Research detailing overt demographic references in appraisal reports has sparked anger from appraisers, even as they express dismay at the findings.
“I was sickened when I read it,” said St. Petersburg, Florida-based appraiser Francois “Frank” Gregoire. “I was extremely upset that any of that stuff would be in an appraisal report.”
Rodman Schley, president of appraisal trade association the Appraisal Institute, called the Federal Housing Finance Agency’s findings, which it presented in a December blog post, “unacceptable,” and said more work is required to recognize and interrupt unconscious bias.
“This means looking at our processes and approach, recruiting more appraisers of color and women, ensuring consumers know their rights, and reinforcing ethics, education, and training,” said Schley.
But Schley also cast doubt on whether the bias references came from appraisers.
“We understand some of the comments may not be from appraisers themselves, but extractions from real estate listing information that gets included in appraisal reports,” Schley said in a statement.
The FHFA declined to comment to HousingWire about whether the references came from real estate listing information.
The research from the regulator, which oversees Fannie Mae and Freddie Mac, identified references of race, demographics and ethnicity in the free-form text section of an unspecified number of appraisal reports. The references, the FHFA said, suggest that racial and ethnic compositions of a neighborhood could still impact how appraisers establish value.
But for appraisers, the blog post left many questions unanswered.
Neither FHFA nor the GSEs would provide a time period for the references. They also declined to say how pervasive they were, whether they occurred in specific geographic areas, or if specific appraisers or appraisal firms wrote the references.
Fannie Mae and Freddie Mac referred specific questions about the blog post to FHFA.
“Our intent with the blog post was to further the FHFA’s commitment to addressing appraisal discrimination by providing specific examples that we identified of how overt statements can be present in appraisals,” a spokesperson for FHFA said. The blog “was not intended to address the full scope of how appraisal bias can occur, how frequently it occurs over time, or whether it occurs more in certain areas.”
The references the FHFA uncovered also cast doubt on the effectiveness of Fannie Mae and Freddie Mac’s appraisal oversight.
“Every single appraisal report that goes to Fannie Mae gets a Collateral Underwriter score,” said Gregoire. “What was the score on these appraisals? Were they exemplary, or at the bottom of the heap?”
Show me the context
Appraisers were confounded by the research findings’ lack of geography, time and generalization about the frequency of its findings.
Presenting the comments without context is “irresponsible,” according to Joan Trice, founder of the Collateral Risk Network.
“If we don’t know the size and scope of the search, and [the FHFA] won’t be transparent about the frequency of the occurrences, it raises questions as to what their motives are,” said Trice. “Are they just pandering to the Biden administration?”
How to address racial bias in appraisals is a highly-charged topic, and a top priority of the Biden administration. President Biden tasked the Department of Housing and Urban Development with leading an interagency task force — of which FHFA is a member — to make policy recommendations to combat bias in appraisals. The task force’s report is expected early this year.
But even as federal regulators tackle the problem, it is still unclear how bias typically manifests in the appraisal process.
The overt references to race, demographics and neighborhood makeup in the free-form text box of an appraisal report is one way bias could show up. Anecdotes in numerous news stories — and at least one lawsuit — have detailed appraisers low-balling Black homeowners.
And no one has said, definitively, how pervasive appraisal bias is.
Freddie Mac produced a research report in September that found that a substantially higher share of homes in Black communities were valued at less than the contract price compared to homes in white neighborhoods and homes in Latino areas.
HUD said in 2021 it had seen an uptick of complaints of appraisal bias, but news reports at the time said the agency had received just a handful of complaints. The agency has repeatedly declined to provide HousingWire with the number of appraiser bias complaints it has received, stating that it does not disclose the complaints “due to confidentiality filings.”
The Consumer Financial Protection Bureau also receives complaints from consumers, and has received about 14 complaints of appraiser bias since 2019.
“One example of this is one too many,” said Jonathan Miller, CEO of appraisal firm Miller Samuel. “But if we’re looking at 10 to 12 comments from 1000 appraisals, versus 100 million appraisals, the context is sorely needed.”
Late flags
Appraisers also question why the government-sponsored entities have not raised red flags about sub-standard appraisals before now.
“I’m embarrassed by what appraisers wrote and included in their reports,” said Gregoire. “But I’m flabbergasted by the GSEs and their regulator.”
Appraisal reports have been in digital form since 2011. Neither Fannie Mae nor Freddie Mac have made their appraisal data publicly available for academic researchers to comb through, and it’s not clear whether their review processes effectively weed out potential bias.
Paul Ryll, a certified residential appraiser and co-founder of Oscar Mike Mobile Appraisals, questioned why overt references in appraisal reports have not been brought to light until now.
“It seems like a reaction, instead of being proactive,” Ryll said. “Why is this just coming up now?
Both of the GSEs claim they review appraisal reports for quality. Fannie Mae’s appraisal quality monitoring process — separate from its Collateral Underwriter risk score — is meant to identify “appraisers whose appraisal reports exhibit patterns of appraisal quality issues for the purposes of training and education,” the enterprise explains.
Such a review process might catch overt references to protected class and subjective statements that have no place in appraisal reports. But it’s unclear how often it does so.
If an appraisal report triggers a review, Fannie Mae can reach out directly to the appraiser with an instructional letter to notify the appraiser and encourage them to correct their process in the future. The letters, Fannie Mae says, are intended to be solely educational.
In more serious cases of substandard appraising, Fannie Mae can share the appraisal with the “applicable state agency” after completing multiple layers of due diligence to validate the findings, it claims. But that seldom happens, Fannie Mae says.
“The resulting volume of notifications is a very small fraction of the total number of appraisals we receive,” Fannie Mae notes, in a guide explaining its quality monitoring process.
Fannie Mae declined to say whether it had sent appraisal quality monitoring letters to appraisers who made the overt references the FHFA found.
In one quality monitoring letter reviewed by HousingWire, sent sometime in the second part of 2021, Fannie Mae took issue with how an appraiser described neighborhoods in two appraisal reports. Appraisers, Fannie Mae wrote, must ensure the integrity of the loan decision is not influenced by non-objective factors, including possible discriminatory bias, in the appraisal report.
Fannie Mae wrote that “good neighborhood” is an example of subjective terminology to avoid, and highlighted the free-form text entry box where the offending term was used.
“The property had very good neighborhood market appeal due to the size, shap (sic), level of maintenance, and expansion opportunities at a price point below $150,000,” the appraisal report read.
With its blog post, the FHFA sought to provide clarity on appraiser bias by showing specific examples. But due to a lack of transparency, appraisers argue the blog post did little to accomplish that goal.
Many appraisers view the effort as a demonstration that FHFA is trying to combat the problem, even though both the scope of the issue and the agency’s response is nebulous.
“This is the agencies responding in a blatantly sloppy way, because it is, rightfully, the White House platform,” said Miller. “But they’re sharing information so they can say they’re part of the solution when the reality is they probably have done very little.”
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UPDATE: This article was updated to reflect that Freddie Mac referred specific questions about the blog post to FHFA.
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