On February 14, 2023, the Federal Deposit Insurance Corporation, Consumer Financial Protection Bureau, U.S. Department of Housing and Urban Development, National Credit Union Administration, Federal Reserve Board, U.S. Department of Justice, Office of the Comptroller of the Currency, and the Federal Housing Finance Agency (the “agencies”) sent a joint letter to The Appraisal Foundation (TAF) expressing concerns with the Fourth Exposure Draft of Proposed Changes for the 2023 Edition of the Uniform Standards of Professional Appraisal Practice (USPAP).
On February 4, 2022, the agencies sent a joint letter to TAF on the Second Exposure Draft of proposed changes to the USPAP urging TAF to provide a “full presentation” of the anti-discrimination prohibitions in the Equal Credit Opportunity Act (“ECOA”) and Fair Housing Act (“FHA”) as they relate to appraisal bias. The agencies also expressed concern that while the Appraisal Standards Board Ethics Rule and Advisory Opinion 16 state that an appraiser cannot rely on “unsupported conclusions relating to [protected characteristics],” these items “do not prohibit an appraiser from relying on “supported conclusions” based on such characteristics and, therefore, suggest that such reliance may be permissible.”
In the most recent joint letter, the agencies state that they “were pleased to see that the Third Exposure Draft provided a detailed summary of the FHA’s and ECOA’s nondiscrimination standards and that any ambiguity as to their applicability was removed. The agencies reviewed the Third Exposure Draft and did not suggest any edits to the text.” With regard to the Fourth Exposure Draft, the agencies express concern that it “eliminated the Third Exposure Draft’s summary of the FHA’s and ECOA’s nondiscrimination standards and, instead, substituted a distinction between unethical discrimination and unlawful discrimination.” The agencies note three specific concerns:
- The term “unethical discrimination” is not well established in either current law or practice. As a result, the agencies believe the introduction of the term in USPAP, and the resulting need to distinguish between unethical discrimination and unlawful discrimination, would create confusion in the appraisal industry. The agencies also state that federal and state regulators responsible for examining for compliance with USPAP would face difficult challenges in determining when appraisers have engaged in unethical discrimination given that it is not defined in existing legal norms and standards and is inherently vague and subjective.
- The introduction of the concept of unethical discrimination implies that USPAP and the Ethics Rule permit appraisers to engage in “ethical” discrimination. The agencies also state that the term “ethical” discrimination, and reference to the possibility of a protected characteristic being “essential to the assignment and necessary for credible assignment results,” appears to resemble the concept of “supported” discrimination that the agencies previously disfavored.
- Suggesting that appraisers avoid “bias, prejudice, or stereotype” as general norms would permit individual appraisers’ wide discretion in applying these norms, likely yielding inconsistent results. The agencies also state that although they understand that appraisers may seek additional guidance for valuations, such as those involving housing for older persons, that may be treated differently under the FHA, they believe that a thorough explanation of those particular legal distinctions would be preferred to the introduction of the concept of “ethical” discrimination or other distinctions not found in current law and practice.
On March 21, 2023, Compliance Resource is sponsoring a webinar entitled Building a Safe & Sound Real Estate Program. The webinar focuses on real estate valuation and portfolio monitoring and contains information relevant to those who manage or are involved with real estate valuation. Among many other items, the program reviews:
- Appraisal Bias – A discussion of items to look for in the valuation report and suggestions for institutions to consider implementing as part of their fair lending requirements; and
- Reconsiderations – How to handle and document appraisal reconsiderations as well as what to do if a second appraisal is ordered.