Biden administration launches fresh effort against ‘appraisal bias’

Six federal regulatory agencies today requested public comment on a proposed rule to regulate the credibility of algorithmic models used in real estate valuations, which is part of a larger effort by the Biden administration to address alleged bias in the appraisal process. The rule would require institutions that engage in covered transactions to adopt policies, practices, procedures and control systems to ensure that automated valuation models, or AVMs, adhere to quality control standards designed to ensure the credibility and integrity of valuations, according to a joint statement.

“While advances in AVM technology and data availability have the potential to contribute to lower costs and reduce loan cycle times, it is important that institutions using AVMs take appropriate steps to ensure the credibility and integrity of their valuations,” the agencies said. “It is also important that the AVMs institutions use adhere to quality control standards designed to comply with applicable nondiscrimination laws.”

The proposed rule is one of several initiatives announced today by the White House to address racial bias in home valuations. Others include regulatory guidance—still being drafted—on how financial institutions may integrate reconsiderations of value, or ROV, policies and controls into their current appraisal processes; a new working group to develop more consistent standards for the ROV processes of the Federal Housing Administration, Fannie Mae and Freddie Mac; a Federal Housing Finance Agency push to update appraisal data that is publicly available; and an online dashboard on barriers to entry in the appraisal profession.