FHFA Says It Found Racial Bias in Appraisals

WASHINGTON – The Federal Housing Finance Agency (FHFA) says it found thousands of cases of potential bias in neighborhood descriptions written by appraisers used for home valuations. Under the allegation it included in a blog post, the FHFA described its findings after examining millions of agency property valuations.

“From millions of appraisals submitted annually, a keyword search resulted in thousands of potential race-related flags,” Chandra Broadnax, senior examination specialist, and James Wylie, an associate director, wrote in the Dec. 14 post.

The FHFA is part of an interagency task force to examine the role bias could be playing in housing inequity. The task force plans to provide recommendations to the White House early next year.

The Appraisal Foundation’s Uniform Standards of Professional Appraisal Practice prohibit appraisers from advocating for the cause or interest of any party or issue. Also, USPAP states an appraiser must not perform an assignment with bias and must comply with all laws, regulations and applicable client requirements. The Federal Fair Housing Act has prohibited racial discrimination in appraisals since 1968 as do State fair housing laws throughout the country.

Still, several allegations of appraisal bias have surfaced over the past year.

In the Realtor Magazine May-June issue, Dawn M. Molitor-Gennrich, president of Molitor-Gennrich Consulting Inc., and Francois K. Gregoire, 2021 vice-chair of the National Association of Realtors®’ Real Property Valuation Committee, wrote that even “without ill intent, some may not always competently adhere to appraisal standards. Recognizing the urgency of maintaining public trust, industry leaders will continue to address allegations of illegal conduct.”

Molitor-Gennrich and Gregoire spotlighted several recent efforts by the appraisal industry to address recent allegations.

The FHFA’s review focused on what appraisers wrote on appraisal forms regarding neighborhood descriptions and other attributes. In the FHFA blog post, agency officials cited examples where appraisers referenced the neighborhood’s racial makeup or the percentage of the local population comprised of immigrants. Another example the FHFA cited from its report was a neighborhood description that explained the area as “originally founded as whites-only city or sundown town” but has since become “fairly diverse” with a “diverse school system.”

“By updating industry norms on the type of neighborhood information that is appropriate to include and moving neighborhood descriptions away from the examples we shared above, we can begin to establish more equitable assessments that ensure fair and unbiased property valuation for all,” Broadnax and Wylie wrote in their blog post on Dec. 14 at FHFA.gov.

Source: “Reducing Valuation Bias by Addressing Appraiser and Property Valuation Commentary,” FHFA Insights Blog (Dec. 14, 2021) and “Thousands of Home Appraisals May Contain Racially Biased Language, Federal Regulator Finds,” MarketWatch (Dec. 15, 2021)

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