We’ve all been talking about appraisal bias for a few years now, but have we effectively implemented processes and procedures to help mitigate risks surrounding it? In June 2023, the Federal Reserve Board, Consumer Financial Protection Bureau, FDIC, National Credit Union Administration, Office of the Comptroller of the Currency, and the U.S. Department of the Treasury (collectively, the Agencies) published two separate proposals related to appraisal bias, “Interagency Guidance on Reconsideration of Value of Residential Real Estate Valuations” and “Quality Control Standards for Automated Valuation Models.” Both proposals are in response to the Interagency Task Force on Property Appraisal and Valuation Equity’s (PAVE Task Force) action plan to “strengthen guardrails against unlawful discrimination in all stages of residential valuation” (Action Items 1.3 and 1.5).
The Agencies aren’t the only ones taking a stronger stance on the topic. Both Freddie Mac and Fannie Mae have stressed their processes for “Unacceptable Appraisal Practices” to the extent that as of January 26, 2024, appraisals that contain certain words and phrases will transition from receiving a “Warning Message” to “Fatal” through Freddie Mac’s Uniform Collateral Data Portal.1 Not to mention the U.S. Department of Housing and Urban Development’s focus since its conciliation agreement with a large bank in 2021 surrounding reconsideration of value practices.
The Interagency Guidance on Reconsideration of Value outlines examples of policies, procedures, and control mechanisms that can be considered to help identify, address, and mitigate the risk of deficient valuations, including valuations that involve prohibited discrimination. Are we having effective conversations surrounding the implementation of these concepts? If not, it may be time to take a longer look at what the expectations will be once the guidance is finalized.
Join us March 25–28 for our 2024 Regulatory Compliance Conference in Louisville, Kentucky, where we will discuss more about appraisal bias, reconsideration of value, and many other trending deposit, lending, AML/BSA, and compliance risk management topics of relevance to you!
If you have any questions or need assistance, please reach out to a professional at FORVIS.
- 1“Q&A: New Date for Unacceptable Appraisal Practices Fatal Messages,” sf.freddiemac.com, September 12, 2023.