The Federal Deposit Insurance Corp. will be expanding its examination process of property appraisal matters as part of its supervision of fair lending practices.
The renewed focus is outlined in the bank regulator's latest Consumer Compliance Supervisory Highlights report, which is released every spring. The main focus of the shift will be on detecting and rooting out racial bias in appraisals used to inform bank mortgage lending and refinancings.
The move comes as discriminatory actions in home valuations have taken
As part of this enhanced focus on home valuation, the FDIC will keep a closer eye on banks' compliance management systems for appraisals. The agency will also work to develop new training mechanisms for its bank examiners on how to identify instances of bias in appraisal, to ensure they are on high alert for problematic practices.
The FDIC has also pledged to incorporate information about appraisal bias in its consumer outreach exercises, including its Smart Money financial education program. This will include information on how to request a reconsideration of value.
On the one-year anniversary of the PAVE task force's action plan release last month, FDIC Chair Martin Gruenberg said the FDIC and other government agencies have made strides in addressing issues of bias in appraisal, but it remains a "critically important" issue.
"Since the release of the action plan one year ago, FDIC staff have been closely coordinating and collaborating with staff from other PAVE member agencies to fulfill the PAVE action plan's commitments and recommendations," Gruenberg said. "These efforts are helping to shift the public's understanding of appraisal bias from a rare event affecting an occasional homeowner to a significant issue that affects wealth formation and opportunities in minority communities nationwide — the same communities that have suffered historically from discrimination, redlining, and disinvestment."
Other agencies involved in the task force have also adapted their policies around appraisals in recent months. In January, the Department of Housing and Urban Development rolled out a new process that will make it easier for borrowers who refinance their homes through the Federal Housing Administration to challenge their appraisals. Last month, the Federal Housing Finance Agency said it would enhance its data offerings on appraisals to identify potential discriminatory trends.
The Consumer Financial Protection Bureau has called for
In January, CFPB Director Rohit Chopra also said it was worth
"Not many people really understand how this byzantine system works, and I think it is something we really need to think about — about whether it's appropriate for this type of fee structure, and for there to be payments, including related to governance," Chopra said during a joint hearing on appraisal bias earlier this year. "I think that raises a lot of questions for the subcommittee, for the regulators and, potentially, for future hearings."
The Appraisal Foundation is a private non-profit organization that writes the rules for residential appraisal. Its rules are then passed onto state licensing boards, which use them for setting standards for obtaining and maintaining licensure.
Last month, the foundation announced various steps it has taken to address issues of bias, including adding new rules, creating a council to enhance the outreach efforts for input on its rulemaking exercises and introducing more resources for states to better train their appraisal workforces.
"The Appraisal Foundation shares the PAVE Task Force's commitment to root out bias and discrimination in the appraisal profession, and our boards have been hard at work over the past few years to do just that," Appraisal Foundation President Dave Bunton said in a written statement. "I am proud of the work that our boards have accomplished in such a short time, but much remains to be done. We look forward to partnering with the PAVE task force to continue these efforts to build public trust in the appraisal profession."
The agencies involved in the PAVE task force will hold another hearing on appraisal bias on Friday, May 19. The event will run from 10 a.m. to 1 p.m. and will be held at the FHFA headquarters in Washington, D.C.
"Public hearings on appraisal bias are critical to gathering vital information and listening to diverse perspectives on a key component of the home purchase process," FHFA Director Sandra L. Thompson said in a statement Thursday. "FHFA remains committed to working with our federal partners to advance equitable and fair home valuations and keep this issue front and center."
