Multiple efforts are underway to weed out appraisal bias

From the federal government to businesses, efforts to root out bias gain traction

The Mortgage Bankers Association – the national group representing the real estate finance industry – recently praised the federal government’s efforts to root out racial and ethnic bias in home valuations, but has asked for a robust heads up prior to the implementation of new rules.

Work on the ambitious Interagency Task Force on Property Appraisal and Valuation Equity (PAVE) Action Plan began on June 01, 2021 – the centennial of the Tulsa Race Massacre – to develop a transformative set of actions to root out racial and ethnic bias in home valuations, the White House announced. Federal officials described the plan as “…the most wide-ranging set of reforms ever put forward to advance equity in the home appraisal process.”
Responding to the plan’s completion, MBA president and CEO Bob Broeksmit, lauded the efforts.

“MBA welcomes the release of the report of the Interagency Task Force on Property Appraisal and Valuation Equity (PAVE), which provides a detailed and comprehensive action plan to combat appraisal bias,” Broeksmit said. “While the role of mortgage lenders in the appraisal process is limited by design, MBA and its members are committed to working with policymakers and other stakeholders, including appraisers, to develop solutions that ensure borrowers receive a fair and accurate estimate of the value of their homes.”

In announcing its plan, the White House noted that a home appraisal is a “…critical element of the home buying and lending process, intended to provide an independent, fair, and objective estimate of the market value of a property so that lenders can accurately evaluate risk.”

Broeksmit noted the group he heads has made the same issue a priority. “MBA and its members have made improving the appraisal process a top policy issue, and have prioritized it both as part of our CONVERGENCE initiative to promote more sustainable, affordable housing for minority and low- to moderate-income families and communities, and as part of our Building Generational Wealth Through Homeownership campaign,” he said.

He added: “We appreciate the work that the PAVE task force has undertaken to document the historical foundations of inequitable property valuations and to identify ways to address problems in modern appraisal processes. Many of the initiatives announced today can be an important step in the fight toward eliminating biases, improving appraisal accuracy, and opening access to more affordable, sustainable homeownership opportunities for minority borrowers.”

However, Broeksmit also noted the need for a robust heads-up before the implementation of the sweeping reforms. “While the report notes that many of the reforms can be put in place under existing authorities, it will be important for Task Force agencies to provide ample notice and comment opportunities for stakeholders during the implementation process,” he said.

The importance of housing in creating generational wealth was noted by the White House in announcing the creation of the task force. “Homeownership is the primary contributor to wealth building for Black and Brown households and continues to hold promise for building multigenerational wealth and housing stability for households of colors,” federal officials said. “But bias in home valuations limits the ability of Black and Brown families to enjoy the financial returns associated with homeownership, thereby contributing to the already sprawling racial wealth gap.”

To buttress the point, the White House offered sobering statistics that contribute to the sprawling racial wealth gap: “Today, the median white family holds eight times the wealth of the typical Black family and five times the wealth of the typical Latino family. According to a recent study, eliminating racial disparities in the number of wealthy families gain from owning a home would narrow the wealth gap by an additional 16% between Black and White households and by an additional 41% between Latino and White households.”

The MBA endorsement is key, given the group’s sizable rank and file of some 2,000 companies in an industry of more than 390,000 people covering the breadth of real estate finance – including independent mortgage banks, mortgage brokers, commercial banks, thrifts, REITs, Wall Street conduits, life insurance companies, credit unions and others in the mortgage lending field.

Even before the work of the task force concluded, some companies have launched internal processes to weed out appraisal bias through the use of artificial intelligence. Last December, Mortgage Professional America visited San Francisco-based HouseCanary – a self-described technology and data-forward national real estate brokerage – to learn of its efforts. To test the efficacy of its own technology, HouseCanary officials conducted a statistical study using a recent Freddie Mac report showcasing bias as a guide. The aim: To test the accuracy of the brokerage firm’s in-house, automated valuation tools in appraising homes in minority neighborhoods.
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The result: “No evidence of racial bias exists in HouseCanary’s automated comp and AVM (automated valuation models) tools,” company officials concluded in their study. “This stands in stark contrast to the results of Freddie Mac’s examination of traditional appraisals, which found that ‘Black and Latino applicants receive lower appraisal values than the contract price more often than white applicants.”