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Appraisal Bias Focus, Three Years Later: Anticipating Future Improvements in Appraisal Fairness

June 20, 2024 4 mins

On the June anniversary of the Intergency task force PAVE (Property Appraisal and Valuation Equity), appraisers and lenders are anticipating new updates and changes to be forthcoming. To get more background on appraisal bias, explore our earlier blog article.

According to Head of Lender Strategy at LightBox Candi Coleman, the initiative has already set a solid foundation. “PAVE will create a more formalized borrower platform for appraisal resolution that did not exist before, and it’s a significant change for home buyers,” Coleman said. However, the journey toward eliminating appraisal bias is ongoing, and significant changes are expected to be announced soon.

What PAVE Has Accomplished to Date

Early indications suggest that the PAVE task force is making an impact. A new analysis of appraisal data from the Federal Housing Finance Agency suggests that the racial disparity in home appraisal values has started to close, signaling a reversal of the decades-long trend of increasing inequity. The incidence of low appraisals (when an appraisal value comes in below the contract price) in minority neighborhoods has decreased over the past two years, according to the FHFA.

Additionally, the Appraisal Subcommittee (ASC) has enhanced the Uniform Standards of Professional Appraisal Practice (USPAP) to avert any form of bias or discrimination of protected classes in the appraisal process. The Federal Housing Administration (FHA) took another step in November 2021, issuing a Mortgagee Letter, clarifying non-discrimination requirements for appraisers and lenders.

Finally, the financial institution regulatory agencies such as the Federal Financial Institutions Examinations Council (FFIEC), Freddie Mac, Fannie Mae, and the Federal Housing Administration (FHA) have all recently defined requirements related to Reconsideration of Value (ROV) for appraisals in the home loan process. And last month, the Department of Housing and Urban Development (HUD) issued new guidance on ROVs, including:

  1. Training requirements for underwriters to identify and remedy appraisal deficiencies
  2. Procedures for lenders to manage ROV requests from borrowers
  3. Standards for lender quality control of appraisal reviews
  4. Guidelines for appraisers to respond to ROV review requests from lenders.

Coleman highlighted the ongoing efforts of industry participants to educate and refine practices: “I see lenders taking more robust actions to ensure appraisals adhere to USPAP and all local and Federal anti-discrimination and fair housing regulations. Lenders are confirming that their ROV policies ensure that borrowers can mitigate concerns they may have with their own appraisals. Regulatory authorities are working to educate bank examiners to identify and address appraisal bias concerns more effectively. Overall, the industry has put more effective practices in place that support home buyers,” she said.

Moreover, “Efforts related to stronger ROV policies and educational efforts focused on fair housing and anti-discrimination regulations for industry service providers are crucial in equipping professionals and organizations with the necessary tools to combat appraisal bias proactively,” Coleman asserted.

Anticipated Changes in the Near-Term

  1. Formalized Process for Consumer Complaints

One of the anticipated changes involves giving consumers a more formalized process for submitting complaints and perspectives regarding appraisal bias. This new process is expected to be more accessible and transparent, allowing home buyers and owners to report discrepancies and biases in appraisals effectively. “This formalized complaint process will make it easier for both appraisers and consumers to address appraisal bias head on,” Coleman noted, “ensuring a more equitable home buying and refinancing process.”

  1. Technological Innovations and Due Diligence

Technological advancements will also play a pivotal role in addressing appraisal bias. For example, Coleman pointed out that LightBox is exploring ways to utilize technology to scan appraisal and due diligence documents for biased language and quality issues. “We are thinking about how technology can be leveraged to enhance the appraisal review process,” Coleman explained. “By potentially assigning a risk score to documents based on the presence of words or phrases of concern and their context, technology can help identify and mitigate appraisal bias early in the process.”

  1. Proposed Diversity Initiatives

Significant efforts are being made to diversify the appraisal profession. According to The Appraisal Institute, in 2023, 77% of appraisers identified as white. The PAVE Action Plan identified several specific barriers to entry to the appraisal profession and proposed several strategies for transforming the criteria. Solutions included expanding training and mentorship, reassessing the requirement of a college degree or college-level coursework, and developing a comprehensive experience program as an alternative pathway to credentialing aspiring appraisers. These proposed strategies are expected to reduce barriers to entry while ensuring a high-quality, potentially more diverse workforce.

Looking Ahead: The Impact of Anticipated Changes

As the industry waits for the latest updates from the PAVE Task Force, many experts believe the work of the task force is already bringing about meaningful changes in the appraisal process. The anticipated formalized process for consumer complaints, coupled with enhanced regulatory education and technological innovations, promises a streamlined process that supports an equitable future for home buyers and owners.

More news is expected with updates that will continue to address these areas and provide further clarity on how the industry can continue to improve. Coleman said that the forthcoming changes will be pivotal: “Many experts expect that PAVE will encourage new measures related to consumer empowerment and transparency for homeowners and buyers. We’ll have to wait and see, but the anticipation is high.”

Stay tuned for more information on the PAVE initiatives and how these changes will impact the appraisal process and promote fairness in home valuations.

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