The CFPB published a blog discussing a few key takeaways from a series of public hearings addressing appraisal bias.

For background, the Federal Financial Institution Examination Council’s (FFIEC’s) Appraisal Subcommittee (ASC) has held four public hearings throughout 2023-2024 to facilitate discussions regarding bias and lack of diversity within the appraisal business. The hearings were held on January 24, 2023, May 19, 2023, November 1, 2023, and February 13, 2024.

Witnesses for the hearings included representatives from the FFIEC’s member agencies, professional appraisers, non-profit groups and housing advocates, trade associations, Freddie Mac and Fannie Mae, and leaders in the appraisal industry, including The Appraisal Foundation, the Appraisal Institute, the Appraiser Qualifications Board, and the Appraisal Standards Board. Throughout each of the hearings, witnesses provided testimony on the impact of appraisal bias and historic discrimination on minority communities, the difficulties faced by minorities attempting to enter the appraiser profession, the challenges faced by appraisers in determining home values, and the ways in which these things affect the housing market at large. The hearing discussions have also focused on the structure of the appraisal industry, regulatory uncertainty within the industry, and how this structure can allow bias to enter and be compounded within the industry.

The CFPB, in its recent blog post, discussed the operating structure and, in its view, the deficiencies of The Appraisal Foundation (“Foundation”). The blog explains that the ASC has been tasked with reviewing and monitoring appraisal industry practices, including review of the Foundation’s procedures and organizational structure. According to the CFPB, the Foundation’s structure has made it hard for appraisers to meet the needs of the housing market and address appraisal bias.

The blog provides a high level summary of comments submitted by Director Chopra to the ASC regarding oversight of the Foundation. First, the comments describe the structure of the Foundation, which sets qualifications for becoming an appraiser as well as standards for conducting appraisals. Director Chopra advises that the Foundation is funded through fees that appraisers across the country must pay. In particular, appraisers must pay to receive the Uniform Standards of Professional Appraisal Practice (USPAP) published by the Foundation. Witnesses at the hearings testified that the cost to become and remain an appraiser leads to the exclusion of many who are interested in becoming appraisers, worsening the lack of diversity within the industry. (We previously addressed an appraisal bias report issued by the National Community Reinvestment Coalition that provides, citing the Bureau of Labor Statistics, that 97.7% of appraisers are White and 69.6% are men.)

Director Chopra also observes as follows regarding the Foundation: The Foundation is led by a President and a Board of Trustees that is legally responsible for governing the Foundation and its regulatory bodies. The Board of Trustees selects its own members, as well as the members of the Appraisal Standards Board, which issues rules and guidance. The Board of Trustees also appoints members of the Appraiser Qualifications Board, which controls who may become an appraiser.

The CFPB blog post and Director Chopra’s comments address the following regarding the Foundation’s structure:

Deficient conflict of interest policies. The CFPB states the Foundation’s policies and procedures governing conflicts of interest are much narrower and less specific and do not prohibit many types of conduct covered by the conflicts of interest policies applicable to federal agency employees, and do not prohibit many types of conduct covered by the federal policies. Director Chopra states that, despite claiming to have policies similar to those applicable to federal agency employees, the Foundation’s policies do not address matters like accepting gifts from industry stakeholders, working with vendors where there is a financial interest for a Foundation employee or their spouse, or giving preferential treatment to certain individuals or organizations operating within the industry.

Insular governance structure favors private interests. The CFPB states that the Foundation’s governance structure favors parties that are able to pay more, due to the method of selecting the Board of Trustees. Until a recent change in the structure, paying Sponsors selected around half of the BOT members. The remainder were elected by that same Board, and many of these elected trustees were members of Sponsors. The CFPB has found that, even after updates to the bylaws, the process has not changed substantially, and current trustees can still elect a full slate of new trustees from companies contributing financially to the Foundation.

Lack of transparency for processes, including the selection of the Foundation’s President. The CFPB states the Appraisal Foundation has stopped allowing ASC staff to attend closed deliberations of applicants to Foundation boards, and has given shifting explanations for this shift in testimony. Director Chopra states that the Foundation’s President noted that historically ASC staff attended “just about all” meetings, and that the President also conceded at his hearing appearance that . . . “we were concerned about the conduct of some ASC observers.” Both the CFPB and Director Chopra note that the Foundation is in the process of selecting a new President. Director Chopra states that although the Foundation originally sought input from ASC and an outside consultant, it now refuses to respond to feedback offered by ASC and has not given the ASC access to deliberations or any role in reviewing candidates. Director Chopra also states that while the President stated that he was “not involved in” and had “stayed out of” the process of choosing his replacement, he later admitted that he had made suggestions as to who his successor should be. Finally, Director Chopra states that the President opined that the Foundation would not seek ratification of its new President from the ASC.

Director Chopra concludes his remarks with the following:

“The Appraisal Foundation is essentially a lawmaking body that is neither accountable to the public nor subject to competitive market forces. These issues are deeply troubling as The Appraisal Foundation is one of the most, if not the most, powerful player in America when it comes to appraisals and plays a controlling role in key issues contributing to appraisal bias. As long as The Appraisal Foundation remains an insular body controlled by a small circle, operating behind closed doors, those issues will continue to go unaddressed.”

The appraisal bias hearing recordings can be found on HUD’s, OCC’s, FHFA’s, and CFPB’s YouTube channels.