In June 2021, the Biden Administration announced it had created the Interagency Task Force on Property Appraisal and Valuation Equity (PAVE) to develop actions to reduce ethnic and racial bias in home valuations.
The White House reports that the PAVE Action Plan is a wide-ranging set of reforms that will improve equity in the home appraisal business.
Why PAVE Matters
A home appraisal is a vital part of the lending and homebuying process. The idea is to offer a fair and objective estimate of a home’s market value so that the lender can properly evaluate financial risk.
Homeownership is the major contributor to building of wealth for all Americans. It also holds plenty of promise for building housing stability and multigenerational wealth for households of color.
However, bias in the home valuation process can reduce the ability of black and brown families to enjoy the financial prosperity that owning a home brings. This problem leads to an even larger racial wealth gap.
It’s estimated that the median white household has eight times as much wealth as the typical black family, and five times the wealth of the typical Hispanic family. It is believed that eliminating racial disparities in the amount of money families gain from owning homes would reduce the wealth gap by 15% or more between white and black families and up to 40% between Hispanic and white families.
Since this Task Force was started, there have been reports of black families getting higher home appraisals after they took down family pictures and putting white family pictures on the home.
New sociological research suggests that undervaluing homes of people of color can be a huge problem across America. For example, a recent Freddie Mac report found that home appraisals in mostly black and Hispanic areas were almost twice as likely to result in a price below market value.
A recent report from Fannie Mae of refinance applications found that homes owned by whites are more likely than homes owned by blacks to be at appraised at amounts that are over algorithmic predictions.
Some of the key parts of the PAVE Action Plan include:
Boost Appraisal Industry Accountability
According to the White House, The PAVE Action Plan contains details that increase accountability and oversight of the home appraisal industry, which is typically self-regulated and not effective at addressing inequity.
The plan requires federal government agencies to devise a proposal to modernize the home appraisal industry. It is hoped that this will enhance coordination and collaboration between enforcement agencies and to address possible discrimination in home appraisals.
Give Consumers Assistance And Information
The PAVE Action Plan also has several steps to help homebuyers and homeowners to take action when they think that their valuation is lower than it should be. For instance, federal agencies will provide guidance and offer new policies to help homeowners and buyers more easily request a re-valuation.
Avoid Algorithmic Bias In Valuations
Federal agencies that oversee mortgage financing are committed to have a nondiscrimination QC standard as part of a proposed rule that sets QC standards on Automated Valuation Models or AVMs. The purpose is to ensure that AVMs aren’t relying on discriminatory data that could copy discrimination that happened in the past.
Ensure Appraiser Profession Is Well-Trained And Looks Like America
The Bureau of Labor Statistics reports that the appraiser profession is almost all white, so it’s one of the least diverse occupations in the United States.
The Action Plan has several steps to remove experience and educational requirements that make it harder for minorities to access the appraisal profession. The plan also improves anti-bias, fair housing and fair lending education for practicing appraisers. PAVE is not some new type of a home equity loan.
Use Federal Data And Expertise To Affect Policy, Practice, and Research On Bias In The Appraisal Industry
There will be an aggregated databased developed of federal appraisal data to study, understand, and address bias in the appraisal industry. Stakeholders also will develop an agenda that studies appraisal bias.
The White House reports that the PAVE Task Force is making progress and has an ongoing commitment to its cause. There are several possible policy efforts that could make a huge difference in fair and accurate home valuations for all types of communities in the US.
The Task Force’s work will continue to advance the equity cause in home appraisals and will look for more chances to work with mortgage lenders and other stakeholders to deal with the issue.
Opposing Views On PAVE Action Plan Conclusions And Programs
The American Enterprise Institute (AEI) has released research that contradicts many of the PAVE plan’s conclusions and proposed actions.
For example, the studies that PAVE stakeholders use to allegedly spot racial bias aren’t based on rigorous data analysis, AIE argues. The organization contends that the White House is confusing race with socio-economic status (SES).
AIE states that when there is an adjustment for SES (income, buying power, credit scores, and marital status), the race-based gaps mostly or entirely disappear.
Also, AIE contends that similar gaps exist in mostly white areas when different SESs are accounted for. This, AEI argues, raises questions about assuming racism is at the bottom of home appraisal differences.
However, many lending stakeholders are onboard with PAVE. The Mortgage Bankers Association (MBA) has come out in favor of the PAVE effort. It noted that MBA and its mortgage lending members have strived to improve the appraisal process for years. It added that it appreciates the work PAVE is doing to deal with inequitable property valuations.
The PAVE Action Plan will make substantial changes to the appraisal industry, and this will eventually affect home lending, as well. While there is some disagreement as to the scope of the problems and proposed solutions, the PAVE Action Plan will be changing the mortgage industry for the foreseeable future.
Mortgage lenders can get ahead of the game by striving harder than ever to ensure that all home buyers and sellers have the same access to mortgage lending services, regardless of background and ethnicity.