When borrowers suspect racial bias in an appraisal, the U.S. Department of Housing and Urban Development (HUD) has been developing a procedure to request a review from the Federal Housing Administration (FHA).
HUD Secretary Marcia L. Fudge said at the Brookings Institute that home valuations must be unbiased so that everyone can reap the benefits of wealth – including intergenerational wealth – associated with homeownership.
To combat inequality in appraisals, Fudge has been leading an interagency task force established by the Biden administration since June 2021. As part of their action plan, the group proposed a number of reforms to the home appraisal process aimed at achieving equity.
A new appraisal review process by HUD appears to be a part of the Reconsideration of Value (ROV) policy, which requires lenders to follow the policy when borrowers claim unlawful discrimination in the valuation of residential property.
In the case of FHA mortgage financing, lenders will be provided with clear guidelines on how to review the borrower’s request for a value reconsideration.
When material deficiencies are documented in a property valuation report, such as violations of Fair Housing, and the appraiser is unwilling to correct them, lenders will receive guidance on obtaining a second appraisal.
Several recent studies have found a connection between appraisals and the widening gap in home values between minority neighborhoods and their white counterparts. Furthermore, over the past year, new cases regarding racial bias in appraisals have emerged.
An August 2022 lawsuit was filed by a Maryland couple against appraisal firm 20/20 Valuations, its appraiser, and loanDepot — their mortgage lender. They noticed that their home has a lower appraisal value compared to when they removed indications that a Black family lived there a few months later.