Appraisal Standards Must Include Federal Prohibitions Against Discrimination

CFPB continues to raise concerns with The Appraisal Foundation

Insider

By Patrice Alexander Ficklin and Tim Lambert

Fair Lending Director and Fair Lending Programs Lead and Senior Counsel

Homeownership is one of the best paths for building intergenerational wealth. For some homebuyers and owners, however, a home’s valuation may be skewed by skin color or community demographics. Biased home appraisals can worsen racial inequities and distort the housing market.

The CFPB and leaders from across the federal government submitted a joint letter to The Appraisal Foundation (TAF), the private, nongovernmental organization that sets appraisal standards. The letter urges TAF to revise its draft Ethics Rule for appraisers to include a detailed statement of federal prohibitions against discrimination that exist under the Fair Housing Act and Equal Credit Opportunity Act. We are concerned that some appraisers may be unaware of these prohibitions and, in particular, that the draft Ethics Rule emphasizes that “[a]n appraiser must not engage in unethical discrimination,” implying that appraisers may engage in “ethical” discrimination, a concept foreign to current law and practice.

The letter marks the second time we have raised these concerns with TAF. On Feb. 4, 2022, we urged TAF to provide clear guidance on existing legal standards related to appraisal bias in response to a prior draft of its Ethics Rule included in the Uniform Standards of Professional Appraisal Practice. In a blog post released with the letter, the CFPB noted that we are deeply troubled by the discriminatory statements the Federal Housing Finance Agency identified in some home appraisals, and the appraisal disparities for communities and borrowers of color described in both Freddie Mac and Fannie Mae studies. Moreover, the CFPB continues to see reports of appraisers who fail to follow the law and who base their value judgments on biased, unfounded assumptions about borrowers and communities.

For more than 50 years, federal law has forbidden racial, religious, and other discrimination in home appraisals. It is imperative that TAF provide appraisers clear, detailed, and unambiguous warnings about the requirements of federal law covering appraisal standards.

The CFPB continues to see reports of appraisers who fail to follow the law and who base their value judgments on biased, unfounded assumptions.

Reluctance?

The Appraisal Foundation, however, appears reluctant to act. Its recalcitrance undermines efforts to rid the housing market of bias and discrimination and threatens the market’s fairness and competitiveness.

We continue to work closely with other member agencies of the Interagency Task Force on Property Appraisal and Valuation Equity (PAVE) to create an equitable path toward addressing the persistent mis-valuation of properties owned or sold by families and communities of color. We look forward to engaging with all relevant stakeholders and using all of the CFPB’s tools, in collaboration with our interagency partners, to address these important issues.