Appraisal Bias: What Lenders Don’t Know Can Hurt Them!
Fair lending issues are a major concern for regulators, and ensuring fair and accurate appraisals is at the top of their list of concerns for 2023.
In 2021, the Interagency Task Force on Property Appraisal and Valuation Equity (PAVE) was created to evaluate the causes, extent, and consequences of appraisal bias. In March 2022, PAVE issued an Action Plan with a set of recommendations to root out racial and ethnic bias in home valuations.
On March 13, 2023, the Justice Department and the Consumer Financial Protection Bureau (CFPB) filed a Statement of Interest in the United States District Court for the District of Maryland (Connolly & Mott v. Lanham et al). The statement aims to explain how the Fair Housing Act (FHA) and the Equal Credit Opportunity Act (ECOA) apply to lenders that rely on discriminatory home appraisals. It emphasizes that mortgage lenders violate both the FHA and ECOA if they rely on an appraisal that they know or should have known to be discriminatory.
These are just a few of the many actions the Federal Government is taking regarding combatting discrimination in appraisals.
The critical issue at stake here is to ensure that as a lender, you have implemented a monitoring program to proactively detect any form of appraisal bias in your collateral evaluation processes. It is equally important to have a corrective action plan in place if any type of discriminatory conduct is detected.
SCA is here to help you navigate the details and complexities of monitoring and action plans. Please contact our Director, Bill Dolan, at WDolan@scapartnering.com or by phone at (617) 694-2617 to get started and avoid becoming the next headline.
