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Banking Update on Appraisal Discrimination Regulations with Suzy Gardner

Candi Coleman, MAI
October 27, 2023 3 mins

On September 20th, 2023, LightBox’s Candi Coleman, MAI hosted an exclusive webinar with former FDIC appraisal expert, Ms. Suzy Gardner. This live event was invitation only and provided insights on recent regulatory changes that affect appraisers and lenders, along with proactive measures each party could take to ensure better compliance management. 

Key takeaways from the webinar include:

1. Both the Consumer Financial Protection Bureau (CFPB) and the Department of Justice (DOJ) have indicated they may pursue discrimination lawsuits against financial institutions that fail to detect and mitigate discrimination in valuation reports.  There are two statements from these agencies that lenders and appraisers should take note of:

  • “…we still see reports of appraisers who don’t follow the law and base their value judgments on biased, unfounded assumptions about borrowers and the neighborhoods in which they live.” – CFPB
  • “proper defendants for appraisal-related discrimination may include not only appraisers, but their employers and the lenders who relied on their valuations.”  – DOJ

These agency statements are a clear indicator of the level of concern regarding valuation bias and discrimination issues.  Hence, financial, legal, and reputation risk is growing for appraisers and lenders due to allegations of discrimination in valuation products.

2. The Appraisal Foundation (TAF) has finalized enhanced bias and anti-discrimination standards in the 2024 version of the Uniform Standards of Professional Appraisal Practice (USPAP) in an effort to address concerns about bias and discrimination in appraisal reports.  In addition, a new 7-hour course addressing bias, fair housing laws and regulations will be mandatory for all appraisers beginning in 2026.

3. Regulators also have initiated a variety of interagency actions to address discrimination.  One example is The Property Appraisal and Valuation Equity (PAVE) report and action plan, which outlines five actions regulators will be taking relative to discrimination in valuations.  Guidance resulting from the action items include specific considerations associated with Reconsideration of Value (ROV) process, empowering consumers to take action and address complaints related to the valuation process.  Notably, the CFPB indicated that, “Lenders that fail to have a clear and consistent method to ensure that borrowers can seek a reconsideration of value risk violating federal law.”  

Considering these factors, there are ways for appraisers and lenders to respond to these regulatory issues in a cost-effective manner.  If you are a lender, consider that change starts from the top, and you should manage up in your organization.  Educate senior management about the financial, legal, and reputational risks that discrimination and appraisal complaints could have on your organization.  If your organization relies on discriminatory valuations, it could be cited in apparent violation of the federal appraisal regulations, for failure to comply with USPAP. 

It is important to ensure staff members are trained on bias, discrimination and fair housing laws.  This should likely include loan officers, administrators and underwriters, as well as appraisers, reviewers, compliance officers, security officers, auditors, and certain executives in your organization.  Trained staff mitigates risk and saves your organization money. 

Next, implement new or update your existing ROV policies and practices to be consistent with the proposed ROV guidance. 

Finally, leverage technology to scan for problematic words and phrases in valuations with possible discriminatory meanings. Regulatory agencies are conducting examinations that look for language in an appraisal report that pertains to protected characteristics.  When a lender relies upon such a valuation report to extend credit, the lender could be cited for apparent violations and could face greater financial, legal, and reputational risk arising from a public lawsuit. 

FOR MORE INFORMATION 

These takeaways were sourced directly from an exclusive webinar that Lightbox hosted with Suzy Gardner, former FDIC appraisal expert. We invite you to watch the webinar on-demand.

Want to be invited to the next one? Get in touch with us today. 

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