Do racial minorities suffer financial loss because their home appraisals are biased?
The Biden administration thinks so.
And on Wednesday, March 23, an interagency task force co-chaired by U.S. Secretary of Housing and Urban Development Marcia Fudge unveiled an action plan designed to transform the appraisal industry and eliminate hidden biases. which can affect a minority homeowner’s mortgage rates, equity and proceeds from a sale.
Called the Property Appraisal and Valuation Equity Action Plan, or PAVE, its goal is to make the appraisal industry more responsible, give consumers information and help, prevent algorithmic bias in automated appraisals and recruiting more minorities into an industry that the government says is 97%. White.
Actions include steps that federal agencies can take under their current authority to improve oversight and accountability of the assessment industry. Additionally, the government will advise homeowners and buyers on what they can do when they receive a lower-than-expected rating.
No doubt there is no room for partiality. Biases in home valuations limit the ability of black and brown families to enjoy the financial returns associated with homeownership, contributing to the already sprawling racial wealth gap, according to a White House fact sheet. .
Today, the median white family holds eight times the wealth of the typical black family and five times the wealth of the typical Latino family, the fact sheet says.
Additionally, new research shows that low ratings can be prevalent in communities of color. Freddie Mac found that home purchase appraisals in majority black and majority Latino neighborhoods were about twice as likely to be below the contract price of a home as in predominantly white neighborhoods.
The valuation industry, the fact sheet says, “has long operated within a relatively closed and self-regulating framework.” Legislation is needed to make the industry more responsible.
Steps must also be taken to remove ‘unnecessary education and experience requirements’ to allow more minorities to become assessors.
“The spirit in which it was developed was a step in the right direction,” said Tony Thompson, founder and CEO of the National Association of Minority Mortgage Bankers of America. “Closing the homeownership gap while increasing the equity and wealth gap in communities of color.”
Taking steps to address the country’s long history of housing discrimination is commendable.
However, I initially thought that this process could backfire if it affected the independence of individual reviewers. Banks and lenders need accurate assessments to ensure they can get back the money they lend if there is a problem with the loan.
The importance of appraiser independence was enshrined in the 2010 Dodd-Frank Act, which contained language ending the abuse appraisers suffered during the mid-2000s housing bubble. At the time, appraisers were often pressured to achieve a property value number as a condition of obtaining work.
Maybe I’m exaggerating. But every reviewer I’ve spoken to is skeptical.
The Valuation Institute issued a statement noting that “this is a complex issue”.
“Transparency and accountability are important, but these goals must be balanced with maintaining independence from industry and promoting entry into the profession,” said Appraisal Institute President Jody Bishop. .
Ratings have been a hot topic over the past decade – among minorities and non-minorities. By far the biggest complaint I get as a mortgage originator is not living up to an appraisal. Low valuations — which are common when home prices are rising so quickly — can kill a sale.
The rebuttal process never worked. In my experience, we might get value reconsideration in maybe 5-10% of all the claims we submitted. Even then, the updated values never got closer to where they should have been.
There are already plenty of ways to weed out bad reviewers. Fannie Mae and Freddie Mac receive a copy of each review. They have a Fort Knox full of historical and current property data, values and trends for 65% of the approximately 111 million US residential properties.
A review industry executive told me that Fannie and Freddie had about 1,000 reviewers on an exclusion list — their version of a no-fly list. About 5% of reviewers receive follow-up letters from Fan and Fred for unacceptable work.
Valuation bias can now be detected through trend lines and comparisons.
The US Department of Veterans Affairs and the Federal Housing Administration remove bad reviewers from their approved lists.
They may not have the level of intelligence sophistication that Fannie and Freddie have, but there’s no reason this task force can’t force Fan and Fred to share their lists.
Because review bias violates the Fair Housing Act and the Equal Credit Opportunity Act, state licensing providers might also be able to discipline biased reviewers.
Freddie Mac rates the news: The 30-year fixed rate averaged 4.42%, 26 basis points higher than last week. The 15-year fixed rate averaged 3.63%, 24 basis points higher than last week.
The Mortgage Bankers Association reported an 8.1% drop in mortgage application volume from the previous week.
At the end of the line : Assuming a borrower gets the average 30-year fixed rate on a conforming loan of $647,200, last year’s payment was $461 less than this week’s payment of $3,249.
What I see: Locally, well-qualified borrowers can obtain the following fixed rate mortgages without points: A 30-year FHA at 4%, a 15-year conventional at 3.75%, a 30-year conventional at 4.5%, a -balance ($647,201 to $970,800) at 4.375%, a 30-year conventional high balance at 4.875%, and a 30-year fixed buy jumbo at 4%.
Catchy loan of the week: A 30-year purchase, adjustable jumbo mortgage, locked in for the first 10 years with an interest-only payment at 4.125%, no points.
Jeff Lazerson is a mortgage broker. He can be reached at 949-334-2424 or [email protected] His website is www.mortgagegrader.com.