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Evaluators Criticize FHFA Evaluation Blog

But Schley also questioned whether the references to bias came from the raters.

“We understand that some of the comments may not come from the appraisers themselves, but from extracts of property listing information that is included in the appraisal reports,” Schley said in a statement.

The FHFA declined to comment to HousingWire whether the references came from housing listing information.

The search for the regulator, who oversees Fannie Mae and Freddie Mac, identified references to race, demographics, and ethnicity in the free text section of an unknown number of evaluation reports. The benchmarks, the FHFA said, suggest that a neighborhood’s racial and ethnic makeups could still impact how appraisers establish value.

But for reviewers, the blog post left many questions unanswered.

Neither the FHFA nor the GSEs would provide a timeline for referrals. They also declined to say how widespread they were, whether they occurred in specific geographies, or whether specific appraisers or appraisal firms wrote the references.

Fannie Mae and Freddie Mac referred specific blog questions to the FHFA.

“Our intent with the blog post was to reinforce FHFA’s commitment to addressing discrimination in reviews by providing specific examples we have identified of how overt statements may be present in reviews,” said said an FHFA spokesperson. The blog “was not intended to address the full scope of how valuation bias can occur, how often it occurs over time, or whether it occurs more in certain areas.”

The references uncovered by the FHFA also cast doubt on the effectiveness of monitoring the evaluation of Fannie Mae and Freddie Mac.

“Every valuation report that is sent to Fannie Mae gets a collateral underwriter score,” Gregoire said. “What was the score of these evaluations? Were they exemplary or at the bottom of the scale? »

Show me the context

Reviewers were confused by the lack of geography, time, and generalization of research findings on the frequency of its findings.

Presenting the comments without context is “irresponsible”, according to Joan Trice, founder of the Collateral Risk Network.

“If we don’t know the size and scope of the search, and [the FHFA] will not be transparent about the frequency of events, it raises questions as to their motivations,” Trice said. “Are they just pandering to the Biden administration?”

How to combat racial bias in ratings is a hot topic and a top priority for the Biden administration. President Biden instructed the Department of Housing and Urban Development with the leadership of an interagency task force—of which FHFA is a member—to make policy recommendations to address bias in assessments. The working group’s report is expected early this year.

But even as federal regulators address the issue, it’s still unclear how bias typically manifests in the assessment process.

Overt references to race, demographics, and neighborhood makeup in the free text area of ​​an appraisal report are one way bias could appear. Anecdotes in numerous news stories — and at least one lawsuit — have detailed evaluators underestimating black homeowners.

And no one has said, definitively, how pervasive evaluation bias is.

Freddie Mac produced a research report in September that found a significantly higher share of homes in black communities were valued at less than contract price compared to homes in white neighborhoods and homes in Latino areas. .

HUD said that in 2021 it had seen an increase in complaints of assessment bias, but news reports at the time indicated the agency had only received a handful of complaints. The agency has repeatedly refused to provide HousingWire with the number of complaints about reviewer bias it has received, saying it does not disclose complaints “due to confidentiality filings”.

the Consumer Financial Protection Bureau also receives consumer complaints and has received approximately 14 rater bias complaints since 2019.

“One example is one too many,” said Jonathan Miller, CEO of appraisal firm Miller Samuel. “But if we’re looking at 10-12 reviews out of 1,000 ratings, versus 100 million ratings, context is absolutely necessary.”

Overdue Flags

Appraisers are also wondering why government-sponsored entities have not flagged warnings about substandard appraisals so far.

“I am embarrassed by what the evaluators have written and included in their reports,” Gregoire said. “But I’m flabbergasted by the GSEs and their regulator.”

Rating reports have been in digital form since 2011. Neither Fannie Mae nor Freddie Mac have made their rating data publicly available for academic researchers to review, and it’s unclear whether their reporting processes review effectively eliminate potential biases.

Paul Ryll, Certified Home Appraiser and Co-Founder of Oscar Mike’s Mobile Ratings, asked why the obvious references in the evaluation reports had not been brought to light until now.

“It feels like a reaction, instead of being proactive,” Ryll said. “Why is it coming just now?”

Both ESGs say they review the quality of evaluation reports. Fannie Mae’s Appraisal Quality Monitoring process – separate from its Collateral Underwriter Risk Score – is intended to identify “appraisers whose appraisal reports exhibit patterns of appraisal quality issues at training and educational purposes,” the company explains.

Such a review process could detect overt references to protected class and subjective statements that have no place in assessment reports. But we don’t know how often he does it.

If an appraisal report triggers a review, Fannie Mae may contact the appraiser directly with a letter of instruction to inform the appraiser and encourage them to correct their process in the future. The letters, says Fannie Mae, are meant to be educational only.

In more serious cases of a substandard assessment, Fannie Mae may share the assessment with the “appropriate state agency” after performing several levels of due diligence to validate the findings, she claims. But that rarely happens, says Fannie Mae.

“The resulting volume of notifications is only a very small fraction of the total number of reviews we receive,” notes Fannie Mae, in a guide explaining its quality control process.

Fannie Mae declined to say whether she sent review quality control letters to the reviewers who made the overt references found by FHFA.

In a quality follow-up letter reviewed by HousingWire, sent in the second half of 2021, Fannie Mae took issue with how an assessor described neighborhoods in two assessment reports. Appraisers, wrote Fannie Mae, must ensure that the integrity of the loan decision is not influenced by non-objective factors, including possible discriminatory biases, in the appraisal report.

Fannie Mae wrote that “good neighbor” is an example of subjective terminology to avoid, and pointed to the free-form text entry box where the offending term was used.

“The property had very good appeal in the neighborhood market due to the size, shape (sic), level of maintenance and potential for expansion at a price under $150,000,” the report said. devaluation.

With its blog post, the FHFA sought to clarify rater bias by showing specific examples. But due to a lack of transparency, reviewers say the blog post did little to achieve that goal.

Many reviewers view the effort as a demonstration that FHFA is trying to tackle the problem, though the scope of the problem and the agency’s response are nebulous.

“These are the agencies responding in a patently sloppy way, because that is, rightly, the White House platform,” Miller said. “But they’re sharing information so they can say they’re part of the solution when in reality they’ve probably done very little.”

UPDATE: This article has been updated to reflect that Freddie Mac has referred specific blog questions to the FHFA.

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