FFIEC Issues Statement on Examination Principles Related to Valuation Discrimination and Bias in Residential Lending
Written by: Rob Ellis, Senior Compliance Consultant
The Federal Financial Institutions Examination Council (FFIEC) recently issued a statement of principles related to valuation discrimination and bias for member entities to consider in their consumer compliance and safety and soundness examinations. The member entities of the FFIEC are:
Comptroller of the Currency
Consumer Financial Protection Bureau
Federal Deposit Insurance Corporation
Federal Reserve Board
National Credit Union Administration
FFIEC State Liaison Committee
The statement is designed to clarify standards by which entities under the purview of individual regulators violate applicable rules and regulations. These standards can harm a residential lender beyond any identified violations, the statement explained.
“Institutions are required to comply with laws and regulations, including anti-discrimination laws,” the statement read. “From a safety and soundness perspective, each of the federal prudential regulators has appraisal regulations that address appraisal practices at institutions.”
“Evidence of valuation discrimination or bias that negatively affects an institution’s safety and soundness should be reflected in an institution’s ratings assigned under the Uniform Financial Institutions Rating System (UFIRS).”
According to the statement, during a consumer compliance examination, examiners will consider the following when determining whether an institution's risk management practices are appropriate to identify and address valuation discrimination:
Board and senior management oversight of its real estate valuation program
The institution's due diligence and ongoing monitoring of third-party valuation providers
Policies and procedures in place to detect discriminatory valuation practices, and
Evaluation of consumer complaints alleging potential valuation discrimination.
In addition to detailing the risks associated with valuation discrimination and bias, the statement outlines a series of laws applicable to these goals. These include:
The Equal Credit Opportunity Act (ECOA) and Regulation B, which are designed to prohibit discrimination in any aspect of a credit transaction
The Truth in Lending Act (TILA) and Regulation Z, designed to govern credit-term disclosures;
And Title XI of the Financial Institutions Reform, Recovery and Enforcement Act (FIRREA) of 1989, designed to bolster the reliability of appraisals in federal transactions.
The new document, however, should not be confused with new overarching guidance for the agencies within the coalition. In the press release announcing the statement of principles, the FFIEC advises that:
“The statement of principles should not be interpreted as new guidance to supervised institutions nor an increased focus on supervised institutions’ appraisal practices. Instead, the statement of principles offers transparency into the examination process and supports risk-focused examination work.”
If you're interested in a review of your real estate valuation program and related CMS components please reach out to our Director, Bill Dolan, at WDolan@scapartnering.com or by phone at (617) 694-2617 and schedule a time to speak with us today.
