Efforts to curb appraisal bias continue with Nov. 1 hearing

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Executives from mortgage giants Fannie Mae and Freddie Mac and the American Bankers Association will testify next week at a public hearing on appraisal bias, which stakeholders and members of the public are invited to attend in person or virtually.

The hearing, to be held Wednesday, Nov. 1, at the U.S. Department of Housing and Urban Development’s Washington, D.C. headquarters, will be the third conducted this year by the Federal Financial Institutions Examination Council’s (FFIEC) Appraisal Subcommittee as part of ongoing efforts to address appraisal bias.

The Biden administration launched an interagency initiative to combat bias in home appraisals on June 1, 2021 — the 100th anniversary of the Tulsa Race Massacre — as part of a larger effort to build Black wealth and narrow the racial wealth gap.

Last year’s report by the Interagency Task Force on Property Appraisal and Valuation Equity (PAVE) outlined steps that federal agencies will take to advance equity in the appraisal process and detailed additional recommendations for government and industry stakeholders.

At next week’s hearing, members of the FFIEC’s Appraisal Subcommittee (ASC) will discuss how a residential appraisal is developed and reviewed, the process for reconsiderations of value for residential real estate valuations, and the development of rural appraisals.

Witnesses scheduled to testify include:

• Robbie Wilson, president of the National Society of Real Estate Appraisers
• Dean Kelker, a board member of the Real Estate Valuation Advocacy Association
• Danny Wiley, senior director of single-family valuation, Freddie Mac
• Lyle Radke, senior director, single-family collateral risk, Fannie Mae
• Sharon Whitaker, vice president, commercial real estate and mortgage finance, American Bankers Association

The three-hour event starts at 10 a.m. Eastern time, and members of the public are invited to attend live or via Zoom (advance registration required). Members of the public can also submit written comments to ASCHearing@asc.gov until Nov. 15.

The FFIEC’s Appraisal Subcommittee has held two hearings this year, including a session in May focused on appraisal standards, appraiser qualification criteria, barriers to entry into the profession and appraisal practices.

The Appraisal Subcommittee’s first hearing in January focused on the root causes of appraisal bias and was led by Zixta Martinez, deputy director of the Consumer Financial Protection Bureau (CFPB).

Speaking at the The Greenlining Institute‘s 2023 Just Future Summit on Friday, Martinez recounted hearing the story of Tenisha Tate-Austin and Paul Austin, a Marin City, California couple who believe they were victims of appraisal bias.

Zixta Martinez

“After having their home undervalued by nearly half a million dollars for reasons they believed were related to their race, the family made the devastating choice to whitewash their home for a new appraisal,” Martinez said. “Removing everything of who they were, so as to remove the potential for any bias. They even asked a white friend to stand in for them.

“With a whitewashed home and a new appraiser, the appraised value of their house went from $995,000 to nearly $1.5 million,” Martinez said. “This family’s experience highlights the role race continues to play in the mortgage market.”

Martinez also noted that in June the CFPB and five other agencies proposed a rule on automated valuation models (AVMs) used by lenders to speed loan processing and cut costs.

The proposed rule would create basic safeguards to mitigate the risks associated with AVMs, she said, and “require companies to have policies and processes in place to avoid conflicts of interest, conduct random sample testing and reviews, and comply with nondiscrimination laws.”

The rule would only apply to mortgage originators making credit decisions, servicers making loan modification decisions, and secondary market issuers like Fannie Mae and Freddie Mac who use AVMs to value homes that serve as collateral.

Other uses of AVMs, such as for portfolio monitoring, “do not involve making a determination of collateral value, and thus are not within the scope of the proposed rule,” the agencies said.

The standards would not apply to the use of AVMs to generate an appraisal by a certified or licensed appraiser or to reviews of already completed valuations.

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• Source: https://www.inman.com/2023/10/23/project-to-tackle-appraisal-bias-continues-with-nov-1-hearing/