Action Plan, including by empowering consumers with new tools to address appraisal bias; leveraging data to identify trends and crack down on offenders of appraisal bias; and supporting a well-trained and more representative appraiser profession.
Today, on the anniversary of the creation of the PAVE Task Force and the start of National Homeownership Month, the Biden-Harris Administration is announcing a set of meaningful actions to deliver on the PAVE Action Plan and ensure that every American who buys a home has the same opportunities to build generational wealth through homeownership:
- Preventing algorithmic bias in home valuation. Six agencies are issuing a proposed rule regarding Automated Valuation Models (AVMs), the algorithmic and computational models used to assess the value of homes. In recent years, AVMs have spread across the housing finance marketplace. The proposed rule, subject to a 60-day public comment period, would establish quality control standards to help ensure AVMs are accurately and fairly assessing home values. These standards would require financial institutions, mortgage originators, and secondary market issuers that use AVMs to adopt and maintain policies and other safeguards to ensure greater confidence in valuation estimates, protect against data manipulation, avoid conflicts of interest, and conduct random sample testing and reviews. In addition, the proposed rule expressly includes a nondiscrimination quality control standard.
- Empowering consumers to take action against appraisal bias. When consumers encounter potentially inaccurate or biased appraisals, reconsiderations of value (ROV) provide an opportunity to challenge potentially inaccurate appraisal valuations when obtaining or refinancing a mortgage. Consumers obtaining an appraisal for a mortgage are often unaware that they have options when they receive a lower-than-expected valuation. Agencies are taking actions to promote industry-wide consistency for ROV processes and increase consumers’ knowledge about the option to pursue an ROV:
- Federal banking agencies are in the process of issuing proposed guidance on how financial institutions may integrate ROV policies and controls into their current appraisal processes. The proposed guidance, subject to a60-day public comment period, will advise on how financial institutions may respond to consumer concerns about their appraisal and design policies and controls around ROV requests to appraisers. This proposal will be the first-ever effort to provide such guidance on an interagency basis.
- Building off of HUD’s January 2023 draft mortgagee letter discussing proposed processes for receipt and handling of borrower requests for review of appraisal results, HUD and FHFA are initiating a working group to increase coordination and develop more consistent standards for the ROV processes of HUD’s Federal Housing Administration (FHA), Fannie Mae, and Freddie Mac lenders. Collectively, FHA, Fannie Mae, and Freddie Mac represent approximately two-thirds of new originations in the mortgage market.
- Federal banking agencies are in the process of issuing proposed guidance on how financial institutions may integrate ROV policies and controls into their current appraisal processes. The proposed guidance, subject to a60-day public comment period, will advise on how financial institutions may respond to consumer concerns about their appraisal and design policies and controls around ROV requests to appraisers. This proposal will be the first-ever effort to provide such guidance on an interagency basis.
- Increasing transparency and leveraging federal data to inform policy and improve enforcement against appraisal bias. The Federal Housing Finance Agency (FHFA) is announcing that it will update the Uniform Appraisal Dataset (UAD) Aggregate Statistics with new appraisal data to further its commitment to making appraisals available to the public. The next quarterly release of the UAD Aggregate Statistics is scheduled for June 2023. In October 2022, FHFA published the nation’s first publicly available dataset and tools for aggregate statistics on appraisal records using appraisals received by Fannie Mae and Freddie Mac. These statistics are based on more than 48 million appraisal records, and FHFA’s quarterly update will add approximately 600,000 new records. Using these data, academic researchers have already published new analyses illustrating stark differences in home valuations across racial and ethnic groups. New data will allow appraisers, consumers, and researchers to investigate trends in appraisals in their area and nationwide and help the industry to improve quality and compliance. In addition, HUD is committing to make its FHA appraisal data available to the public for the first time. Given FHA’s outsized role in serving minority borrowers, these data will strengthen efforts underway to eliminate bias and promote equity in the appraisal sector. FHA plans to make its data publicly available later this year.
- Breaking down barriers to entry into the appraisal profession. Today, the PAVE Task Force is publishing a dashboard that shows which states impose education, examination, and experience requirements to become an appraiser that are more stringent than the federal minimum requirements and is calling on states to make appropriate changes to reduce unnecessary barriers to entry to the appraiser profession. Federal criteria for becoming an appraiser are significant, and there is no evidence that these some of these requirements—for example, for a college degree—produce more ethical, accurate, or credible appraisals. Furthermore, many states require higher standards than the federal floor, making it more difficult for aspiring appraisers, especially underrepresented groups, to enter the profession. The Appraisal Subcommittee (ASC) will continue to provide ongoing assistance to states interested in reducing barriers to entry. Today’s announcement builds on ongoing efforts by the PAVE Task Force to create a more representative and well-trained appraiser workforce; earlier this year, the PAVE Task Force issued a letter to the Appraisal Foundation (TAF) urging it to find meaningful solutions to the experience, education, and examination requirements that exceed most industry standards and are not linked to evidence showing how they produce better, more accurate appraisals.
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