Home Appraisal Bias: How the CFPB is Cracking Down on Discrimination
Home appraisal bias remains an ongoing issue throughout the real estate industry. Homeowners, particularly those of Black or Latino heritage, statistically receive lower property appraisals.
In a study conducted by the Federal Home Loan Mortgage Corporation (Freddie Mac), 12.5% of appraisals in majority-Black census tracts and 15.4% in majority-Latino tracts were appraised below their contract price. Furthermore, that number only reached 7.4% for majority-White census tracts.
While Illinois recently stepped up to its part to help combat racial discrimination occurring in real estate transactions, this is a challenging, widespread issue. And now, the Consumer Financial Protection Bureau plans to get involved.
Consumer Financial Protection Bureau Cracks Down on Home Appraisal Bias
At the tail-end of February, the Consumer Financial Protection Bureau (CFPB) announced its plans to “ensure that computer models used to help determine home valuations are accurate and fair”. In essence this move, set the CFPB up to tackle the computer algorithms that allow for racial bias in the home appraisal process.
While many appraisals take place in person to this day, numerous lenders throughout the country employ algorithmic computer models to shore up conserve time and resources. While these models may accomplish that purpose, they’re also susceptible to valuation accuracy.
In the event of an overvaluation, homeowners may face resale risks. Also, this could increase their vulnerability to foreclosure. on the other hand, undervaluation creates its own unique set of issues. Low property valuations create barriers to refinancing, and similarly, pose a threat to potential resales.
How the CFPB Plans to Tackle Home Appraisal Bias
Overall, the Consumer Financial Protection Bureau (CFPB) worries about safeguards pertaining to these computerized models, or the lack thereof. While the CFPB’s overarching goal is to obtain a high level of confidence regarding the automated models, they simultaneously seek to prevent conflicts of interest throughout the appraisal process.
Currently, the CFPB intends to require random sample testing for the appraisals. This first step creates less potential for collusion. While the step may seem minor, it is a step in the right direction as the issue continues to draw public attention.
Summary
While home appraisal bias persists as a threat to the integrity of the real estate closing process, multiple organizations and government entities are making strides to subdue its impact. For instance, Congresswoman Maxine Waters is pushing for legislation to address home appraisal bias. As time goes on, that legislation may quickly come to fruition.
For legal guidance regarding the home appraisal process, contact the real estate attorney at Lee Scott Perres, P.C.
