A&B Abstract: As part of the Biden Administration's stated focus on narrowing the racial gap in wealth and homeownership, federal agencies launched an Interagency Task Force on Property Appraisal and Valuation Equity (PAVE), with the goal of "addressing the persistent misvaluation and undervaluation of properties experienced by families and communities of color." On March 23, 2022, the PAVE Task Force released its Action Plan, which contains 21 specific actions to be taken by the 13 member agencies and offices of the Task Force and, in certain cases, Government-Sponsored Enterprises (GSEs), as well as general recommendations for the appraisal industry.
Components of the PAVE Action Plan: The Action Plan delineates 21 specific actions for the appraisal industry, with the goal of:
- Increasing accountability and oversight of the appraisal industry, primarily by encouraging federal agencies to update their appraisal-specific policies and guidelines, expand regulatory agency examinations of mortgage lenders, and enhance interagency coordination and collaboration.
- Ensuring that consumers are fully informed regarding the steps they can take after receiving a property valuation that is lower than expected, including the reconsideration of value process.
- Preventing algorithmic bias by incorporating a "nondiscrimination quality control standard" into proposed federal rulemaking for automated valuation models (AVMs).
- Promoting diversity in the appraiser profession by "remov[ing] unnecessary educational and experience requirements that make it difficult for underrepresented groups to access the profession," as well as by bolstering fair lending training of existing appraisers.
- Developing an aggregated database of federal appraisal data to better study, understand, and address appraisal bias, "complemented by a working group of subject matter experts from stakeholder agencies."
Scope of the Action Plan: It is worth noting that, apart from these recommendations and the overall push toward federal rulemaking regarding appraisals, the PAVE Action Plan does not itself propose any substantive changes to the existing appraisal process. Unlike recent suggestions by various advocacy groups and public policy organizations, the PAVE Action Plan does not recommend specific revisions to the Uniform Standards of Professional Appraisal Practice (USPAP), such as identifying the homeowner or mortgage loan borrower as the intended user of the appraisal report. Rather, the Action Plan focuses on the existence of appraisal bias in home purchase appraisals (while acknowledging that refinances have not been studied as extensively) and suggests that more work is needed to evaluate alternatives to traditional appraisals, the use of range-of-value estimates in lieu of point estimates, and potential modifications to the sales comparison approach to appraisals. Notably, the Action Plan also acknowledges the federal government's historical role in increasing valuation bias through the implementation of the Home Owners Loan Corporation.
Federal agency reaction: In response to the Action Plan, certain member agencies have publicly pledged their commitment to eradicating appraisal bias. For one, the Consumer Financial Protection Bureau (CFPB) has announced that it will be "closely scrutinizing the work of The Appraisal Foundation," "working to implement a dormant authority in federal law to ensure that algorithmic valuations are fair and accurate," and "developing a proposed rule." The Federal Housing Finance Agency added that it will be "working with HUD and other interagency partners to share information and resources that strengthen fair lending oversight of the mortgage finance system."
Takeaways: The various components of the Action Plan demonstrate that collaboration between lenders, federal agencies, advocacy groups, and industry associations will be necessary to craft a successful approach toward eliminating potential appraisal bias. For a more detailed discussion of the lender's role and limitations in the existing appraisal process, please see Appraisal Values and Lender Liability: Art, Science, or Gamble?
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