To root out racial bias in the American evaluation system, some experts say there’s no point in chipping away at the edges. Instead, they suggest dismantling the system and starting anew.
Thank you for reading this post, don't forget to subscribe!“I think a lot of people don’t understand how this Byzantine system works,” Rohit Chopra consumer financial protection bureau (CFPB) director said on Tuesday.
Chopra spoke for the first time Evaluation Subcommittee of the Federal Financial Institutions Examination Council (ASC) hearing, which focused on assessment bias.
The CFPB director borrowed the term Byzantine from a report released in January 2022, which was appointed by and led by the Evaluation Subcommittee. National Fair Housing Alliance, The main finding of the report is that unlike other sectors in housing finance the appraisal industry essentially regulates itself.
This happens because Valuation Foundation, an industry-run private non-profit, establishes standards and criteria for appraisers, which are then adopted by each state. However, foundation board seats are dominated by appraisers, lenders, banking institutions and industry trade groups. There are no consumer or fair housing advocates.
During the hearing, Craig Stanley, president of valuation institute, said individual appraisers do not pay a fee to the Appraisal Foundation. “It is not a membership organization of individuals. It is a membership organization of other organizations. [pay fees] By Standard Ingredients from Foundation.
In response, Chopra said: “I think it’s something we need to think about whether it’s appropriate to have this type of fee structure and for payments, including those related to governance. I think It raises a lot of questions: for this subcommittee, for regulators, and potentially for future hearings.
Increasing accountability to reduce evaluation bias
While Congress serves as the Appraisal Subcommittee with oversight and review of the Appraisal Foundation, it has no enforcement authority.
The subcommittee is an independent executive branch with seven members on the board, including representatives from the Federal Reserve and the Office of the Comptroller of the Currency. The Subcommittee on State Programs has authority over evaluation.
“We conduct regular compliance reviews of state programs to determine their level of compliance with Evaluation Foundation and other federal requirements,” Jim Park, executive director of the ASC, said during the hearing. “If a state is found to be out of compliance, the ASC has enforcement authority to ensure that they return to compliance.”
Park said, “However, the ASC’s oversight authority over the Foundation is limited to monitoring and reviewing their work. The ASC has no enforcement authority as it relates to the Foundation or its boards.”
According to Junia Howell, Visiting Assistant Professor of Sociology University of Illinois ChicagoThere is a “moral” problem with the current structure.
Howell said, “As Director Parks said at the beginning, there is no other regulatory framework like this in the country, and probably not even in the world.” “I would suggest that there needs to be a different structure that possibly increases some accountability.”
mortgage bankers association (MBA), the trade group representing mortgage lenders in the discussion, agrees with the need for changes.
“MBA will support reforms that lead to more independent oversight of appraisers,” said Michael Friantoni, MBA’s senior vice president of research and technology and chief economist.
