FHFA Appraisal Bias Reporting Found Inadequate

Both Biden Administration and NCUA have made issue a major focus.

The Federal Housing Finance Agency (FHFA) does not report evidence of appraisal bias to the appropriate state agencies, those that both license appraisers and could sanction them, the agency’s Office of the Inspector General reported last week.

As a result, state officials may be unaware of a bias problem among its appraisers.

“Filing complaints with state authorities and prompting investigations into potential noncompliance with [appraiser standards] is consistent with the purposes of the Fair Housing Act, the Administration’s policy set forth in executive order 13985, and with actions FHFA has taken to promote fair lending,” the IG reported.

The IG further revealed the FHFA has found that appraisal reports demonstrate that valuation bias continues to exist.

Background and FHFA Response

The Uniform Standards of Professional Appraisal Practice require appraisers to perform assignments without bias. Appraisers who do not follow those standards are subject to investigation and discipline by state appraiser licensing authorities. However, for such an investigation to begin, a complaint must first be filed in accordance with state procedural rules.

But the FHFA has not filed those complaints even when bias is suspected, according to the IG.

“The Associate Director of FHFA’s Office of Fair Lending Oversight informed us that the Agency does not file complaints with the state licensing authorities and has no policy in place on the subject,” the report stated.

In response to the report, FHFA officials agreed that the agency should begin filing complaints with the appropriate state officials.

NCUA Concerns About Appraisal Bias

Both the Biden Administration and the NCUA have identified appraisal bias as a problem they intend to tackle.

In June 2021, the administration formed an interagency task force to study appraisal bias, which reported that the issue continues to plague the industry.

In November, NCUA Chairman Todd Harper told those attending the agency’s diversity and inclusion summit that the administration is working with other agencies on joint rules to establish quality control standards for automated valuation models.

He added that as a member of the Federal Financial Institutions Examination Council, the NCUA is also collaborating with other regulators to develop examination principles that consider how appraisal bias impacts safety and soundness and consumer financial protection. Additionally, he noted the agency is working on diversity issues in the appraisal industry as a member of the Appraisal Subcommittee, which oversees state regulatory programs.

“With the deck stacked against underserved communities, including minority populations, credit union policies and practices that promote financial inclusion are very important,” Harper said at the summit.