Thank you so much for the introduction. Thank you NFHA and the Brookings Institution for continuing to keep the spotlight on appraisal bias. I’m pleased and humbled to be with you today because the magnitude and deep significance of the impact of appraisal bias on African Americans and Latinos and others is not lost on me or the Consumer Financial Protection Bureau.
The powerful storytelling captured through “Low-Balled” and the discussion it has fostered are an important part of educating the public about the issue and bringing together the relevant policymakers, nonprofit organizations, industry, journalists, academics, and families. Among the many salient points, the documentary crystalizes how dehumanizing appraisal bias can be and lifts up the voices of those families harmed by the current appraisal system.
The documentary and panel discussed the rather age-old, and common practice of “whitewashing,” in which, for example, a black or Latino family erases all evidence of their racial or ethnic background and relies on a white ally to pose as the homeowner to interact with the appraiser. That shouldn’t make a difference. And yet, it does. It can make a significant difference. Life changing difference. Generational changing difference.
During the panel discussion, we heard of the many systemic challenges that drive appraisal bias as well as possible solutions to overhaul the appraisal process to address discrimination and inequities.
This challenge requires a whole-of-government response. As such, it is a priority for the CFPB as we continue to fulfill our mission to ensure fair, equitable, and nondiscriminatory access to credit for individuals and communities, including African American and Latino families and neighborhoods.
We know that owning a home is a key building block to generating inter-generational wealth, especially within communities that have been historically shut out from fair access to the housing market. Ensuring that the appraisals used to make lending decisions are accurate and free from bias is essential if families of all races and income levels are to prosper and successfully pursue the American dream of homeownership.
That dream can quickly become a nightmare when families are forced into accepting valuations on their homes far below their true values. And there is a domino effect when a home is undervalued. The household suffers a significant loss in net worth and home equity, has fewer options in securing financing and favorable mortgage rates, and risks loss of collateral in the home. The homes in the surrounding community may be lowered in value when a realtor uses undervalued neighborhood comps to place an asking price on a home.
And as we heard HUD Secretary Fudge point out, the community suffers with a lower property tax base that is available to invest in schools and other basic civic necessities that inure to the benefit of not just that community, but the whole of society and our nation. These impacts can serve to reinforce historic redlining that has already depressed home values in the area.
And as we heard today, the impacts aren’t just economic. For a homeowner to have to erase themselves, pieces of their own identity, down to the hair products in their home, in order to get a fair appraisal, that is a humiliation no one should have to suffer.
The CFPB is working with our partners on the FFIEC’s Appraisal Subcommittee, which, since March of 2022, I chair. The CFPB also continues our work as a member of the White House Interagency Task Force on PAVE.
As you heard, last year, the Task Force released its Action Plan, and the CFPB is taking an active leadership role in ensuring the action items are implemented. In addition, Congress has assigned important responsibilities to the Appraisal Subcommittee, and we must live up to them. They include scrutinizing the work of The Appraisal Foundation, which, as the primary organization that sets the standards for appraisals and qualification criteria for appraisers, wields enormous power in the appraisal industry.
What the CFPB Is Doing
The CFPB has taken action since the PAVE report was released. We have engaged with The Appraisal Foundation on many issues, including failure to provide clear warnings about the requirements of federal law in the standards it sets, and in the training it provides for appraisers.
Given the stubborn persistence of appraisal bias, CFPB is considering all available avenues to tackle discrimination in appraisals, including technologies which could potentially reduce or mitigate bias. We are working along with our interagency partners to develop regulations for quality control standards for automated valuation models. While AVMs have seen broad adoption in certain segments of the housing market, we must be vigilant to ensure that they are not perpetuating the very biases they purport to address.
The CFPB also recently posted a blog highlighting the critical role that lenders should play in facilitating consumer engagement in the home valuation process, by maintaining a strong, compliant reconsideration of value process, or ROV, that can serve an important role in helping to ensure accurate valuations. For example, in ROV, borrowers can point out errors or omissions, including inadequate comps, or evidence of prohibited bias.
The CFPB has communicated to lenders which fail to have a clear and consistent method to ensure that borrowers can seek an ROV or otherwise risk violating federal law.
Announcement of Appraisal Subcommittee Hearing at CFPB
There is much more work to be done, and today I want to highlight that the CFPB will be hosting the Appraisal Subcommittee for a hearing on January 24th. The purpose of the hearing is to keep the spotlight on the issue of appraisal bias, provide information on the role of the Appraisal Subcommittee in the appraisal regulatory system, and receive feedback from key stakeholders and the public.
We have invited stakeholders who represent different sides of the transaction: lender, appraiser, homeowner, and an academic who has analyzed available data. Based on the information gathered, the ASC may hold additional hearings on targeted topics.
The hearing is open to the public, will be livestreamed, and anyone can submit a written comment. I encourage all stakeholders, including appraisers, lenders, government regulators, civil rights advocates, and the general public to attend. For more information and to register in advance, visit the CFPB’s event page.
Lastly and importantly, I want to acknowledge the great work that Lisa Rice and NFHA have done to keep attention on this persistent challenge. If you haven’t already, I highly encourage you to read the which was commissioned by the Appraisal Subcommittee and authored by a NFHA-led consortium.
Thank you for recognizing the roles the CFPB and the Appraisal Subcommittee have in addressing this challenge. It will take all of us.