Opinion: The Biden administration must pave the way for a swift end to rating bias

The federal government’s efforts to address review bias have stalled and need a jump-start. The Biden administration chose June 1, 2021, the historic 100^e anniversary of the Tulsa Massacre, to announce that the Property Appraisal and Valuation Equity (PAVE) Task Force has made a historic commitment on a somber anniversary. Now, more than three years since the creation of the PAVE Task Force, we are all still waiting for the promise of a fundamental change in the appraisal industry that will finally bear fruit.

There is broad agreement that the disparity in assessed values ​​across the country is hindering the promise of homeownership as an engine for building equity. Both Freddie Mac And Fannie Mae analysis of their substantive data revealed statistically significant differences in rating based on race. This systemic undervaluation makes it more difficult for Black and Latino consumers to purchase or refinance a home and ultimately accumulate equity at the same rate as their white counterparts, and leaves consumers without confidence in the fairness of the appraisal process .

One of the biggest obstacles to rating system reform stems from the agency-like authority awarded to The Appraisal Foundation (TAF) by Congress. This nonprofit organization, which functions as a protective trade association dominated by the largest appraisal firms in the United States, dictates industry standards and qualifications for appraisers, including continuing education requirements.

Although TAF recently updated some of its policies and practices in response to public pressure and reluctantly pledged in a reconciliation agreement with the Department of Housing and Urban Development (HUD) that it would spend additional money to increase diversity in the assessment industry , there is no public information showing that its efforts are sufficiently detailed or have had any impact. TAF’s ethics, training and governance documents are hidden behind a paywall. If anything, HUD’s settlement with TAF only serves to perpetuate a broken system of an ineffective trade association. TAF still controls the standards for training, certification and who can enter the profession. The appraisal industry remains predominantly white (94.7%) and mainly older and male. With the exception of agricultural managers, there is no other profession in the United States with this level of skillconcentrated homogeneity in its demographic makeup – a stark contrast to the current and future homebuyer population.

The Federal Housing Finance Agency (FHFA), which oversees Fannie Mae, Freddie Mac, and the Federal Home Loan Bank Boards, all of which provide liquidity to the mortgage market, has taken some constructive steps to increase transparency And increasing the possibilities for homeowners to appeal their appreciation if they believe this was discriminatory.

As commendable as they are, at their core, the FHFA’s efforts highlight an uncomfortable reality, which is that it is still primarily homeowners, and fair housing groups that work with these homeowners, who are tasked with eliminating bias in tackle the assessment process.

If the government is serious about advancing its goals of combating bias in the assessment process, it should take the steps below to kick-start the efforts:

1. HUD should clear the pipeline of assessment bias complaints, as well as other fair housing cases filed with the agency that have been heard long past the 100-day period required for a decision by HUD proceedings without an agency decision .
2. The Department of Justice (DOJ) should file complaints against appraisal companies and lenders that fail to adequately monitor customer service and valuations for bias. So far, the DOJ has only filed declarations of interest fallen submitted by homeowners. The DOJ could do more.
3. The Federal Financial Institutions Examination Council (FFIEC), which consists of federal agencies that oversee both the appraisal and mortgage industries, should publish much more robust examination procedures than the cursory statement of principles it was released on February 12, 2024.
4. While the FHFA has been one of the most proactive agencies in addressing bias in the rating process, the agency should shine a light on the rating market by releasing a broader set of rating data on a significantly larger set of ratings than the limited snapshot it has released. to date.
5. The federal government could also promote greater transparency and accountability by having the FFIEC Appraisal Subcommittee, which oversees the TAF, direct the TAF to make its governance, accreditation and training materials public, rather than allowing them to allow this information to be hidden behind a paywall.
6. Now for the hard part, which is bipartisan political action. Congress would Financial Institutions Reform, Recovery, and Enforcement Act of 1989 (FIRREA)to release the review process of the monopolistic and anti-competitive trading group TAF. TAF has not demonstrated that it has the will or inclination to transform the appraisal industry. TAF works primarily out of self-interest. Congress must end this monopoly.

All of the above steps would advance the public interest in eliminating bias in the appraisal process, allowing homeownership to build wealth equitably regardless of the homeowner’s race or background. If the Biden administration really wants to transform the appraisal industry, it needs to put the brakes on and step on the accelerator.

Marisa Calderon is president and CEO of Prosperity Now.

Brad Blower is the founder and director of Inclusive Partners LLC.

This column does not necessarily reflect the opinion of HousingWire’s editorial staff and its owners.

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