Biden administration tackles racial bias in home appraisals
By Anna Bahney and Donald Judd, CNN
The White House on Wednesday announced new actions to counter racial and ethnic bias in home valuations.
Vice President Kamala Harris unveiled a 21-point plan that seeks to help homeowners impacted by bias in the appraisal process during an event with Housing and Urban Development Secretary Marcia Fudge and Domestic Policy Advisor Susan Rice. The plan was developed by a recently formed inter-agency task force called Property Appraisal and Valuation Equity (PAVE).
“A home is more than just a roof over your head and a place to live — those are essential needs. But a home represents, in addition to that, so much that is about financial security. That is about the potential to build intergenerational wealth,” Harris said. “We don’t want to have a system that denies people an ability to have that goal simply because there is bias in the system.”
She added that the administration is “fighting to make sure every person, no matter where they live, or who they are, has an opportunity to not only succeed, but to thrive.”
President Joe Biden announced the formation of the PAVE task force last June as part of a series of initiatives that seeks to fix inequities in the US.
The task force worked with independent appraisers, appraisal management companies, lenders, advocacy groups and philanthropic organizations to come up with the reforms. The plan includes enhancing oversight and accountability in the home appraisal industry, educating homeowners on steps to take when a valuation comes in lower than expected, insuring automatic valuations avoid bias in appraisal, boosting diversity in the appraiser workforce and expanding federal data to inform housing policy and research.
The nation’s largest professional association of real estate appraisers, the Appraisal Institute, welcomed the plan, but said it wants to hear more specifics.
“Our organization stands ready to work with the bank regulatory agencies, loan guarantee agencies and other stakeholders to develop a more accountable, actionable and efficient regulatory structure,” said Jody Bishop, president of the Appraisal Institute.
Appraisal bias and the wealth gap
Home appraisals fall within the scope of fair housing and fair lending laws. More than 50 years after the passage of the Fair Housing Act, the racial homeownership gap is wider than ever. In 2021, for example, the Black homeownership rate was 44% while the White homeownership rate reached 74%, according to the Census Bureau.
Homeownership is the primary contributor to multi-generational wealth building for Black and Brown households, according to research highlighted in the report. That’s especially true in a strong real estate market like today’s in which home equity is rising.
But bias in home valuations limits the ability of Black and Brown families to see equitable financial returns associated with homeownership, the report said.
Last year a Black woman in Indiana filed a Fair Housing complaint after she received a home appraisal that doubled in value after she concealed her race. In California, a Black couple had a White friend show their home to an appraiser and the appraisal rose by nearly half a million dollars. They filed a lawsuit in federal court in San Francisco, arguing that racial discrimination played a role in the initially low valuation of their home.
New research from Freddie Mac found that 12.5% of appraisals for home purchases in majority-Black neighborhoods and 15.4% in majority-Latino neighborhoods result in a value below the price for which the home sells. That’s compared to only 7.4% in predominantly White neighborhoods.
Housing and Urban Development Secretary Fudge tied Wednesday’s announcement to her own personal experience as a Black homeowner.
“I live in an all-Black community, I live two doors from an all-White community. My house is bigger than the house two doors from me, my lot is bigger than the house two doors from me, and in my biased opinion, my house is nicer than the house two doors from me,” she said. “But my house is valued at $25,000 less than the house two doors from me, so I’m losing hundreds of thousands of dollars in equity in my home, because of the bias in appraisal.”
Making an impact
Housing policy groups praised the Biden administration’s announcement.
The Housing Policy Council, a trade association whose members are among the nation’s leading housing finance providers, released a statement commending the PAVE task force for setting forth a plan that identifies ways to address regulatory challenges, improves consumer understanding, expands data and research, and updates the professional qualifications to become an appraiser.
“We look forward to continued close engagement with the PAVE task force as it embarks on the critical work to pursue the actions identified in the plan,” the statement said.
According to the administration, many of the agency partners in the PAVE task force, including the Department of Justice and the Federal Housing Administration, have already begun taking actions to address inequities in the housing market. Last month, the DOJ filed a statement of interest that argued appraisers may be liable under the Fair Housing Act for discriminating on the basis of race. And in November, the FHA filed a letter clarifying nondiscrimination requirements for appraisers.
Still, at least one area requires legislative action: the accountability and governance of the appraisal industry. The report highlights the administration’s intention to work with Congress on legislation that would modernize the governance and accountability of the appraisal industry.
“The action plan calls for significant regulatory and oversight changes but does not outline specific plans,” said Bishop of the Appraisal Institute. “Transparency and accountability are important, but these goals should be balanced with maintaining industry independence and promoting entry into the profession.”
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