Page 40 - September 26, Bulletin

BUSINESS PARTNERfeature article

Looking at the Big Picture:

Fair Lending Concerns on

Valuations

Jessica D. Lamoreux
Associate General Counsel
Compliance Alliance

Recent actions by regulators indicate a growing concern appraiser did not revise the appraisal when the consumer
about fair lending risk, specifically, as it pertains to challenged the valuation.
appraisals and valuations used to make credit decisions. In July 2023, the agencies proposed guidance on
Based on the increased interest in this area, banks may Reconsiderations of Value (ROV) that was finalized
want to ensure that their management of fair lending in July 2024. This broad guidance will apply to all
risk includes a detailed look at their valuation process. situations where there may be concerns about the
The focus on this issue kicked off with the creation of accuracy of an appraisal or valuation, but it specifically
the Interagency Task Force on Property Appraisal and emphasizes fair lending concerns. “Prohibited
Valuation Equity (PAVE) in 2021, but federal agencies discrimination” is the first item listed in the guidance
are also taking independent actions. For example, as a possible cause of deficiencies in valuations. The
in March 2023, the Consumer Financial Protection guidance states that appraisal bias, if not remedied,
Bureau (CFPB) and the Department of Justice (DOJ) would be considered a violation of the Equal Credit
filed a Statement of Interest in a case alleging that the Opportunity Act (ECOA) and Regulation B. The ROV
appraised value of a black consumer’s home increased by Guidance also reiterates, as the agencies have asserted in
nearly $300,000 after the owners “whitewashed” their other contexts, that financial institutions are responsible
home by removing photos of themselves from the home for monitoring the compliance of third parties,
and being absent during the second appraisal. More including appraisers.
recently, in July 2024, the U.S. Department of Housing
and Urban Development (HUD) announced a lawsuit The agencies also recently published a final rule on
against an appraiser and a lender, alleging racial bias in the use of automated valuation models (AVMs) in
the appraisal of another black consumer’s home. In that credit decisions, explicitly requiring that banks ensure
case, HUD alleges that the appraiser used comparable that the AVMs they use “comply with applicable
sales from a nearby majority-minority area rather than nondiscrimination laws.” While the AVM guidance
those from the predominantly white neighborhood expresses regulator concern about automation and
where the property was located. The lender and the artificial intelligence – another recent focus – it also is

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