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tv   HUD Secretary Consumer Protection Officials on Appraisal Bias  CSPAN  January 30, 2023 9:31am-11:36am EST

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[inaudible conversations] >> good morning. thank you for joining the appraisal subcommittee on appraisal bias in the residential real estate market. this hearing is being recorded and live streamed at consumer back slash events. i serve as chair of the board
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of the appraisal subcommittee or ss-- asc and today's hearing presents an opportunity to learn more about appraisal bias and get that information to the public. here is what you can expect. asc director mr. provide a short presentation about the asc and its authorities. following his presentation we'll hear from a financial of witnesses who represent different sides of the home appraisal transaction, home owner, lender, appraiser, and in academics who has conducted statistical analysis of available data on appraisal bias. the witnesses will share their perspectives on appraisal bias, scope, root causes and impact on the consumers and the marketplace more broadly.
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after opening statements from our witnesses, representatives of each of the seven agencies comprising the asc board will propose questions to the witness panel. to kick off today's hearing, we're honored to have the secretary of u.s. department of housing and urban development, the honorable marcia l. fudge. secretary fudge's career has been dedicated to helping families and communities across the nation. before serving as the 18th secretary at hud secretary fudge served as director of budget and finance in cuyahoga county's prosecutor's office, two terms of the mayor of warrensville heights in ohio and u.s. house of representatives for ohio's 11th congressional district 2008-2021. throughout her service, secretary fudge earned a reputation of tackling the
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unique challenges confronting low income families, seniors and communities across the country. the secretary co-chairs the inner agency task force on property appraisal and interactivity along with susan rice, the domestic policy advisor. the individual federal agencies represented on the asc boards are members. and i'm pleased and honored to invite secretary fudge to the podium. [applause]. >> good morning. the response good morning. >> good morning. >> thank you very much. i want to think deputy director martinez and i'm certainly happy to be here and members of the subcommittee, including
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vice chair bobby borland a member of our team at hud. it's a pleasure to join so many of my hud colleagues, including julia gordon who will ask questions of our witnesses later and several other public servants who are committed to collaborating with our partners across government and industry to address this very important issue. mr. james park, i thank you so very much for your leadership and your partnership on the appraisal task force. your expertise, your passion and committee have made this a lot easier for us to move this process forward. i want to thank you for making a difference, we appreciate it. since day one, the biden-harris administration has worked to root out bias in the appraisal system. the work is critical to our efforts to advance equity, racial equity in particular in all that we do and it's deeply
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important to me, both as secretary of hud and as a black woman. i know firsthand what it is like to be told that your home is worth less than the house down the street because of the color of your skin. it is heartbreaking to hear the stories from black and brown home owners across the country to feel forced to remove family momentos and photos in hopes of receiving a fair and accurate valuation. i do not intend to do that. and i do not intend for anybody else to have to do it. the impact that discrimination has on a person cannot be overstated. the fair housing act of 1968 was signed into law 55 years ago to put an end to the ugly practices of perpetuating housing segregation and knowingly excluding black people and all of those who have been pushed to the sidelines of our society for far too long.
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owning a home should provide a clear and direct path to the american dream. instead, the current system continues to signal to people that look like me, that this country does not see us as deserving of equitable treatment. as an administration, we knew we had a responsibility to address this issue thoughtfully. that's why on june 1st, 2021, 100 years after the tulsa race massacre, president joe biden and vice-president kamala harris established the interagency task force on property appraisal and valuation equity better known as pays. and the task force by susan rice and me is the first of its kind to root out discrimination in the appraisal and home buying process. a robust team of cabinet level and independent agencies to
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speak with one voice an exact change under existing authorities so families of all backgrounds in all neighborhoods can have a better chance to build a generation of wealth. less than a year after the task force was established, we delivered to the president an action plan that constitutes the most wide ranging set of reforms ever, to advance racial equity in the home appraisal process and we didn't stop there. every day in earnest, we are delivering results together to empower consumers, make the appraisal industry more accountable, cultivate a well trained and diverse work force and make sure does not perpetuate bias. at hud we'd made $28 million available to fund testing, education, and outreach efforts to communities on appraisal bias. next week, we will host the first webinar in a three-part
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series to train how counselors, and professionals how to identify bias and for homes. we know how to identify it because we see it every day. further, we are working to give people seeking fha financing after knew if they believe it has been skewed by racial bias. we also have a platform that all of you can make comments on it's our fha drafting table platform and please take the opportunity to do it. this is a major step. and i'm going to just say a couple of things not on my script because i live this every day. i live in a black community by choice. director, you know that, by choice. i want the my children in their schools to get the same as the children next to me. do you that by property taxes even though i think it's
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unconstitutional to fund our schools by the property taxes, but i do. i want the same police protection, i want the same fire, and can't do it if my home is 50,000 appraised less. there are some where my house is bigger and their house is valued more than mine. as people of goodwill we must change it, i'm hopeful that the people who need to be at the table. whether it be subcommittee, the foundation, come and do what is right for the american people. i hope you have a very robust and productive discussion today and i want to go work to work. thank you all so much.
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[applause] >> thank you, secretary fudge. there are many aspects and considerations that attach to appraisal bias and today's hearing is not meant to be exhaustive. in fact some crucial voices are not here today. based on the information that we gather asc may hold additional hearings to topics and appraisal bias and taking written comments from the public through february 8th, 2023, you can submit a comment by e-mailing it's now my pleasure to introduce the asc representatives. rohit chopra, julia gordon assistant for housing federal housing commissioner at u.s. department of housing and urban
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development. sandra thompson, director of the federal housing finance agency. a deputy director, office of credit union resources and expansion at the national credit union administration. luke brown, associate director for the supervision policy branch within the division of depositor and consumer protection at the federal deposit corporation. susan williams, deputy associate director supervision and regulation at the board of governors federal reserve system and enis thomas, deputy coptroller at the office of comptroller. jim park who will provide remarks about the asc's mission and authorities. jim has served as executive director since 2009. jim, you have the podium.
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[applause] >> good morning, everyone. i'm jim park, i'm the executive director of the appraisal subcommittee and i've had the privilege as chair martinez mentioned, i've had this privilege since march of 2009 and a certified general appraiser in the commonwealth of virginia. this morning i'll give a brief overview of the afc's role in the regulatory system and recent afc initiatives to address appraisal bias. first, i want to thank secretary fudge for her very kind words and they are greatly appreciated. the regulatory system in this country is truly unique. you'll find nothing like it within any industry in the united states or abroad. the system has been in place since 1989, when congress
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determined that appraisers play a vital role in the financial system and needed to be regulated. the appraisal regulatory system contains three mile an hour participants, the -- contains three main participants, appraisal foundation, is a nonprofit organization that was given the extraordinary authority over the appraisal industry, which directly affects state, financial markets, and consumers. that authority is related to developing and issuing standards and ethics that appraisers must follow when developing and reporting real property appraisals and minimum qualifications to become a certified state appraiser. the states are required to have regulatory programs require standards as a baseline.
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states can exceed the state's requirements, but not fall short of them. the states handle the administration of appraiser credentials including disciplining appraisers who fail to comply with appraisal foundation and state requirements. the afc is an important part of the federal government piece of the puzzle. the afc is an independent executive branch federal agency with the seven-member board made up of the federal agencies you see seated before you today. the afc's role is focused on oversight and support of the appraisal regulatory system. in terms of oversight, afc has considerable authority over the state's programs. we conduct regular compliance reviews of the state programs to determine their level of compliance with appraisal foundation and other federal requirements. if the state is found out of compliance, asc has the
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authority, but it's limited to monitoring and reviewing their work. asc has no enforcement authority as relates to the foundation or its boards. the asc provides support to the regulatory system. we provide the support in the form of federal grants which are available to the states and to the appraisal foundation. my staff and i also spend a lot of time coordinating with the state, the foundation, and other industry stake holders to ensure that they are informed on the asc requirements in compliance with federal law and regulation and encouraging everyone in the system to work together to advance the needs of stake holders including consumers. and houses the national registry of appraisers and appraisal management companies and asc operates a hotline, online and on phone, referrals of complaints of noncompliance,
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set by the appraisal standards board with home buyers and lenders and others, with the appropriate regulators. although currently the hotline only provides general information about where to file a discrimination or a bias complaint, we are developing a strategy to expand the hot line to provide referrals for potential victims of appraisal bias or discrimination at both state and federal levels. so why, why is the asc holding this hearing? well, as the federal agency charged with oversight for the appraisal regulatory system, we have been increasingly concerned about the accounts of appraisal bias that are circulated in the national media over the past several years as well as recent studies on the topic. the agency is also very concerned about the lack of diverse it i among -- diversity among appraisers, and
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in the profession particularly for people of color. what is the asc doing to address the concerns? asc has made these issues as a cornerstone of this work and correct and highlight appraisal bias and the lack of diversity in the profession. since 2019, we've held two round tables to obtain input from various experts in the appraisal, mortgage lending, regulatory, fair housing and civil rights industries, we were fortunate enough to have secretary fudge open one of those round tables. we also commissioned a report by a consortium of fair housing and legal experts led by the national fair housing alliance to study the appraisal standards and appraiser qualifications to assure that the promotion of fairness,
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equity, object objectivity in credentialing of appraisers, the comprehensive study available on our website was issued just over a year ago and it resulted in some troubling conclusions and thoughtful recommendations as well. i encourage everyone to read it, the asc has also been a leader in the biden administration's property appraisal and valuation equity task for or pave, pave is led by secretary fudge and ambassador susan rice director of the white house domestic policy counsel and includes 13 federal agencies and departments. it is an all of government approach to address appraisal bias, appraiser diversity and ultimately reduce barriers to home ownership by people of color ensuring that everyone has equitable access to value in their home and intergenerational wealth that home equity builds. in response, the asc recently
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sent a letter to the state regulatory programs urging them to address unnecessary barriers to entry and collaborate where possible to address them. we appreciate the state has the legal authority to establish qualifications exceeding the minimum requirements, but we're encouraging the state to have an appropriate rational in doing so. and also been involved in the occ's project reach which promotes financial inclusion with greater access to credit and capital. reach brings together leaders from the banking industry, national civil rights organizations and business and technology to reduce specific barriers that prevent full, equal and fair participation in the nation's economy. the asc is also using for the very first time hearings to highlight and amplify problems with appraisal bias and the need to diversify the profession. in closing, i want to thank
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secretary fudge, asc chair martinez and all the members for their attention and leadership op this topic. while it won't be easy and nothing worthwhile ever is, working together i'm hopeful we will find solution to these longstanding problems. i also want to thank the witnesses for participating in this hearing. in different ways, all of you or your organizations are in key positions to foster change and contribute to making appraisals free of bias and changing the appraisal industry so that appraisal professionals better reflect those they serve. the mba and appraisal institute are key players, dr. howe your research provides empirical data needed to shine a light on the problem and austins through your willingness to come forward and share such a personal and painful experience. no one should have to hide who they are to obtain a credible
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appraisal that is independent, nonbiased, and performs in a competent manner. thank you, and i look forward to today's discussion. [applause] >> thank you, jim. clearly, the asc has the ability to make marked impacts. we will now move to the witness portion of the hearing, witnesses will have approximately five minutes to share their thoughts on what appraisal bias is, its causes and its impacts. joining us as witnesses today are dr. howe visiting assistant professor of socialology at the university of illinois chicago. paul austin and tenesha tate austin, home owners from marin, california. and michael, the senior vice-president and chief economist at the mortgage
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bankers association and craig steinley president of the appraisal institute. we'll begin with dr. howe. dr. howe. >> thank you, good morning, representatives of the appraisals committee and doctors park and martinez, thank you for the opportunity to testify in front of you. a decade ago my collaborator and i researched like most that the property's worth is in the community. homes that were larger, ample school resources and retail establishment should be worth more as we began to investigate the industry itself something was off. we were living in houston where there are several highly sought off black and latinx neighborhoods and they were comparable they were repeatedly valued considerably lower and
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when they were for sale and buyers offered higher prices. this is a decades' long investigation. with three empirical studies and looked specifically at houston's real estate market. interviewing and observing over 100 industry professionals, excuse me, and we noticed that their racialized assumptions influenced how much they were appraising properties, but that's not how they understood the properties themselves. they thought their method, namely the sales comparison approach was giving them the most accurate estimation of the real estate demand in certain communities. to test that we used nearly one million records of single family houses from across the county that houston located in. excuse me. and we noticed first that homes in white communities were 800% more than other communities. there were many historical
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racist planning from our employment practices that concentrated black and latinx communities with lower housing, less community resources and higher crime. we could compare apples to apples, compare homes that were comparable and communities comparable including real estate demand and found holding all of that constant homes in white neighborhood were 250% more than homes and communities of color. and it wasn't what was actually happening. granted we were just looking at houston and wondered is this a national problem and was it changing over time. our second study which examined homes across all u.s. metropolitan areas and once again we found that homes in white neighborhoods were valued across our country a quarter of a million dollars more than homes in communities of color
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in comparable communities. this was not by historical red lining and it was getting worse over time. exago baiting inequalities. fha released the uniform data set and completed our third study bringing our research up-to-date as well as data from appraisers and demonstrate across the country homes in committee communities compared to homes and communities of color. increasing, exacerbating to unprecedented levels during the pandemic. clearly there are multiple issues here, what's behind what's going on? we can generally put the factors into two bucket. one bucket is the discretionary decisions of appraisers when they go to do an appraisal. evaluating the features of the house, selecting comps, adjustments to the comps and what we found was both
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appraisers are trained, and own assumptions. most is the to second bias, the appraisal methods, we currently used were elevated in the 1930's and 1940's and promoted by academics and real estate professionals that would appraise homes in white communities more than those in communities of color. there is fair housing legislation and court case that is have explicitly outlawed the use of race for a formal justification of home values we've seen that they have continued because nothing has been changed or challenged about the method itself. combined with increase valuation of the housing market white homes are appraised higher values than communities of color. and this had detrimental impacts. and for one, growing racial wealth in large part due to our appraisal guide. take, for example, two families
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who both bought a house in 1980. identical house ins identical neighborhoods and one was in a white neighborhood and one was in a community of color. we could see that the white family saw their home appraised-- i'm sorry, appreciate, 275,000 more than the family living in the community of color. that's despite all the same kind of investment in their communities remaining comparable. 275,000 difference in wealth is equivalent to sending three kids to college all the way through. businesses, nine years of retirement. or 10 medical procedures in hospital stays. the impacts don't stop there. it's disconnected and leading to unstable markets and increasingly affordable housing prices. what can we do about this enormous inequality?
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i would argue we need to do two things. standardizing the process, within the processes and change the method we're using in and of itself. second, before we can change the processes and have an effective method we need to address the inequality we've deliberately created as a community and particularly through government agencies and support and requires investigating and providing resources preparations to those most significantly hurt by this inequality because if we want to pursue life, liberty, pursuit of happiness we need an equitable system moving forward. thank you for the opportunity to testify and look forward to your questions. >> thank you, dr. howell. [applause]. ... have paul austin and tanisha tate austin you have the floor. >> thank you. thank you for having us.
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owning a home is the american dream. for most it's the ability to create generational wealth. for some others of us it's the ability to utilize the equity in one's home for capital. since purchased a home in 2016 we've had several appraisals. this is whatha to do to the fact home is on axis to cash. we should also mention we are both college and two with over $90,000 in debt between the two of us. student debt. [laughing] in january 2020 we decide to refinance their our home e advantage of lowne interest rats and finish remote file. interest rates were significantly lower at the time like the 2% category and we have white friends with successfully refinanced at that rate. we needed an appraisal to refinance. we had an appraisal done januar. we're hopeful after the
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appraisal and then shocked to receive evaluation of $995,000. so under $1 million. i know that sounds like a lot of money but inn the bay area it's not really. we've been requested a second appraisal and asked a friend who appraisal and askeded a friend o is a white women to be me and meet the appraiser. our friend jan brought over her family photo. we took down our family photos and replace artworks is no trace of uss in our own home. a term often referred to as whitewashing. we tried to a make the home seem like you belongd to jan. when the appraiser came jan was there alone working from home at our dining table. shut the deck doors open which highlighted our amazing view of the bay and the possibility of indoor and outdoor entertaining. she answered the appraisers questions about countertops,, floors, et cetera throughout the house. jan called after after the appraiser left to tell me that it was done. she asked me to keep her posted on the results. a couple weeks later we received
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the second appraisal report. this time the appraisal value came in at $1,482,500. this was nearly 50% higher, a dollars. this was nearly 50% higher, a difference of $487,000, just five weeks later. our community is small enough for us tous keep track. in fact, we could go on a tour of homes thats are on sale prior to our home appraisal in 2020. i had been monitoring home sales so we knew what the comps were. when the comps were not included, ignored in fact, in the first appraisal we had concerns. the accounts and comps include were not comparable in square footage, , size of house or typ, and many old listings. the appraisal did not look at properties that were most summer in numerous areas that it had higherr appraisals.
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sorry. the appraiser did not look at properties that were more similar in the nearby areas that have higher pie collation as white residents. this suggests the appraiser was hyper focused on comparing our home to certain types of homes that were not favorable to our valuation. additionally the appraisal use language in a report that was alarming. for example, the report states, quote, appraiser is aware that our comparables from outside of the neighborhood, , sales from over a year ago as well as larger than typical adjustments made. however,r, this could not be avoided. the subject is located in a neighborhood known as a rent a city which has distinct marketability which differs from the surrounding areas. the difference in price per square footage after consideration for flaws with limited did was conservatively
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made at 25%. this explanation from the need to make a larger than typical adjustments due to the fact that our home was -- has distinct marketability, which differs in the surrounding areas was extremely conservative. lastly, the location of our home computer to the undervaluation of it which was in line with historical evaluation of homes. the suppression of opportunity for us can americans to buy outside of a a rent city for generations starting after world war ii, and the negative narratives spewed about when to city despite the amazing views, lot sizes and access to the golden gate bridge. marin county has history of racism and discrimination throughout multiple systems. this issue is more than one bad actor. it is systemic and requires systemic solutions. once i read the appraisal report, i didn't quite understand the appeals process but i but i contacted our brokerct and
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requested another appraisal. thankfully our broker agreed that it was appropriate. i think the consumer should be informed that they're able to request an rop despite the approval of the lenders slash broker. after our story went viral and lawyers begin contacting us,nd e learn had had a process. unfortunately we are past statute of limitations to participate in that process. thankfully our lawyer in the nonprofit organization that helped us in a lawsuit are what the experience in this issue and were able to advise us on the next steps. given our experience i would assume there are plenty of people that don't know what to do if they find themselves victims of appraisal bias and discrimination in our country. the impact of development home in our country is par for. it can set back entire communities. the difference we experience in our appraisals wasas significan. it's the ability to pay for college, its financialty freedo, it's the foundation for
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generational wealth. it's the difference in the amount of interestit rate you py over the life of the loan, 30 years, that's a lot of money. this expense seems have an emotional toll on her family. thought the process with expense coverage of emotions. w initially we were relieved we got the value that we knew we deserve. then i w felt guilty that someoe stood in for me. that guilt later transition into outrage that we had to have someone step in force to to get a fair evaluation. there'sio also the heartbreak of explaining this ordeal to our h children.dr mom, why do have to take things out of my room? my most personal items. imagine having a conversation with your child. it's humiliating. the house is on the house. how the person occupying the house impact the value of the home? ultimately, the appraisal process is also a sign of value
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to us. what is a value of the owner? we continue to be disappointed in this process and with our experience. lastly, we believe all processed is too to arbitrary and too dependent on one person. there needs to be more oversight one the appraisal to get the information cracked, or more than one appraiser to conduct the analysis and value. there needs to be a streamlined, the need to be a streamlined process regarding the hope that doesn't issue just bias. the two appraisers respected our house one before we whitewashed it and went a after came up with entirely different comps and a difference the value of a half-million dollars. this. this should not bee possible. this suggests the processss is o subjective. we believe the lender should be required to tell consumers theya haveve the right to request an p if they're unhappy with their appraisal. additionally, every time someone
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gets an appraisal the shubin explanation both verbally and written about the options that the consumer has. so, for example, to file a claim with hud file a lawsuit, et cetera. consumer education is key and many meetings of platforms as possible. so libraries, lenders can social media and through traditional. thank you for your time.ou [applause] >> thank you, paula, and thank you. know what you have to go what you went through. next we have joined as remotely mr. fratantoni. you have before. >> thank you director martinez. thank you for the opportunity to present our thoughts on this important topic. thank you for the flexible to be able to dress you from san diego today where we're holding a conference. in my remarks to him going to
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focus on four issues related to this discussion. first out nba has responded to recent reports about appraisal second, operational aspects of appraisals within the mortgage process. third, the pr role of apms in addressing appraisal bias and finally our views on potential changes to the appraiser regulatory structure. nba's advocacy and support for expanding and diversifying the appraisal workforce such as the programs like prea predate policy focus on appraisal bias. moreover, in the past decade mba has delisted commitment to fair evaluation and revitalization of stress commences advocates to address the appraisal gap problem for neighborhoods in transition period and foreign reinvestment to the mba supported neighborhood homes investmente act. following the increased focus on appraisal bias, mba closely studied research from wide variety of industry academic and other researchers onie this topc
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and continue to advise its members a published reports regarding appraisal bias. there'ss clearly a need to continue efforts to track the performance of appraisals over time. mba applauds efforts of the paid task force and others to bring more data to bear on these questions and encourages appraisal calls reform within the government loan programs. to that end mba participate in focus groups organized to support drafting of the pave action plan. mba residential policy committees continue to work to provide detailed suggestions to agencies, investors and guarantors on policy changes that could expand and diversify the appraiser workforce, streamlined appraisal processes and reduceepp bias. i quit i wish and cell phones riskns management within the mortgage industry. mortgage lenders evaluate borrower eligibility based on an assessment of both credit risk and collateral risk. so understanding the market
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value of the collateral is essential to making and pricing a a mortgage. as emphasized in regulatory requirements, a proper evaluation conducted by a third-party whose payment is not determined by the successfull completion of a property sale or loan origination is an important safeguard for the system. the implementation of home value could conduct further insulated appraisers. this approach has worked well in terms of preventing overvaluation of property. however there was not until recently the same level of concern with respect to under evaluations. the concerns with respect to appraisal bias highlight symmetric risk that were not previously addressed in prior appraisal reforms. industry leaders agree adoption of technologies and hybrid strategies for evaluation could alleviate stress on the appraiser workforce and reduce individual appraiser bias. accessedor evaluation data wille key and fostering the
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development of new technologies available to appraisers and mortgage lenders. in the decade since the launch of uniform mortgage data program, the enterprises have invested tremendous resources in the collection and analysis of data, and lenders have invested similarly to comply with these new demands from the enterprises. the creation of the uniform collateral data portal and the uad are important achievements by fhfa and the enterprises do much of the approved collateral date have notve been made publiy available and maze accessible only to fhfa and enterprises. the limits on access to this collateral data are especially noteworthy as many industry participants along with standard-setting bodies have contributed to the collection and annulment of this higher quality data. broader a bit ability of these data hold the potential to improve risk management approaches, and hence forecasting tools and better determine how valuations differ across geographies and various
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borrower demographic factors. these expanded capability should be made available broadly to any interested stakeholders including public and private sector researchers. increased use of the technologies and more robust data sources including wider industry adoption of apms alsoer help combat bias in the appraisal process. apms are currently used to support valuations, and quality assurance review and originations and assist evaluation assessments during post origination processes. the real estate industry also has been moving towards greater use of digitalve mortgages which enable faster processing times and produce cost savings to consumers and investors. use of additional data and models like apms are paramount to successful limitation of these new technologies. the use of apms may not eliminate all elements of bias and valuation but it could improve upon the current system of potential reducing conscience
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and unconscious human bias which would be a welcome step forward as regulators and industry leaders continue to work to address systemic bias in thehe long term. mba understands the concerns regarding entrenched patterns of undervaluation and the perpetuation of valuationva disparities with any new technology or process. so this consideration reflects the need for proper safeguards as new technologies across advance. not a rejection of these processes are technologies. finally with respect to the current regular tree structure, mba support increasing appraiser accountability while maintaining appraiser independence. mba would support having state regulators strengthen oversight roles by holding appraisals accountable for the quality of the property valuations and any findings of bias. moreover, mba would support efforts to bring more independent oversight for appraisers. finally, mba applauds efforts to
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augment the oversight of appraisers but with highlight that some additional work is done and mba stands ready to help improve the proposed thank youou again for the opportunity to share our views on this important topic. >> thank you, mr. fratantoni. next we have mr. steinley. mr. steinley. >> thank you. good morning. thank you for the opportunity to testify at today's public hearing on appraisal bias. on half of the largest professional association of real estateal appraisers, the apprail institute, i welcome the opportunity to discuss this important issue andin share they impactful actions undertaken by the profession.ns in addition, i will highlight three suggestions for the agencies and the broader ecosystem, including the regulatory and enforcement communities and the real estate and mortgage finance sectors. .
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first, the member agencies of the appraisal subcommittee have key roles to play in addressing valuation bias as well as supervision and oversight. the identified the reconsideration of value or reconsideration of appraisal results as requiring guidance and consideration. all the attention to date has been on post appraisal delivery, appeals. when it shouldn't be instead on opportunities to address any deficiencies prior to completion of the appraisal. member agencies have opportunity to replicate the years and
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supporting veterans the tidewater protocol is a formal process for stakeholders to provide relative information for the appraiser. this type of interaction was what common and what the appraisal profession. but in time it has waned due to independence and concerns. this is an opportunity to establish a proconsumer benefit that virtually all stakeholder support. we believe the agencies should undertake a process similar to that used it to the interagency appraisal and evaluation guidelines focus on reconsideration on value process. this should start with installing a protocol throughout
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the agencies. once this has established they can turn too post appraisal appeal processes. they should apply the banking regular agencies, loan guarantee and the gse's. independence must be respected that it should provide clear ways provide relative additional information that may not be initially available to the appraiser. following a well-defined process should be a precondition for policies regarding the second appraisal. the appraisal institute has helped lead the appraisers, diversity initiative for adi. it industry collaboration between fannie mae, freddie. >> , the national urban league and the appraisal institute. promotes the appraisal profession to diverse communities. in addition from the appraisal
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is a 10x dictation and relief foundation adi has secured additional financial and in-kind support that has provided already over 400 comprehensive education scholarships to aspiring appraisers this includes chase bank help bolster the adi program career assessed assistance to adi scholarship winners. they continue to receive strong sponsorship for the racial and its community as evidenced by an announcement just this week from flagstar bank of a 1 million-dollar contribution to the adi program. we encourage the subcommittee to engage in grantmaking activity of appraiser diversity efforts such as adi the practical
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applications of real estate appraisal or korea. in the appraisal experience without the need for a supervisor help open the door to the next generation of appraisers but i believe to this be a real game changer. the appraisal profession to enhance education requirements on bias and warehousing. the appraisal institute support additional laws to qualify and continuing education specific to valuation bias in antidiscrimination. we are working hard rigorous bias and fair and fair housing trainingsi of y profession that is subject to those laws. further standardization is needed at the state level.
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to ensure that complaint alleging appraisal bias are investigated and adjudicated in a fair and equitable manner. as an example the texas appraisal licensing and certification board recently entered into an agreement with the texas workforce commission, which is the state agency charged with administering and enforcing fair housing and civil rights law. each agency performs functions that are part of their core expertise in collaboration to adjudicate the matter. looking ahead, as the agencies develop guidance for regulated financial institutions we cannot emphasize enough the importance of strong collateral valuation policies that encourage the hiring of qualified and professionally designator appraisers, such as those who
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earned the appraisal institute designations. e we also emphasize the need for creating and maintaining strong appraisal review functions. the two together can mitigate many appraisal quality concerns for the betterment of all parties. thank you to the subcommittee for hosting this forum, and i look forward to your questions. >> thank you, mr. steinley. [applause]in >> next, we will turn to the question portion of the hearing. each asc representative has ten minutes to ask questions. and we will begin with assistant secretary gordon. do you have questions? >> thank you so much for inviting me to participate in this very important hearing today. i want to thank the appraisal subcommittee, of course the cfpb especially for hosting. i want to thank secretary fudge not only for her inspiring leadership that i get to
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experience every day at the office, but for making this issue such an important part of our agenda and vision for hud under her leadership. and most especially i want to thank the witnesses. i have spent much more time in my career on your side of the table that on this side of the table, and i s know that you spd a lot of time in preparation and that it's very nerve-racking to be here, but it's unbelievably important for us and i'm very, very grateful. as a secretary fudge said earlier, hud is deeply committed to taking whatever action we can to eradicate bias from our appraisal system. to advance this work fhfa recently released a draft version of a reconsideration and value policy that is currently posted on her website for comment, and i encourage everybody to take a look at it.
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i have already heard and seen people who have suggestions. please write them to us. we will take them into account as we finalize the policy. the policy is intended to create a clear path for fha mortgage applicants to request that the appraised value of the property be reconsidered if they suspect bias, discrimination or another material deficiency in the appraisal. and while that has always been possible under our system, this is the first time we are establishing such clear procedures for it. . we also plan to help educate homebuyers about the ability to request reconsideration value by adding disclosure language of the homebuyer's copy the statement of appraised value. i know from the work i had sent in this field for many years before coming to hud i was at
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the national community stabilization trust where we worked on homes and a number of under value and under invested communities around the entire country. no appraisal bias can lead to a cycle of disinvestment and decline in communities. we know this type of bias can help perpetuate a residential segregation pattern that is linked not just with home values but with desperate outcomes in virtually every important area. whether health, education, environmental, public safety, et cetera. getting to the bottom of this, this is not just one little thing we might work on. this is really core everything
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we care about with respect to homeownership and the contribution it can both to families, individuals and communities. so i am going to start just by asking you a couple of yes/no questions raise this hand if the answer is yes. please raise your hand if you believe all appraisers have a responsibility to understand the history of racist policies and practices that underpin our current patterns of segregation? please raise your hand if you believe appraisal bias contributes to the wealth gap of black and white homeowners? please raise your hand if you believe increasing demographic diversity of the appraisal industry would help minimize the likelihood of appraisal bias? thank you.
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and i did hear your testimony. there are many other things we have to do too. i have watched over the years as so many parts of the home ownership have diversified and have made a significant difference. the appraisal industry is behind a lot of other components of this industry. so just to start with a question for you, and your written testimony and your oral testimony today, you highlighted how one of the ways you research this issue was looking aggregated part of the paved initiative fha has committed to sharing its appraisal data other government agencies so we can
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create a much more robust data set that way. i know the collection of data in this way has profound implications for the development of policies and processes. i am doing a research and policy development for years for example. i would like for you to discuss briefly the importance of public assets to appraisal data on government-backed loans for your research and for larger efforts to limit appraisal bias. >> thank you for that question. and to clarify from the laughter it's not that i think diversifying would hurt the industry, right? i think that is important and they are far behind the other pieces of industry practice think there are other things into simultaneously due to before. part of that as you say could be led through making sure there's more public access to that data. as you insinuated on i said
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today my oral testimony one critical piece of heaven day that came out was being able to use appraisers own reports. so while we had used qualitative interviews and observations market data we have never had a critique about the accuracy of that data there was the concern we were using proxies for the actual quantity of numbers because there is no public available other numbers. without a lot of test to make sure they're accurately got the actual numbers that enable us to be able to speak more broadly about the spirit more nuance understandings and more precise that could affect the actual implication of the solution. >> thank you so much. this is kate austin and mr. k. first thank you so much for your willingness to speak up and share your story with the world. you did such an excellent job of not just telling us the facts of what happened but how it affected you and your family.
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and as a parent myself i cannot imagine having to explain that to my child. and for that reason alone we all need to remain at really, really focus on what we are doing here today. i am grateful you were able to pursue the effort to seek a second appraisal. as we work on our policies to improve the ability of home buyers to weigh in on the process, do you have suggestions for us on particular resources we should be offering? or particular ways we should communicating and publicizing the information out there? >> so i like the idea of having a disclaimer in the appraisal like in the report. a process or explanation that
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the consumer has. we were not aware we had any recourse. so perhaps it is the lender's responsibility as well. maybe it needs to be heard multiple times we reiterated given issue or concern you can address it in these ways would be my recommendation. >> thank you so much. as we just heard, we heard appraisal bias and negatively affected the austin family. you mentioned in your testimony accurate evaluation of collateral is also important for a business perspective. in your view how does appraisal bias impact the ark at more generally? and in particular racial homeownership and wealth gaps? >> yes bird i mentioned we did a
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careful review of all the intensive studies that have been done and a space. i would categorize them into buckets. one is a question of our individual appraisers valuing properties differently based on the racial characteristics of the homeowners? a second group of studies look at our different parts of a metro area being based upon historical impacts, right lighting, segregation ongoing difficulties? those two questions need to be addressed differently i think with respect to the first the issue is around increasing the diversity of the appraisal workforce. some of the checks that can be put in the process with respect to where the value is compared to an alternative evaluation approach, again that's a symmetric approach for under and over evaluation. the second question this certainly gets to different
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parts of a metro area being valued very differently. i think that gets to a bigger picture policy questions beyond the mortgage and financing. >> thank you so much. my time is up i really appreciate everyone being here today. >> director thompson? quick sure, good morning everyone. thank you for the opportunity to be here but like to think the director for hosting today's hearing. as well as the panelists and witnesses for sharing their perspectives on this very important issue. addressing appraisal bias is something we have prioritized. we've all heard the anecdotes that we have read too many stories from courageous homeowners like the austin's. we now have the data and research to show these are not rare occurrences. but the fact of the matter is they are persistent gaps in
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communities of color. just last october published a new appraisal data set that is available on our website. we believe providing public access to a broad set of data points, using over 47 million appraisal records collected over the past decade can help identify trends in home evaluations and can help detect some of the root causes of appraisal bias. our own research using this data shows communities of color consistently face higher rates of under evaluation. indeed the proportion of properties that are undervalued and high minority census attracts a 74% greater then the proportion and nonminority tracks. in minority tracks for comparable proportion of under evaluation is 43% greater then and nonminority tracks.
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has also begun sharing its expensive appraisal data with hud, see if pd and the department of justice to ensure we can hold bad actors accountable are biased appraisals. we are also pursuing initiatives that address current appraiser qualification requirements for the task force which is led by hud secretary fudge and ambassador rice. since 2018, fannie mae and freddie. >> have partnered to advance the appraiser diversity initiative which seeks to attract new entrants and foster diversity and the appraisal profession through outreach, scholarships, and mentor ships. i believe we heard earlier today this program has awarded more than 400 scholarships to diverse individuals and gained 17 sponsors.
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while we have made some strides in this endeavor we still have a long way to go. we should all commit to action when it comes to this issue. our role whether we are working in or with the federal government or industry is to ensure the housing market works for everyone and everyone means all, not son. guaranteeing an efficient equitable evaluation that eliminates appraisal bias is one important way to achieve that objective. this is why events like such as today's hearing are so critical. it shows a coming together of stakeholders to address this very significant issue. i appreciate everyone for being here today to share ideas on how we can implement a second solution to address appraisal bias. and i do want everyone to understand the issue is not higher values, it is fair
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values. we want to make sure that takes place across the board. did want to highlight something mrs. tate austin said. it was something that we and our review of some of the language that is on the millions of appraisals that we have, we did find some concerning language similar to what you reference. we had one appraiser described a neighborhood as working-class and black. another described a neighborhood of immigrants as one spicy neighborhood. several repair users record of the demographics of the neighborhood within appraisal one noting an area had a black race population above the state average. these are the things we really need to bring to the forefront. these are real issues. this is a real issue for so many
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people across this country. and again we want to make sure everyone has the same access to equity and housing in particular. it is the biggest contributor to wealth for many families across america. so, i actually want to start by acknowledging the austin's for being here today. it takes a lot of courage to come across the country and be so public about this very important issue. we really appreciate your willingness to share your experience. it is not the most pleasant experience but we really do value and appreciate your time. and thank you. i did want to ask, i have a list of questions here. and also to mike from the nba, f hsa has released data probe are
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trying to release more data. i've heard two issues come up. one for increased access and two, i guess my question to you would be other other data elements based on the data we have published, are there additional data elements we can share to be helpful with this issue? >> thank you for that question in all of your work at f hfa to make this. it's two different areas answer that question. maybe those who are less familiar with the date it's coming in and individual reports of individual properties. but information has agreed the
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public properties is level data aggregated data. i'll let different variables that could increase our understanding. the mean distance that comps are pulled from the property not release the first release about the comp and the properties that were not released how many bedrooms, bathrooms, square footage would not violate any current standards of how that was being dealt with. it would increase our understanding. thank you. additional data? >> verso completely greedy with the major steps is remove
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subjectivity from process database objective metrics. really moves in place you can flag it under evaluation fly got over under rich core data everyone has access too. our request is to again open the curtains on more data that that access to historically to allow lenders and appraisers themselves in the companies the same level of data as mr. stanley was saying there evaluation is far off the market either above or below. did the same check built in the senate after the fact correction that needs to be made. looks i did want to acknowledge the reference to the consumer or borrower awareness of the reconsideration of value.
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it's something many people don't know about the appraisal process. just had a couple questions for you mr. steinle. i noticed in your written testimony you were not necessarily in favor, i guess my question would be a little different. how can the sales comparison approach become more equitable from your perspective?
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the instances that we are reading about our best corrected with the use of a well-trained and highly qualified appraiser that is geographically confident in the area that theyeo serve. i am a practitioner. i don't regard my values as subjective as long as i support the information in the adjustments i'm making with actual data from the market. i don't make the market but i read the market. and for me trying to determine what the market value of a property is without lookingrt at sales nearby, would be very
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difficult. there are other values appraisers can provide to a lender in a transaction. an appraiser could certainly be asked to provide a restorative market value, a concept we've seen talked about in the press and a through the doctor perry's research as well as the brookings institute challenge grant where we ask ourselves what would the value be it wasn't vocationally anchored to its current spot? that gets around some of the issues that have arisen. that's not the same as market value but it m is a value that a competent and trained appraiser could provide. a and then through fiscal and policy direction of the agencies, that difference between market value and some restorative market value based on what it might have been if
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not for historical events, that difference, that gap could be helped with the efforts of you all. that something occ operational reach is looking at. we really commend them for the work. >> how does that address the situation that the austin's experience, like same house but different values? the only thing that changed was the resident or the occupants i should say for the valuations. how would that approach impact that particular situation or the one secretary fudge mentioned in her opening remarks? she lives two doors down and she says her house was is bettem sure it is come those types of issues.s i raise it because i i really would like you to respond to the question, but i also wanted to know, we believe an appraiser
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independence. that is highly valued. how do you address these types of issues and still maintain appraiser independence without the inference that looking for higher values? it's not higher values, it's a fair process, it's fair,, fairness and evaluation, unbiased valuations. so just trying to take the recommendation you just mentioned and applied to these issues that are before us today. >> thank you again for the question. i can't tell you how difficult it is to hear the story of the tate-austins. when we are of even one family that is had to go through really the dehumanizing effect of what they described, it's extremely difficult because it's antithetical to what appraisers stand for. appraisers by definition are competent individuals who are independent, impartial and objective.
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and bias is something that precludes the ability to be independent, impartial or objective. so they're completely opposite of each other. i did notice of specifics of the case. what i can say for sure is we believe that continued education which we are stressing with come supporting the appraisal foundation as it iss bringing forth additional requirements for forfo housing and for anti-discrimination training can help interrupt that unconscious bias that may be present in some individuals. i truly believe that if we allow the profession to diversify, and as you know we're making great strides with prea -- >> we're out of time>> and will move on to the next questioner. >> thank you. thank you for thet question.
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>> deputy director? >> thank you so much. and thank you to all of our witnesses today. it has been interesting to read your testimony, to hear from you, and appreciate the time you have given us. mr. steinley, i do have a quick question for you that will kind of follow up on some of what is already been o addressed. i was struck when ms. tate-austin said it should be about the value of the house and not the people that are living in it. it's the value of the structure. you've offered an idea that to the typeilar order plan where the appraisal would have an ability i believe to gets input before they make their final decision so that instead of needing reconsideration of value after the appraisal is issued, there could be more i suppose interaction prior to the appraisal being issued. what type of information or how will that information remain
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about the structure and not about the people in it for the lifestyle that they have? because it is about the structure. do youru y have any thoughts on that? >> yes, i do, thankt? you. appraisers to appraise property. they don't appraise owners. there's certainly no doubt about that. i heard ms. tate-austin describe the fact that she really didn't know what her remedies were when she felt the weight of the circumstances she described. that's why we're advocating for the member agencies almost like a 2023 moonshot project to take on this reconsideration of value across the agencies. we are appreciative of the v.a. taking steps to do that and fha with the recent announcement but you see we have a little bit of disparity in terms of internet having fha or va financing, you have the same reconsideration
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about you? either practitioner. when someone has an issue with an appraisal i want to hear from them about that but there's a standardized way right now across all of the lenders,, secondary market, et cetera to provide the input. so the tidewater initiative allows interaction upfront. i am at the a a appraiser. it's a beautiful process where we provide the lender with an early look before you were finished at the appraisal. if there's additional information that needs to be provided, we are provided that. there's also a post appraisal appeal process and then where homeowners havepp the opportuniy to object the things that they see. no home owner like. the tate-austins should go into the home borrowing arena without knowing there's a reconsideration of value or a reconsideration of the appraisal
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results process that both looks before the appraisal is turned in and then after it is. >> thank you. the other information i was struck with was when dr. howell talked about her research at her initial steps of research that we're all going to the appraisal process thinking the value of your house is based on where it's located, what it is around, with the comparables are, how it fits into the neighborhood. but then i've also heard comment and testimony that the sales comparison method is not necessarily the fairest method, or when you can pick which comparables you use. that may not come to a fair and equitable appraisal. so mr. fratantoni, i would like to pose this question to you. what if we did use the sales comparison approach to value? if if it was no longer consided reliable or the government
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agencies and entities no longer use that as the basis for what we're than thet on, what do you think the impact would be on the mortgage market, the mortgage lending, and the wealth that we're seeing in this country? what kind of impact do you think changing the approach we use would have predominantly in the mortgage market? >> well, that would be an extraordinary significant change. as you. know the three typical approaches are the sales comparisonhe approach, the cost approach, what it would i cost o rebuild the property from scratch, and then an income approach were typically used in the commercial space of how much income is probably going to produce and then use i cap rate to turn it into a value. in the residential housing space come sales comparison approach is by far the most widely used. i think the effort in our mind really is making sure it is being done with high quality
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data being done without a real subjective use of which properties to include as comparisons. and again moved to the most objective data centered approach that we can. if you look at abms, that the stench of what they're doing as well. they are essentially conducting an automated version of of te sales conversion approaches and many more properties, not justn limiting it to a handful that are close to subject property. i don't know it would make sense to move away from the sales comparison approach, given the challenges, but there are ways to improve it and to reduce the potential for any biashe enterig the process. >> thank you. i have one last question and this is for dr. howell. based on research you have done the work you have done, do you believe the standards that we're using to do appraisals
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today are perpetuating the bias, or do you think we're moving away from that and moving to where the historical bias in the home t ownership process is no longer prevalent? >> i believe we are perpetuating and getting worse. to clarify something i heard some rise back to me and other witnesses here today, often this is veryy common in u.s. would like to believe no matter what went back in history are the racial inequality is behind us. if you study the time after the civil war, this is the discourse happening. if you study the time in the '60s a and 70s this is a discourse happening. it is still the discourse happening is a lot easier to believe the problems are behind us. what i was trying to discuss this morning and what i could outlined particularly in our 2021 social problems social problems speech is weia expliciy model how the direct influence of past historical practices,,, particularly those in real estate market are influencing contemporary values. and yes, there isnt role. i wouldn't be a sociologist who
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studied history and all these things if i ignore that and the empirical data proves that. all of our estimates are sharing earlier holding that constant. this discourse slip wese make in the language of insinuating that it is because of past processes is that empiricallypa bearing ot in the data. we're contemporarily making this problem worse and i would argue as acip earlier a huge piece of this is sales comparison approach. >> thank you. i yield my s time. >> associate director brown. >> thank you, chair martinez. i would like to join in thanking our witnesses today for joining us to participate in this importants hearing, and help us focus on the challenges facing people of color. i kick you want to thank the austin's as well for joining us. i mentioned a few minutes ago to them that i read about their lasttion in the paper year. and the judge member shaking my
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head. i think it's truly generous for you to join us here and share your story and help contribute to solving the problem of really -- i'm really impressed with what you all have done with what you faced, and can't imagine how frustrating that was. i also mentioned to the austin's that i remember seeing the photographs of what a beautiful area, and to be tainted by discounted issues is really concerned and freshening so thank you again for joining us in helping the appraisal subcommittee explore ways to prevent and eliminatet bias. let me turn to my questions. if i may, mr. steinley, i would like to start with you. from your bio i understand that you own an appraisal company in south dakota, is that true? >> yes. >> actually helpful to your perspective, i know you describe yourself as a practitioner.
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can you walk us through briefly the steps that an individual must take to become an appraiser? >> thank you. yes, i am a practicing appraiser. i have trained for individuals into the practice desha four individuals. they areet all female. i still get to work within. i long ago quit saying to work for me becausese everybody knows better. they are certainly better appraiser that i am. in order to become practitioners they had to undergo a series of education, qualifying education. they had to gather their experience from working on appraisals with me as their supervisor. they had to sit for the national exam. and, of course, in order to qualify for the level of licensing that they wanted, two of the fourgi head have a collee degree to begin with. it's been a rewarding experience and i think the process helps to train them in the way in which
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appraisers ideally are supposed to operate. >> are there barriers to entry into the industry that you think need to be addressed? >> yes, and we had been advancing and amplifying efforts for several years. i mentioned, as was mentioned in the paper report, the action plan, the diversity initiative which was also mentioned by director brown. i am extremely pleased, , i admt many of the scholarship winners who, because of their location, because of the nature of not having a supervisor in any way to work, they have sadly been granted access to the profession. i live in a rural state. there are a number of areas where appraisers are not practicing, so there's no one there to train you in the traditional supervisor training model. we have a lot of tribal lands, and to give individuals who want
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to appraise on tribal land don't have anyone who can supervise them. so through the appraisal diversityso initiative which is scholarship in the education and materials to those individuals, and prea which allows them to gain the experience component in an automated simulated andnd virtual way, kind of like -- >> i'm sorry to break in. that's over. i read your testimony by the would really be helpfulul for i think the sc to understand better what appraisal barriers are specifically. i know you talked about rural areas and that's understandable, but could you walk to some of the very specific barriers that i thinknk would really be helpfl for us to understand that there. >> thank you, and that is of the barrier i was getting too. the barrier is a one model that thee qualifications allowed for an appraiser to enter the profession was a t traditional supervisor training model. ..
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foundation about allowing an alternative to that one way into the profession experience model and that is what i was leading to is the availability of korea to take cap scale several hundred people at once and provided them their experience and open the doorway to the korea will be of money later than september of this year. uni'm excited about the way in which the pre-interest in korea, we know we will have lots of people and many of them can use resources of the subcommittee to help them take advantage of the korea, particularly a i korea we will be launching. >> that's very helpful, can you talk about what role the states play in the process? >> in the process of appraiser
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entry into the profession? >> yes. >> state regulators are involved in judging whether individual has met the qualifications established nationally by the appraisal foundation through qualifications so the state will judge whether they have proper qualifying education, whether they have proper experience, whether they have the needed degree if necessary and supervise taking of the national exam. the state will alsoti judge the work they are providing, the appraisal report to make sure they comply with ethical and practitioner standards known as uniform standards. that's the state rule, to make sure requirements are met by each individual. >> thank you. do you have suggestions in terms of how it can be more helpful in
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thero process in terms of entry into the industry. >> we have been fortunate we originally had just a handful of states that were going to walk in korea with open arms but your hearing 40 ofof the states that will accept korea experience component. the does not require a supervisor, it is a mentor program with real estate professionals but it's not the alsame as of old traditional supervisors the states that have not accepted korea, ask them in your help to make sure they will do that. korea is the game changer i mentioned in my oral testimony. >> are there any cost associated with entering into becoming an appraiser? >> also qualifying education to meet that. >> what the average cost?
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>> rough numbers i would say about $2000. >> do you know the basis of the number? >> the courses are priced according to the length of the courses what the market will bear. there's some disparity among providers whether they price their offering the qualifying education is the first expense, as an expense of the national exam and certainly expenses in the experience component whether traditional appraiser relationship or through korea. >> thank you very much. i'm not sure on time but one other question -- four minutes. okay. hearing the story, consumer
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complaints are incredibly important. have you thought about the state process and how complaints can bes addressed is an issue is identified by the consumer? >> the first thing i mentioned, reconsideration value process, consumers need to understand that. it needs to be made more uniform. some agencies -- lenders don't even have this process so that's the first thing that should be done. on the stateside as i mentioned in my oral testimony, states and regulators are not adjudicating complaints involving housing or implicit bias so you've been asking dates to make sure they have adequate expertise to another part of the complaint to make sure that's adjudicated
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fairly and effectively so appraisers need additional training the additional help in the areas of escrow nation -- anti- disco nation andmi fair housing against the. >> thank you. >> we are out of time. >> thank you very much, i appreciate it. >> associate director william. >> thank you for holding this hearing especially our witnesses for your time and travel and sharing your experiences with us i want to touch on a topic some other folks have talked about, the new uniform approval database and access to the huge 47 million record plus, the data
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that has an opportunity to be a game changer for this work from a variety of successes. we have heard perspectives but i was interested in hearing the banking representative how the data could be used in the review process necessary and looking at issues whether the appraised value is there, fair and accurate incredible. the data set could be used in improvements or check when the banks review them all. >> your question to the -- lucas. >> thank you, i wanted to be sure about that.? as a highlighted in my comments,
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historically so much of the concern was over evaluation so the automatic underwriting systems could have a warning flare and send a message the submitted value out of line compared to the automated process in terms of value but until quite recently there wasn't a similar message compared to what their assessment was we think they now provide messaging, it is very helpful, heads of the lender perhaps a reconsideration is required and a tighter level of quality control around that particular appraisal. with respect to data released so
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far, anderson a fairly aggregate level, not something that could be readily plugged into other evaluation models and tools that can be used to provide quality control so i think it is a step in the right direction but more is still needed. >> thank you. a similar question from your perspective as an academic, i know you k don't some work with the initial data is there anything in the published materials, a deeper dive on a more medical basis data sets looking at neighborhoods, a more detailed basis than the state level, is there additional researcher looking at in data?
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>> there are a couple things and considering looking at but i know they are hoping to continue releasing on a semi regular basis and more valuables and i think i would be most helpful for what i am concerned about for a fair evaluation and anytime we talk about data, what i do is what i live is what i brief that we come to data with biases and we construct models of those so we can have all the data in the world every single appraisal for the last 200 years and if we are still doing the same assumptions we are going to perpetuate the same problems but
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they've made the data available and partnering to make a budget available i honestly think i am a scholar and researcher, that's not the most important thing here. a shift in fundamental understanding how we think about evaluating property and ensuring how we use the data and resources to get us to a fair evaluation. >> thank you. from a consumer perspective, he talked about the need for additional awareness in the process for being able to evaluate appraised value, is there anything else that you can think of, i think many of us work with data and mortgage information all the time and even so, as a homeowner i would be challenged taking an initial
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look at what's currently out there and support your own case and the accuracy. you have additional thoughts about tools and what could be developed for consumer use may be based on or relying on the data for the first timeai available useful to consumers and basically supporting the initial thought looking atpo appraisal and coming up with values you know based on your knowledge of the market, may be something that we a tool accessible? >> that's pretty challenging on multiple levels. one because you have to be privy to the information so how do you
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get the h information? we live in a small community even though we have the information we still got low appraisal. i would needd some time to thik about that, but the possibility was great having access to information available for folks and they can get at libraries and etc. is one way but i do want to say after listening to testimonies, i think i would add maybe we need to look at the drawing board for how their educated as a way to move the needle because the data is just as good as i you come in so the data perpetuating bias and we will get that information out so i will think a bit more on your
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first question. >> certainly come out in the hearing and with all the other work it's a complex issue there are different pieces to the puzzle. we want to know about potential tools or education orl things especially consumer focused that would help the overall process, fair and accurate incredible. >> thank you. next, deputy associate director -- sorry deputy controller thomas. >> thanks. i'd like to thank everyone, the witnesses and staff and board members for bringing together
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the first public hearing on such an important topic here. the subject of appraisal bias and racial inequity are important topics and once we are hearing or occur more frequently in the making industry and funding process. racial and crisis have no place for the overall layout. the occ along with bankers and other federal governments have been on several initiatives, one was a pay and second was our own internal which was budget breach which stands for economic access to change to try to address some of the issues within homeownership t areas from appraisals and reconsideration of value. our project work stream, homeownership work stream is intended to help expand
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homeownership opportunities for minorities and low to moderate income areas to help the racial wealth gap. as an agency, we are committed to using our supervisory authority to advance racial consistent with the missionra of our agency and assuring reclaiming institutions provide their access to financial services treat customers -- consumers barely in the process. i have a couple questions and some will piggyback off previous questions i might panel members for the first one is more of a yes, no question. listening to the story, i remember the story because i remember december 21 in the washington post and i read that story seemed to be a story coming up more frequently as we look across the country but every witnesses opinion, do you feel appraisal bias is becoming a national issue?
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>> i don't think now, i think it's been since european settlers landed on the continent. >> okay. [laughter] thank you. i want to touch -- he brought up the transparency and reconsideration of value process. i know in many cases most individuals do not know there is an option to do that. i'd like to ask you, do you think regulation should be admitted to require things to bash transparently indicate that there is reconsideration of value process, too, retract the information t and the results, o think regulation should be implemented? >> yes, absolutely it should.
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want to get to where accountability is also put in to help bias from showing up. if it does, the people perpetuating thesear differences will be held accountable. right now they are not being held accountable. >> thank you. have a question piggybacking off abm statement you made. when we look at the lending process is becoming more frequent and other technologies introduced into the process are frequently now what was mentioned earlier, how to become up mendicants with the use of technology to reduce appraisal
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bias and particularly thehe data coming i from sales comps whiche are now discussing has some subjectivity to it and may not be what wee call clean data really important question. as i said they are primarily used as a quality control mission and when applications are submitted to theic surprise, it's like. initially an over evaluation and now under evaluation flag as well. from the lender's view, the challengesso what to do when you receive the under evaluation flag and in many cases more natural, they have quality control, the comps chosen, are they appropriate, was conducted according to the regulations include procedure?
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i don't think -- i would caution against being over great concern about the move toward technology livingng because we are so concerned about the role of conscious and unconscious bias, certainly data can embed past practices but i think we're moving in a better direction, data center objection approach. >> i had one question, as we look q at the landing process, e there other vigils within the process we should be scrutinizing? >> thank you for that question. this process is never just one individual, that's the beauty and struggle trying to create change with ability, we talked about the banking system and real estate and etc. the thing, there many levels
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here so even the credit people can haveca access to perpetuatig these issues over time that something looked at in various ways. we know there is an extraordinary amount ofno racial bias within the agents profession and how they use pocket sales. research even more than i have on that side it covers multiple actors in the industry and how they contribute but even just appraisers, it's important to recognize not just appraiser comes to how the real estate agent conducted their own appraisal and the comparison approach to figure out what they will list theey property with in the abm, it's a multipronged process that we need to not focus on what industry but we need to focus on the method and
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process and informing it. for beingou everyone here and. it's terrific to host people here. i want to thank everyone who is participating in today's hearing. one of the appraisal subcommittee statutory responsibility is to hold hearings and are doing a. let me start by getting us a line hopefully on what our objective is. i reflect a lot on how regulators and the industry both fell short when it comes to the financial crisis. i think? the incentives around over
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evaluation and over evaluation can be a real big problem. we are talking today about undervaluation also being a big problem so i'll start with mr. tony would you agree or disagree our locator ista accurate? >> one 100% agree. as i mentioned in my testimony, you don't want to go to hide because it introduces credit risk into the system, you don't want to go to low, the unfairness so completely agree. >> any disagreement from anyone in the group -- >> i also hear a lot that that there is human rise and maybe
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less automated and the bias goes away, i think there's significant issues but also across the board that we can often take the bias just by automating everything and relying on an algorithm. doctor, would you agree or disagree with that? >> i would reframe that slightly and say primarily used are ones based on very bias system and perpetuating it to i would agree it is helpful to include technological tools -- may i clarify slightly about what i think we are talking about today? i disagree we are only talking about undervaluation, i agree with what i understood director thompson -- fairness. i'm careful to never say the word appraisal bias because that's insinuating there's a
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known accurate or fair valuation and we need to get that but if we assume the values in white neighborhoods are normalized and if we look at historical perspectives, white values are the ones suitably over evaluation -- evaluated and even if we take in the 2008 financial crisis into consideration, more research has come up that initially as we historically do in our nation, we pointed to those most marginalized but as we look at it, that's not where the fault was in over evaluation of white communities and that's what p we have seen in the pandemic, where the technology models have skyrocketed and we have seen this inequality in most is because of white communities so if we keep saying that's bias, we are assuming our insystem is getting neutrality d it's not so until we redefined was accurate evaluation would be
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and take it away w from racialid historical system, who will not have a conversation about accuracy. >> it's also very hard to snap a finger and make it neutral. there's so much baked into the system and i raise it mostly because i don't think there's any one thing is going to change this. there's a lot of solutions but i think part of the reason for having the hearing is underscore with the regulatory structure we have. what the system? i want to ask a little bit about, it spent mentioned in the testimonies, it's been mentioned here today, the appraisal foundation. let me ask, is the appraisal foundation something appraisers and individual appraisers closely follow? >> in q4 posting in your
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beautiful buildingr today. appraisal foundation is followed by appraisers because they control the qualifications and standards appraisers must look at so there's a lot of interaction between appraisers and the foundation. >> the nation, essentially standards are not recommendations, they are requirements and might set a four-part how rules get admitted across the country, is that there? >> that's exactly right. it implements minimum qualifications and standards and up to the states toit enforce those. some states go a little higher than minimum but it's the states that do that. >> to individual appraisers, do they pay fees to the appraisal foundation? >> they do not. the foundation is not a membership organization of
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individuals, we do by standards materials from the foundation. >> meaning appraisers? appraisers these are the standards, the rules and in your testimony is says you think the appraisal subcommittee should encourage the appraisal foundation to do things so the regulators cannot require the foundation to do that, is that yourur understanding? >> i'm not an attorney, i'm not sure what you have. i do know director often is quoted as saying has the ability to monitor what the foundation is doing but that's with the authority stops at. >> still the foundation has the rule writing responsibilities,
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requirements that goes through the entire system and the appraisers and these, we've heard from appraisers ass well. you mentioned a membership organization, does the appraisal institute pay the appraisal foundation for anything? sponsorships? >> we pay for the right tosh reproduce standards, ethical standards can provide to our members. i don't have the financial details. >> is the appraisal institute have any role in the governance of the organization, any role on board, counsel? >> the appraisal institute is a sponsor of the appraisal foundation, original sponsor and as a result we do have a
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representative on their board of trustees selected by the appraisal institute. >> so i understand, the appraisal institute pays the appraisal foundation sponsorship and has a board seat, does the appraisal foundation give funds to the appraisalai institute? >> the appraisal foundation the pathways to success grant recently incentivized providers to bring korea to the market sooner to open the doors to the appraisal profession. >> so they give you funds for that purpose. >> we work the grant winner in that process of half million dollars. >> appraisers pay the appraisal foundation. the appraisal institute
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appraisal foundation they have to do your own thing you realize you're not a lawyer, your testimony suggests we have limited abilities we can recommend things to the appraisal foundation. i guess i t just want to ask others on the panel, does this arrangement seem weird? >> by definition of -- there's not a single other regulatory structure like this in the country and maybe even in the world so by the definition of the word weird, yes. if you are insinuating is there a moral problem to it? i would suggest you needs to be a different structure that increases accountability and i know the housing alliance mentioned earlier has looked at
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this more extensively. >> as he mentioned my testimony, it would lead to more independent oversight of appraisers so i can steer question i think. >> i guess i raise it because i think not letting people really understand how the system works and think it is something we need to think about, whether it is appropriate for this type of structure and for there to be payments including related to governance, it raises a lot of questions for the subcommittee, the regulators potentially future hearings. >> thank you. i'm going to close our hearing
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and on behalf of the board i want tobo thank agency staff who helped plan and facilitate the hearing. a special thank you to secretary budget and all representativesan here today and outstanding witnesses. as a reminder we will accept comments from the public on topics discussed today until february 8, 2023. you can submit a complaint or a comment e-mailing appraisal bias hearing and and find a recording of today's hearing consumer that concludes today's hearing. thanks to everyone who came to the headquarters or tooted by lifestream. have a great afternoon, and out
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