Biden Administration: Credit Unions and Banks Responsible for Policing Appraisal Bias
FFIEC says credit unions and banks are accountable for appraisals
Credit unions and banks are expected to have systems in place to ensure that real estate appraisers who evaluate property in connection with loan applications are not biased, the Federal Financial Institutions Examination Council said Monday.
The council, which includes the National Credit Union Administration, said that credit union and bank examiners are expected to hold institutions accountable if they do not fix the problem.
The statement is the latest development in the Biden Administration’s effort to root out appraisal bias. In 2021, the administration formed the Interagency Task Force on Property Appraisal and Valuation Equity. The task force was formed amid press reports that Blacks were being discriminated against by property appraisers.
Federal agencies already have issued proposed rules governing automated valuations and have proposed ways for consumers to request reconsiderations of valuations. Federal agencies also have been working on ways to increase diversity in the appraisal industry.
The FFIEC on Monday took the next step—outlining the damage that biased valuations can cause on the financial system, communities, and consumers.
“Deficiencies in real estate valuations, including those due to valuation discrimination or bias, can lead to increased safety and soundness risks, as well as consumer harm and have an adverse impact on borrowers and their communities,” the FFIEC said in a statement of examiner principles.
The council added, “In assessing compliance management systems, examination processes should consider whether the institution’s risk management practices for residential real estate valuations are appropriate to identify and address valuation discrimination.”
The council said that the statement does not include new policies. Instead, it is intended to reinforce anti-discrimination efforts by the agencies.
In its statement, the examination council said that examiners are expected to evaluate financial institutions to ensure that they:
Have employees who can identify incidences of potential valuation bias.
Have a system for selecting, retaining, and overseeing independent appraisers who have the ability to render unbiased appraisals.
Involve board members and senior management employees in instituting consumer compliance programs.
Have policies and procedures to ensure that discrimination issues may be resolved.
Develop employee training programs that teach ways to identify potential discrimination.
The FFIEC said that when examiners identify instances of discrimination that are not resolved, the findings should be reflected in the federal government’s uniform interagency consumer compliance rating system.
In a related development, on February 13, the Office of the Comptroller of the Currency will host a hearing on discrimination with the examination council’s Appraisal Subcommittee. The subcommittee provides federal oversight of state appraisal programs; appraisers themselves are supervised by state officials.