[House Hearing, 117 Congress]
[From the U.S. Government Publishing Office]
DEVALUED, DENIED, AND
DISRESPECTED: HOW HOME
APPRAISAL BIAS AND
DISCRIMINATION ARE
HURTING HOMEOWNERS AND
COMMUNITIES OF COLOR
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HYBRID HEARING
BEFORE THE
COMMITTEE ON FINANCIAL SERVICES
U.S. HOUSE OF REPRESENTATIVES
ONE HUNDRED SEVENTEENTH CONGRESS
SECOND SESSION
__________
MARCH 29, 2022
__________
Printed for the use of the Committee on Financial Services
Serial No. 117-74
[GRAPHIC NOT AVAILABLE IN TIFF FORMAT]
__________
U.S. GOVERNMENT PUBLISHING OFFICE
47-272 PDF WASHINGTON : 2022
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HOUSE COMMITTEE ON FINANCIAL SERVICES
MAXINE WATERS, California, Chairwoman
CAROLYN B. MALONEY, New York PATRICK McHENRY, North Carolina,
NYDIA M. VELAZQUEZ, New York Ranking Member
BRAD SHERMAN, California FRANK D. LUCAS, Oklahoma
GREGORY W. MEEKS, New York BILL POSEY, Florida
DAVID SCOTT, Georgia BLAINE LUETKEMEYER, Missouri
AL GREEN, Texas BILL HUIZENGA, Michigan
EMANUEL CLEAVER, Missouri ANN WAGNER, Missouri
ED PERLMUTTER, Colorado ANDY BARR, Kentucky
JIM A. HIMES, Connecticut ROGER WILLIAMS, Texas
BILL FOSTER, Illinois FRENCH HILL, Arkansas
JOYCE BEATTY, Ohio TOM EMMER, Minnesota
JUAN VARGAS, California LEE M. ZELDIN, New York
JOSH GOTTHEIMER, New Jersey BARRY LOUDERMILK, Georgia
VICENTE GONZALEZ, Texas ALEXANDER X. MOONEY, West Virginia
AL LAWSON, Florida WARREN DAVIDSON, Ohio
MICHAEL SAN NICOLAS, Guam TED BUDD, North Carolina
CINDY AXNE, Iowa DAVID KUSTOFF, Tennessee
SEAN CASTEN, Illinois TREY HOLLINGSWORTH, Indiana
AYANNA PRESSLEY, Massachusetts ANTHONY GONZALEZ, Ohio
RITCHIE TORRES, New York JOHN ROSE, Tennessee
STEPHEN F. LYNCH, Massachusetts BRYAN STEIL, Wisconsin
ALMA ADAMS, North Carolina LANCE GOODEN, Texas
RASHIDA TLAIB, Michigan WILLIAM TIMMONS, South Carolina
MADELEINE DEAN, Pennsylvania VAN TAYLOR, Texas
ALEXANDRIA OCASIO-CORTEZ, New York PETE SESSIONS, Texas
JESUS ``CHUY'' GARCIA, Illinois
SYLVIA GARCIA, Texas
NIKEMA WILLIAMS, Georgia
JAKE AUCHINCLOSS, Massachusetts
Charla Ouertatani, Staff Director
C O N T E N T S
----------
Page
Hearing held on:
March 29, 2022............................................... 1
Appendix:
March 29, 2022............................................... 61
WITNESSES
Tuesday, March 29, 2022
Bishop, Pledger M. III, President, the Appraisal Institute....... 4
Bunton, David S., President, The Appraisal Foundation............ 6
Kelker, Dean, Senior Vice President and Chief Risk Officer,
SingleSource Property Solutions, on behalf of the Real Estate
Valuation Advocacy Association (REVAA)......................... 8
Peter, Tobias J., Assistant Director, AEI Housing Center......... 11
Rice, Lisa, President and CEO, National Fair Housing Alliance
(NFHA)......................................................... 10
APPENDIX
Prepared statements:
McHenry, Hon. Patrick........................................ 62
Bishop, Pledger M. III....................................... 66
Bunton, David S.............................................. 72
Kelker, Dean................................................. 86
Peter, Tobias J.............................................. 97
Rice, Lisa................................................... 211
Additional Material Submitted for the Record
Waters, Hon. Maxine:
Written responses to questions submitted to Pledger M. Bishop
III........................................................ 246
Written responses to questions submitted to David S. Bunton.. 249
Written responses to questions submitted to Dean Kelker...... 252
Written statement of Jillian White, Head, Better+ at Better.. 256
Hill, Hon. French:
Written responses to questions submitted to Pledger M. Bishop
III........................................................ 263
Ocasio-Cortez, Hon. Alexandria:
Article from The City, ``With Pandemic Pause Over, NYC's
Black Neighborhoods Brace for Foreclosures''............... 266
DEVALUED, DENIED, AND
DISRESPECTED: HOW HOME
APPRAISAL BIAS AND
DISCRIMINATION ARE
HURTING HOMEOWNERS AND
COMMUNITIES OF COLOR
----------
Tuesday, March 29, 2022
U.S. House of Representatives,
Committee on Financial Services,
Washington, D.C.
The committee met, pursuant to notice, at 10:05 a.m., in
room 2128, Rayburn House Office Building, Hon. Maxine Waters
[chairwoman of the committee] presiding.
Members present: Representatives Waters, Sherman, Meeks,
Scott, Green, Cleaver, Perlmutter, Himes, Foster, Beatty,
Vargas, Gottheimer, Lawson, Axne, Casten, Pressley, Lynch,
Adams, Tlaib, Dean, Ocasio-Cortez, Garcia of Illinois, Garcia
of Texas, Williams of Georgia, Auchincloss; Hill, Posey,
Luetkemeyer, Huizenga, Wagner, Barr, Williams of Texas, Emmer,
Zeldin, Loudermilk, Mooney, Davidson, Budd, Kustoff, Gonzalez
of Ohio, Rose, Steil, Gooden, Timmons, and Sessions.
Chairwoman Waters. The Financial Services Committee will
come to order.
Without objection, the Chair is authorized to declare a
recess of the committee at any time.
Today's hearing is entitled, ``Devalued, Denied, and
Disrespected: How Home Appraisal Bias and Discrimination are
Hurting Homeowners and Communities of Color.''
I now recognize myself for 4 minutes to give an opening
statement.
Today, we will take a closer look at discrimination against
homeowners and communities of color in the appraisal process.
Last Congress, I convened a hearing to examine the state of the
appraisal industry, including the lack of diversity in the
profession, and unequal valuation of homes in communities of
color, those owned by people of color. Since then, I have
engaged the appraisal industry and profession in critical
conversations around the need to address these inequities, as
we have seen increasing reports of appraisal bias and alleged
discrimination. However, there is still much to be done.
A home's value is critical to closing the wealth gap and
ensuring that communities of color build generational wealth.
Both overvaluation and undervaluation of a home are harmful to
buyers and homeowners by either saddling a buyer with a home
worth less than the debt they take on or selling short
homeowners of their nest egg. Bias and discrimination in
appraisals can result in perpetuating historical disinvestment
in communities of color, lowering home values for communities
of color, locking people of color out of home ownership
opportunities, and contributing to the widening of racial and
ethnic wealth and home ownership gaps. We must not forget that
home appraisal discrimination based on race, color, sex,
religion, national origin, familial status, disability, and age
is illegal.
However, recent news reports have shown that the appraisal
bias faced by homeowners of color is still a reality. We have
all seen the articles. A Black family seeks to have their home
appraised, and when they are physically present or leave their
family pictures within the home, they receive a low appraisal.
When they ``Whitewash'' their homes by removing their pictures
and other indicators of Blackness and insert those of
fictitious White families, all of a sudden, the appraisal jumps
in value. These are not just anecdotes. Data bears out the
disperate appraisal treatment of homes owned by Black and
Latinx homeowners compared to homes owned by White homeowners.
As a result, studies have found that a home in a White
neighborhood is valued 2 times higher than comparable homes in
Black and Latinx neighborhoods.
That is why I have drafted legislation to be discussed at
today's hearing. My bill, the Fair Appraisal and Inequity
Reform Act of 2022, addresses appraisal bias and discrimination
by establishing a new Federal Valuation Agency--responding to a
key recommendation made by President Biden's Interagency Task
Force on Property Appraisal and Valuation Equity.
I thank the witnesses for appearing here today, and I yield
back.
I now recognize, as acting ranking member, the gentleman
from Arkansas, Mr. Hill, for 5 minutes.
Mr. Hill. Thank you, Madam Chairwoman, for holding this
hearing today.
Accurate appraisals are a vital component of the home-
buying process. They provide important guidance to lenders
offering mortgages as well as financial protection to taxpayers
backing those loans. This is important given the magnitude of
the total value of all outstanding U.S. mortgage debt, which is
currently about $12 trillion. As a former community bank chief
executive officer and executive for many years, I know the
essential role of appraisals in providing market confidence to
home-buying families who deserve a fair and honest valuation of
their investment, and, for the lenders, true security about the
value of their collateral. In other words, honest, independent
appraisals are incredibly important to maintaining the safety
and integrity of mortgage lending in our country and in our
families' accounts.
So when we hear allegations of how racial bias in the
valuation process is systemic, that is a problem for many
reasons. First, it is wrong and unlawful, not to mention
immoral, to discriminate against someone in these transactions
on the basis of race, color, religion, sex, disability,
familial status, or national origin. Such discrimination is a
crime, and if a crime is being committed, our government is
committed to stopping it.
Some have alleged, often based on anecdotes or broad
assumptions, that racism exists in the appraisal profession,
which, in turn, perpetuates systemic racism. That is a charge
which demands serious consideration, not to mention hard
evidence to back it up. Yet, a lot of questions remain about
what exactly is happening here, and also why. And I hope our
witnesses today can help shed some light on the actual facts
before we in Congress leap to conclusions.
I would note that while this hearing is focused on the
potential impact of undervaluations in appraisals, there should
be equally serious concern by members of this committee about
the impact of overvaluations and appraisals. Overvaluations
require consumers to take on more debt, reduce the
affordability by endlessly-spiraling home prices at ever higher
and higher levels, literally destroying, as we saw in 2008,
nearly $16 trillion worth of household wealth.
As a commercial banker during the 2008 crisis, I saw
firsthand that destruction through overvaluations by
irrationally-exuberant appraisers, lenders, and buyers. And a
generation previously, as a Treasury official responsible for
helping stand up the Resolution Trust Corporation in the early
1990s, I know this firsthand from the savings and loan crisis
of the late 1980s and early 1990s.
So if, in fact, we are going to demand fairness and
accuracy in appraisals, and we should, it is critical to
examine all of the factors that harm the appraisal quality,
that lower competition and inhibit market innovation. That is
the only way we are going to ensure that we get a fair market
valuation of assets for both lenders and those households who
are making their sometimes very first most important financial
decision, investing in a home. And I hope we can accomplish
that today and do it in a bipartisan manner.
And with that, Madam Chairwoman, I yield back the balance
of my time.
Chairwoman Waters. Thank you. I now recognize the gentleman
from Missouri, Mr. Cleaver, for 1 minute.
Mr. Cleaver. Thank you, Madam Chairwoman, and thank you for
holding this important hearing. Although this committee has
held broad hearings on the appraisal industry in the past, I
appreciate that this discussion squarely calls out bias and
discrimination in home appraisals.
In March of last year, I authored a bicameral letter with
colleagues in the House and Senate, including this committee,
demanding that the Federal Financial Institutions Examination
Council (FFIEC) and regulators take immediate action to address
disparities in home valuations for communities of color.
Studies have shown that appraisal bias is prevalent throughout
the country. Research from Fannie Mae and Freddie Mac has
demonstrated that appraisal disparities broadly exist for
communities and borrowers of color.
Separately, research from the Federal Housing Finance
Agency (FHFA) analyzed millions of appraisals and found
evidence of bias in the neighborhood description of valuation
reports, including some explicit references to race and
indirect comments alluding to it. In April of last year, my
colleague on the committee, Congressman Torres of New York, and
I introduced the Real Estate Valuation Fairness and Improvement
Act, which proposed an Interagency Task Force similar to the
Interagency Task Force on Property Appraisal and Valuation
Equity (PAVE) Task Force announced by the Administration in
June of last year.
I am thankful for your leadership, Madam Chairwoman, and
the leadership in this Administration, for tackling appraisal
bias head-on.
I yield back.
Chairwoman Waters. Thank you very much. I would now like to
welcome our distinguished witnesses: Mr. Pledger M. Bishop III,
the president of the Appraisal Institute; Mr. David S. Bunton,
the president of the Appraisal Foundation; Mr. Dean Kelker, the
senior vice president and chief risk officer of SingleSource
Property Solutions, who is testifying on behalf of the Real
Estate Valuation Advocacy Association; and Ms. Lisa Rice, the
president and CEO of the National Fair Housing Alliance.
I will now recognize the gentleman from Minnesota, Mr.
Emmer, to introduce our final witness.
Mr. Emmer. Thank you, Madam Chairwoman, and thank you, Mr.
Hill, and thank you to all of the witnesses who are joining us
today. I just want to use this quick minute to extend a warm
welcome to one of our witnesses today, Mr. Tobias J. Peter. Mr.
Peter is a dedicated research fellow and the assistant director
of the American Enterprise Institute's Housing Center. He is
the author of several reports on housing policy and
consistently provides invaluable insights into our housing
markets. Mr. Peter is also a constituent of mine from St.
Cloud, Minnesota, and I have been fortunate to know Toby for
the past 4 years. Mr. Peter, thank you for joining our
committee today, on behalf of the committee in the Sixth
District. Thank you for lending Congress your time and
expertise as we explore ways to strengthen our housing markets.
I yield back.
Chairwoman Waters. Thank you. You will each have 5 minutes
to summarize your testimony. You should be able to see a timer
that will indicate how much time you have left in your
testimony. And without objection, your written statements will
be made a part of the record.
Mr. Bishop, you are now recognized for 5 minutes to present
your testimony.
STATEMENT OF PLEDGER M. BISHOP III, PRESIDENT, THE APPRAISAL
INSTITUTE
Mr. Bishop. Thank you, Chairwoman Waters. The Appraisal
Institute is deeply concerned about recent allegations of bias
and discrimination in housing and appraisal. When just one
individual can face concern and uneasiness about bias or
discrimination during an appraisal assignment, we must stop and
listen to seek and understand the consumer's experience.
Further, where issues or problems are identified, we must seek
to understand the causes and work with stakeholders to resolve
them.
To be an appraiser is to be independent and unbiased; it is
our ethos and at the core of the professional appraiser. There
is no benefit to an appraiser in violating this public trust.
We firmly believe most appraisers uphold this high standard and
strive to learn more and develop protocols to increase
confidence and credibility in their work.
Discrimination exists, and the appraisal profession is not
immune. I believe communities of color face discrimination in
appraisals. The same is true in other aspects of housing and
real estate, as well as within other parts of our society. It
is an unfortunate part of our history as a nation.
At the same time, we believe the appraisal process is
sound. We do not believe appraisal bias is rampant, but rather
isolated. We understand that one instance is unacceptable. No
profession is immune. What is important is that we have
meaningful enforcement when appraiser bias concern occurs, and
that we give our members the tools to recognize it and
interrupt it. Systemic bias, when it exists, is present in
sales transactions. Appraisers cannot control the actions of
buyers and sellers or others involved in the housing market.
Moving forward, this will require more study and creativity
on the part of all of the participants, including the
appraisers. The appraisal process has come under study and
review by several researchers, think tanks, and Government-
Sponsored-Enterprises (GSEs). Although some of the results to
bias in appraisal are preliminary, and others have produced
contradictory conclusions, these findings have educated all
stakeholders to better understand the appraisal process and how
it fits into a larger ecosystem of mortgage finance.
We strongly believe that even one instance of appraisal
bias is unacceptable. We believe that the Department of
Veterans Affairs' Tidewater Initiative would serve as a strong
model for combating concerns over bias and discrimination.
There is no program like it in the industry for balancing
consumer rights of appeal with appraisal independence. This
kind of mitigation on the front end would clearly be helpful to
address some of the concerns recently reported in the media.
There is a belief held by some that the appraiser controls or
sets the market, where the appraiser is assigning value to
property, and buyers, sellers, and agents interested in the
market then respond to the appraisal. In actuality, the market
is driven by buyers and sellers, and their actions are
reflected in the purchase price, which includes terms of sale,
sales concessions, and other considerations.
Purchase price is a fact. We know what it is. Appraisers
analyze the facts and apply unbiased local market knowledge and
professional judgment as an independent professional to develop
a credible and well-supported opinion of value for specific
property as of a single date. An opinion is not a fact that can
be found. Opinions require support and should be logical and
follow reasoning. Any formal appraisal review requires forensic
analysis and understanding. These points are missing from
today's conversations.
We also strongly support appraiser, lender, and consumer
education goals found in the PAVE Action Plan. Our organization
has been active in developing education and supporting
valuation bias and fair housing education requirements for
appraisers at the Federal and State levels. New State laws that
have been enacted over the past 2 years can serve as models for
other States looking to bolster education, awareness, and
understanding. We stand ready to assist in fostering greater
understanding of the appraisal process for all stakeholders.
In closing, we must be careful to balance the proposals for
increased regulatory requirements on appraisers and potentially
significant additional work in the event value conclusions are
challenged with the efforts to make this an attractive and
attainable and diverse profession. We see the difficulties of
attracting new individuals to the profession under the current
appraisal business and regulatory environment. Overbearing
regulation may make the profession unattractive and dissuade
new entrants to the profession.
The proposed increased regulation, review, and audit of
appraiser files resulting from a complaint of undervaluation
due to bias does not reference due process. Due process must
remain a central part of any reform. We need better consumer
appeal processes, but we also need to protect appraiser
independence. This is a difficult balance, but it is one that
is necessary to protect the health of our banking and real
estate markets.
We look forward to working with the committee to continue
to collaboratively work towards fair and reasonable solutions
for all. Thank you.
[The prepared statement of Mr. Bishop can be found on page
66 of the appendix.]
Chairwoman Waters. Thank you, Mr. Bishop.
Mr. Bunton, you are now recognized for 5 minutes to present
your testimony.
STATEMENT OF DAVID S. BUNTON, PRESIDENT, THE APPRAISAL
FOUNDATION
Mr. Bunton. Thank you, Madam Chairwoman, Mr. Hill, and
members of the committee. The Appraisal Foundation greatly
appreciates the opportunity to appear before you today to offer
our perspective on the state of the real estate appraisal
profession. By way of background, I have served as a senior
staff member of the Foundation for the past 32 years. And prior
to that, I had the privilege of serving as a senior
congressional staff member for a dozen years.
Let me begin with a few words about who we are and what
makes us different. We are a nonprofit founded 35 years ago
before the enactment of the Financial Institutions Reform,
Recovery, and Enforcement Act (FIRREA). We are not an advocacy
group or a trade association. Rather, we are an umbrella
organization composed of over 100 organizations and government
agencies with an interest in valuation. Our work product covers
all aspects of appraisal: real property; personal property;
mass appraisal; and business valuation.
More than 30 years ago, Congress authorized us to provide
private sector expertise in the real property appraiser
regulatory system under Title XI of FIRREA. The Foundation does
not have any regulatory or enforcement authority, but we
provide the tools for the regulatory community. Specifically,
we set the minimum education and experience requirements one
must meet in order to obtain a State credential.
We are the authors of the national uniform appraiser exams,
which are used by all 55 States and Territories. And we are the
authors of the generally recognized standards of conduct known
as the Uniform Standards of Professional Appraisal Practice.
These standards, which lay out professional standards
appraisers must follow, have prohibited appraisers from acting
with bias or discriminating against protected classes since day
one, which was over 30 years ago.
The allegations of bias and discrimination we have seen in
the press make it clear that more must be done to protect the
public's trust in the appraisal profession. Even before these
press reports were beginning to emerge, The Appraisal
Foundation was taking action and collaborating with others to
address concerns of bias, discrimination, and a lack of
diversity in the appraisal profession.
With the Appraisal Institute, we developed one of the first
symposiums on this important issue, and also conducted a
comprehensive diversity survey of appraisers to determine where
we are today and also to be able to measure future success.
We are also proud to be a sponsor of the Appraiser
Diversity Initiative (ADI) established by the Appraisal
Institute, Fannie Mae, Freddie Mac, and the National Urban
League.
And later this week, we will be meeting with Lisa Rice and
her colleagues with the National Fair Housing Alliance to
discuss the future composition of our boards, our establishing
an advisory council composed of organizations that represent
fair housing, civil rights, and consumer interests, and
advising them of our engagement of the nationally-recognized
fair housing law firm, Relman Colfax, to assist us in our
efforts going forward.
With the release of the PAVE Task Force report last week,
we look forward to meeting with them to discuss their
recommendations regarding ways to work collaboratively on their
ideas to increase the Federal Government's role within the
appraisal regulatory system without dismantling it entirely, as
well as increasing the amount of fair housing education that is
required of appraisers. We would also like to discuss any
barriers to entry that need to be addressed.
Regarding removing possible barriers to entry, I am pleased
to report on an alternative pathway for aspiring appraisers to
gain experience, without the need of finding a supervisory
appraiser, through computer-based simulated training. Think of
flight simulators for appraisers. Trainees could be exposed to
an almost limitless number of valuation challenges, and once
the training is completed, they will have met the experience
requirement and can sit for the State exam. Providers indicate
that there will be more than one simulated training module
available to aspiring appraisers before the end of this year.
I must note here that the draft Fair Appraisal and Inequity
Reform Act of 2022 is deeply concerning. This legislation, if
enacted, would negatively disrupt the appraisal regulatory
system, including the 55 States and Territories who have
incorporated the uniform appraisal standards and qualifications
into their laws and regulations for over 30 years. In addition,
there are over 3 decades of case law which cite our standards.
We are concerned that the mere existence of this draft
legislation may suspend or stall development of the simulated
training modules I just mentioned, modules that open the doors
to those not able to find a supervisor, and which were noted in
the PAVE report as an experience alternative. Rather than
dismantling the system, we should be looking at ways to work
collaboratively to address concerns about the Federal
Government's role within the appraisal regulatory system
without dismantling it.
Again, The Appraisal Foundation appreciates the opportunity
to share this perspective today, and we look forward to working
with all of you. Thank you.
[The prepared statement of Mr. Bunton can be found on page
72 of the appendix.]
Chairwoman Waters. Thank you, Mr. Bunton.
Mr. Kelker, you are now recognized for 5 minutes to present
your testimony.
STATEMENT OF DEAN KELKER, SENIOR VICE PRESIDENT AND CHIEF RISK
OFFICER, SINGLESOURCE PROPERTY SOLUTIONS, ON BEHALF OF THE REAL
ESTATE VALUATION ADVOCACY ASSOCIATION (REVAA)
Mr. Kelker. Good morning, Chairwoman Waters and
distinguished committee members. I am here representing the
Real Estate Valuation Advocacy Association, otherwise known
REVAA, to share the perspective of appraisal management
companies (AMCs).
AMCs are third-party service providers engaged by banks and
non-bank lenders to manage appraisal panels to complete
residential assignments in compliance with State law and
Federal appraisal independence requirements. Since the 1960s,
U.S. financial institutions have outsourced services to AMCs
due to their expertise, efficiency, and focus on Federal and
State regulatory compliance.
However, following the Dodd-Frank Act and the creation of
Federal and State requirements to license AMCs in each State,
the AMC business model grew and was used by both large and
small lenders to help them remain compliant with Federal and
State banking and mortgage regulations. All 50 States and the
District of Columbia have adopted a federally-compliant AMC
licensing program, which is typically located with the same
regulator for appraisers.
While AMCs have contact with appraisers and their lender
clients, AMCs do not have much direct consumer contact. They
are agents of the lender to facilitate the procurement of an
appraisal or property evaluation. AMCs are required to follow
Federal and State public policy related to fair housing and
discrimination. It is our intention to be an active part of the
collective solution as the recommendations of the PAVE Task
Force final report are further discussed and new policy with
revisions implemented.
AMCs have robust quality control programs in place to
examine appraisal reports after the initial delivery by the
appraiser. These reviews are done to ensure compliance before
the appraisal report or valuation is delivered to the lender
and are not used at this point in time to determine a lending
decision.
Any appraisal management company quality control process
must comply with two important components of appraiser
independence under the Truth in Lending Act. The first is to
ensure that the AMCs comply with Federal and State appraiser
independence requirements, including not attempting to directly
or indirectly influence the independent judgment of the person
preparing the valuation.
AMCs perform a quality assurance review in compliance with
appraiser independence, which permits the AMC to ask an
appraiser for three major items: first, to consider additional
appropriate property information, including consideration of
additional comparable properties that may be relevant in the
analysis of the property; second, to provide additional detail
or explanation to support the valuation provider's value
conclusion; and finally, to correct any errors that may have
surfaced in the appraisal report.
Federal Interagency Appraisal and Evaluation Guidelines
mandate that lenders are responsible for the safety and
soundness of the property valuations. Most lender clients
outline requirements for the AMCs that they have engaged to
perform quality control as part of the overall services
performed on their behalf. State laws vary, but most have a
requirement that AMCs must audit the work of appraisers on
their panel, although the details of how many appraisals must
be reviewed or the extent of the review can vary.
AMCs review their panel of independent fee appraisers to
grade appraiser performance on past assignments, research State
boards to determine if there is any disciplinary history, and
require background checks to determine if there is any criminal
history. Individual assignments include a letter of engagement
that outlines assignment-specific criteria required by the
client as well as the AMC. If a red flag is identified through
an automated or manual review of an appraisal, the concern is
escalated to a more intensive review based on the nature or
severity of the concern. Reconsideration of value may be
requested by the lender or the borrower through the lender. Any
questions or issues identified are addressed by the AMC with
the appraiser who completed the appraisal.
REVAA supports a vibrant and diverse appraiser industry.
The future of appraisal needs to retain a human component,
which is why we support the recruitment of new appraisers to
help revitalize the profession for the next generation. The
reliance on appraisers and appraisal products creates an
important need to help ensure the sustainability of the
profession. Consumers, residential mortgage lenders, secondary
markets, and AMCs all rely on a plentiful supply of qualified
appraisers to meet the anticipated demand.
The current experience and education requirements of
becoming an appraiser are overly-burdensome, creating a
roadblock for the recruitment and training of new appraisers.
REVAA supports removing barriers in the recruitment and
training of new appraisers. Modernization should incorporate
new technologies and learning techniques to recruit and train
future appraisers just as they are used for other industries.
This includes the nationwide adoption of innovative initiatives
such as the Practical Applications of Real Estate Appraisal
(PAREA) or other alternatives that are created to make it
easier to recruit, train, and retain a diverse future
generation.
[The prepared statement of Mr. Kelker can be found on page
86 of the appendix.]
Chairwoman Waters. Thank you, Mr. Kelker.
Ms. Rice, you are now recognized for 5 minutes to present
your testimony.
STATEMENT OF LISA RICE, PRESIDENT AND CEO, NATIONAL FAIR
HOUSING ALLIANCE (NFHA)
Ms. Rice. Chairwoman Waters, Ranking Member McHenry, and
members of the House Financial Services Committee, thank you
for the invitation to testify today on appraisal bias and
reform, an issue which affects millions of people across the
country. My name is Lisa Rice. I am the president and CEO of
the National Fair Housing Alliance (NFHA), representing over
170 local fair housing groups. NFHA's goal is to eliminate all
forms of housing discrimination and ensure equitable housing
opportunities for all people and communities.
The NFHA, along with its partners, Dane Law and the
Christensen Law Firm, issued a groundbreaking review of the
appraisal standards and appraisal qualification criteria to
examine if there was evidence of potential bias in a study
commissioned by the Appraisal Subcommittee. We also had the
honor of briefing the PAVE Interagency Task Force on several
occasions and applaud their comprehensive action plan.
For most Americans, their home is their single-most
important asset and holds the key to wealth, stability and
opportunity for their families. But America's long history of
discriminatory housing policies has undervalued homes for
people of color, and entrenched an unfounded association
between race and risk. Today, the Black-White homeownership gap
is larger than it was when the Fair Housing Act was passed in
1968, and the wealth gap between White households and
households of color remains large and persistent.
The Fair Housing Act's promise of fair and equitable
housing is unfulfilled. We have all heard the shocking stories
of appraisal bias from across the country, including stories
of, ``Whitewashing,'' where homeowners of color have had to go
through the excruciating experience of removing all evidence of
their racial identity just to receive a fair appraisal, from
Carlette Duffy in Indiana, who received an increase of almost
$150,000 after asking a White friend to pose as her brother, to
the Austin family in California, who received an increase of
almost a half a million dollars after asking a White friend to
pose as the homeowner.
These disturbing and even heartbreaking stories have shined
a light on the serious shortcomings in the appraisal process.
While some may say that these are just a bad few apples,
researchers from a variety of backgrounds, using a variety of
datasets and methodologies, all come to the same conclusion:
The current appraisal system leads to adverse outcomes for
borrowers of color on a systemic basis. So far, these racial
and ethnic disparities cannot be explained by legitimate
nondiscriminatory factors.
Congress must address bias in the valuation process and the
urgent need for reform. Based on our research and outreach to
fair housing, appraisal and lending groups, and researchers and
academics, we respectfully offer the following recommendations
for your consideration.
The appraisal industry has long operated in a relatively
closed, self-regulated framework, which has imposed burdens on
consumers as well as small businesses. Congress should
encourage The Appraisal Foundation, or TAF, to improve its
processes. Congress should also develop the board vision
outlined in the Fair Appraisal and Inequity Reform Act, which
would elevate the Appraisal Subcommittee to a new Federal
agency. To address the risk of broad discretion and underfunded
enforcement efforts, Congress should encourage TAF to revise
the appraisal standards. Congress should also provide the
Federal Valuation Agency with rulemaking authority for the
standards and ensure adequate funding under the Fair Housing
Initiatives Program.
Congress should encourage the appropriate regulators to
promulgate the automated valuation rule. Congress should also
provide the Federal Valuation Agency with the rulemaking
authority to ensure that all valuation methods are fair,
unbiased, transparent, and consistent. To address appraiser
shortages and lack of diversity, Congress should encourage TAF
to revise the appraiser criteria. Congress should also provide
the Federal Valuation Agency with rulemaking authority to set
reasonable criteria, require comprehensive fair housing
training, and require national registration with a unique ID.
Finally, to improve research, compliance, and enforcement,
Congress should encourage the regulators to immediately enter
into a data-sharing agreement and should provide the CFPB with
rulemaking authority to develop a public valuation database.
Thank you for the opportunity to appear before you today. I
look forward to answering your questions.
[The prepared statement of Ms. Rice can be found on page
211 of the appendix.]
Chairwoman Waters. Thank you, Ms. Rice.
Mr. Peter, you are now recognized for 5 minutes to present
your testimony.
STATEMENT OF TOBIAS J. PETER, ASSISTANT DIRECTOR, AEI HOUSING
CENTER
Mr. Peter. Chairwoman Waters, Ranking Member McHenry, and
distinguished members of the committee, thank you for the
opportunity to testify today, and thank you, Congressman Emmer,
for the nice introduction.
The case for centralizing appraisal standards and criteria
under a new Federal agency as proposed under the Fair Appraisal
and Inequity Reform Act is not justified. It is based on
unsubstantiated claims of systemic bias and racism in the
housing sector, and represents an unwarranted power grab by the
Federal Government, and is one step towards the Federal
Government setting fiat home values. Amending the appraisal
process risks mis-valuating millions of properties, which could
have serious repercussions for minority neighborhoods and rural
areas, where home sales are sparser.
Last week's report by the Interagency Task Force on the
Property Appraisal and Valuation Equity (PAVE) alleged
inequities within current home lending and appraisal processes
for communities of color. The work cited by PAVE contains
serious red flags, which were obvious from a cursory look. The
work of the AEI Housing Center has debunked the Brookings study
and the Fannie Mae exploratory note, which were both heavily
relied on in the PAVE report and this hearing's memo, long
before the PAVE report was written. Most importantly, these
studies conflate race with socioeconomic status or SES, and by
that I mean income, buying power, marriage rates, credit
scores, and so forth. Once adjusted for differences in SES,
race-based gaps found in these studies either entirely or
substantially disappear, which raises serious questions
regarding a race-based explanation.
While individual appraiser bias certainly exists, the PAVE
report admits that the exact number of instances of valuation
bias is difficult to assess. We have undertaken a study with
over 240,000 loans for which we knew the race of the borrower.
Our statistical analysis found that racial bias by appraisers
on refinance loans is uncommon and not systemic. These results
in our methodology have been confirmed by other academic
research. All of this work was ignored by PAVE. Further,
research by Fannie Mae, which directly contradicted Freddie
Mac's preliminary findings, was so selectively cited at this
point, that it was lost. It is questionable how PAVE could
arrive at this conclusion when its own report admits a lack of
data.
Furthermore, this lack of data is the fault of the
government. Two years ago, we outlined a statistical approach
using existing data that would have allowed FHFA, Fannie Mae,
and Freddie Mac to identify bad actors using existing data.
This offer was ignored. Now, 2 years later, we are debating a
task force report and a draft bill based on cherry-picked data,
discredited research, and flawed conclusions, suggesting a lack
of interest in getting to the truth and an alternative motive
to provide an excuse for centralizing appraisal valuation
standards and appraiser criteria in the Federal Government.
Instead of this bill, agencies should get to work using
existing data. These data should be anonymized and made
available to independent researchers to verify, as a bipartisan
group of Senators agreed at last week's Senate Banking
Committee hearing. This would allow bad actors, whether
racially-biased or incompetent, to be removed immediately from
the profession, as they should be. Additionally, since PAVE has
misdiagnosed the problem, its proposed agency actions will not
address racial and ethnic differences in homeownership rates,
financial returns of owning a home, or median wealth. Instead,
it will likely make these differences worse or divert attention
from finding effective solutions.
Rather than discredited claims of systemic appraiser bias,
homeowners and communities of color are being hurt by the
combination of low SES, which certainly reflects a legacy of
past racism and lingering racial bias, which leaves Blacks at a
large income and wealth disadvantage relative to most Whites,
and foreclosure-prone Federal lending practices.
Research finds that Black and Hispanic homeowners
experience lower returns than White homeowners, which it
attributes almost entirely to the higher prevalence of
distressed home sales, and not appraiser bias. The study finds
that the disparity in distressed home sales explains about 40
percent of the Black-White gap in housing wealth at retirement.
It also notes that, importantly, absent financial distress,
houses owned by minorities do not appreciate at slower rates
than houses owned by non-minorities, which, again, directly
contracts the PAVE report.
Foreclosure-prone affordable housing policies have been
targeted at low-income and minority borrowers. These policies
subsidize debt by providing excessive leverage and lower rates.
Coupled with a supply shortage, the increased demand from
additional leverage has fueled unforgiving boom-bust home price
cycles. During the financial crisis, these policies contributed
to over 10 million foreclosures, which were proportionally
higher in low-income and minority neighborhoods.
Notwithstanding massive subsidies and lending, Federal housing
policies have not built generational wealth.
A Federal takeover of the appraisal industry could have
serious consequences similar to prior housing task forces, such
as the 1967 Presidential Task Force on Housing and Urban
Development, which ended up destroying many American cities,
especially Black neighborhoods, or the 1995 National
Homeownership Strategy, which ended in millions of
foreclosures. Mis-valuing millions of properties could have
similar consequences, with minorities once again being the
victims.
Thank you.
[The prepared statement of Mr. Peter can be found on page
97 of the appendix.]
Chairwoman Waters. Thank you very much. I now recognize
myself for 5 minutes for questions.
Mr. Bunton, in your invitation to testify, the committee
asked that you provide in your written testimony the racial,
ethnic, and gender diversity of all Appraisal Foundation staff,
boards, and members. Some stakeholders and industry
professionals have identified the Foundation's minimal
appraisal standards and qualifications as contributing to
barriers to entry for the appraisal industry, especially for
lower-income individuals, people of color, and women, so it
matters who is thinking about writing and setting those
standards. Others argues that those standards have a role to
play in the lack of diversity in an industry that is about 98-
percent White, and nearly 70-percent male.
I would like to know more about the current composition of
the Foundation's board. What is the current racial, ethnic, and
gender makeup of each board, including the Foundation's
qualifications board and standards board and the board of
trustees?
Mr. Bunton. Thank you very much, Madam Chairwoman. I will
start off with the Foundation staff. Fifty percent of the
Foundation's staff are people of color. I hired every one of
them. The Appraiser Qualifications Board is composed of nine
people. The last four people who were appointed over the last 2
years included an African American, a Native American, and also
a Hispanic woman, and 3 of the 4 appointees were women. So, of
the nine right now, three are women and two are minority. The
Appraisal Standards Board has seven members, three women and
four men, and there is one woman who identifies as a Native
American. The board of trustees has 21 people. I am going to
kind of guess here, I would say, I think it is 9 percent
minority and about 38 to 40 percent women.
Chairwoman Waters. In what year did each of the three
boards welcome the first board members of color? Has that been
recently?
Mr. Bunton. The Appraiser Qualifications Board was
appointed in 1989, and had a person of color on it at that
time. He was the assessor for the City of Atlanta.
Chairwoman Waters. Okay. You have three boards?
Mr. Bunton. That is correct. There has not been a person of
color on the Appraisal Standards Board. We have had a person of
color on the board of trustees for close to 20 years.
Chairwoman Waters. On the board of trustees, is there an
African American?
Mr. Bunton. Yes.
Chairwoman Waters. And the other two boards that you
mentioned, each of them have one African American?
Mr. Bunton. The Qualifications Board has one African
American, and one Hispanic, Native American. The Standards
Board does not have an African American, and has one woman who
identifies as Native American.
Chairwoman Waters. Thank you very much. Yes or no, do you
believe the lack of diversity at your organization and on its
boards has contributed to some of the bias and discrimination
that has been well-documented here today?
Mr. Bunton. No. In fact, in the last 2 years, since
February of 2020, we have been actively working on a number of
diversity, equity, and inclusion efforts. We hired an outside
consultant to make sure that we go out to get people on the
boards that you were just referencing. We gave this consultant
the entire portfolio, our application, how we solicit
applications, the questions we ask, how we rank candidates.
That person came back with suggestions and we have implemented
them starting this year as far as improving the diversity of
our boards.
Chairwoman Waters. Title XI of the Financial Institutions
Reform, Recovery, and Enforcement Act envisions the
relationship between the Appraisal Subcommittee and The
Appraisal Foundation to be that of grantor and grantee.
Presumably, this relationship would provide a check and balance
on the Foundation by the Federal Government for the
implementation of congressionally-required minimum appraisal
standards and qualifications. So, while the subcommittee has
made $2 million in grant funds available to the Foundation over
the last 2 years to support Title XI related activities, The
Appraisal Foundation did not accept these funds for Fiscal Year
2021. Whether intended or not, the Foundation is able to
effectively sidestep the Federal oversight by rejecting the
Federal funds.
In the past, Mr. Bunton, the Appraisal Subcommittee has
objected to burdensome education requirements that perpetuate
barriers to entry for the profession, and Federal regulators
recently sent a joint letter to the Foundation regarding Fair
Housing concerns with the Appraisal Standards Board's ethics,
rules, and Advisory Opinion 16. When the Federal Government
objects to your industry standards and qualifications in this
way, do you have an obligation to fully address these
obligations? Yes or no?
Mr. Bunton. Yes, and we have a separate meeting with those
agency representatives.
Chairwoman Waters. Do you believe Federal oversight is
needed in the establishment of minimum uniform standards and
qualification criteria? Yes or no?
Mr. Bunton. Yes.
Chairwoman Waters. Do you believe your standard should be
subject to the Administrative Procedure Act, to ensure that the
public has an opportunity to comment and that your organization
appropriately considered these views, yes or no?
Mr. Bunton. Yes.
Chairwoman Waters. Thank you very much. I yield back.
Mr. Hill, you are now recognized for 5 minutes.
Mr. Hill. Thank you, Madam Chairwoman. And as you know, our
distinguished ranking member, Mr. McHenry, was not able to be
with us this morning. I ask unanimous consent to insert his
opening statement in the record.
Chairwoman Waters. Without objection, it is so ordered.
Mr. Hill. Thank you, Madam Chairwoman.
Mr. Bishop, of course the housing market has been booming.
House prices are double-digit. There is a real shortage of
housing out there. Prices have gone up, but we drove interest
rates to zero. So, it has been a booming time for people trying
to do mortgage finance over the past 2 years particularly, and
I understand there is a shortage in the workforce of
appraisers. Is that true?
Mr. Bishop. Yes, sir.
Mr. Hill. And is it worse in rural areas?
Mr. Bishop. That is what I understand.
Mr. Hill. The PAVE recommendations for the Administration
talk extensively about a, ``well-trained, accessible, and
diverse appraiser workforce.'' Is that a goal you share?
Mr. Bishop. Yes, sir.
Mr. Hill. What actions are you taking to work with our
private appraisers around the nation to encourage and help
advance training for people of color to operate and serve as
leaders in the industry at the grassroots level?
Mr. Bishop. That is a great question. There are several
things that we have undertaken. The first is the Appraisal
Diversity Initiative (ADI). It is a collaborative effort
between Fannie Mae, Freddie Mac, the National Urban League, and
the Appraisal Institute, and it is backed by Chase Bank, which
made a $3 million commitment to help this endeavor. What ADI
has accomplished so far is through a bunch of seminar-type
events, they have identified minorities and people of color who
want to enter the appraisal profession, and about 150 of those
individuals have been selected and have entered the program.
Mr. Hill. That is good. How many licensed appraisers are
out there in the U.S. right now, more or less?
Mr. Bishop. Roughly 75,000.
Mr. Hill. Okay. So, that is a small step in the right
direction. I know my colleague, Alma Adams from North Carolina,
will probably talk to you at length about our initiatives with
our Historically Black Colleges and Universities (HBCUs), which
are great places to recruit. Do you have people actively
recruiting on those campuses?
Mr. Bishop. Yes, sir. One of the endeavors of the Appraisal
Institute is the University Relations Committee, and we are
just kicking off a pilot program now to get into the
universities. Our members are there already, and this is an
endeavor to organize it and make it more efficient, and our
targets are HBCUs, community colleges, and universities across
the United States.
Mr. Hill. Thank you, Mr. Bishop.
Mr. Peter, back in 2010, I referenced in my comments about
my experience in the 2008 crisis for appraisal mania, and
certainly, I witnessed it when I was at the Treasury Department
from the results of the late 1980s, particularly in the savings
and loan industry. In 2010, Democrats enacted the Dodd-Frank
Act as a part of that was financial system overhauls. The
Democrats in charge at that time made it illegal to violate
appraisal independence. Is that right?
Mr. Peter. I believe so.
Mr. Hill. How is the process harmed when you have
valuations that are not independent or fairly conducted?
Mr. Peter. I think the process can be seriously harmed from
a politicization of the appraisal process. For one, if that
were to happen, the government could potentially over-valuate
or mis-valuate properties on a massive scale. This would
exacerbate home price boom-and-bust cycles, and it would expose
the most borrowers with the least financial wherewithal to
potential swings which led--
Mr. Hill. Yes, thank you. I think we witnessed that several
times in recent years in our economy, most recently in the 2008
crisis. Are there any data out there on the effectiveness of
those prohibitions? In other words, is there any data to
support the integrity of an independent appraisal process?
Mr. Peter. I am not sure. I would have to get back to you
on that, sir.
Mr. Hill. How about data on the effectiveness of the anti-
discrimination prohibitions in the Equal Credit Opportunity Act
(ECOA) or in Title VIII?
Mr. Peter. We, at the American Enterprise Institute, at the
Housing Center, have undertaken a study of 240 refinance loans.
Mr. Hill. How many?
Mr. Peter. Of 240,000 loans, and what we found when we
looked at them was that there was no systemic appraisal bias.
As a whole, we looked at the industry, and we found no systemic
bias.
Mr. Hill. Okay. On average, how many reported violations
are there each year of ECOA or Title VIII, do you think?
Mr. Peter. The last numbers that I have seen from
[inaudible] that they were in the low double digits.
Mr. Hill. Okay. Thank you, Madam Chairwoman. I yield back.
Chairwoman Waters. Thank you.
The gentleman from New York, Mr. Meeks, who is also the
Chair of the House Committee on Foreign Affairs, is now
recognized for 5 minutes.
Mr. Meeks. Thank you, Madam Chairwoman. And I thank the
witnesses for their testimony.
Let me follow up with Mr. Bishop on some of the questioning
that the chairwoman was asking back and forth with Mr. Bunton,
when she discussed with Mr. Bunton about the board. My concern
also on top of that, Mr. Bishop, is that I could not agree more
with the chairwoman that diversity and inclusion is extremely
important in this industry. And when I looked at the Bureau of
Labor Statistics report, it shows that of the approximately
80,000 appraisers in this country,--these are the individuals
who are actually out there appraising--97.7 percent of them
identify as White. So, it seems that there is a complete lack
of diversity, which I believe also can feed into systemic
issues of Black homeowners receiving lower property appraisals
than White homeowners.
Can you speak to, what are the barriers? Are there
barriers? Why would it be so lopsided? Are there barriers to
individuals getting in to be appraisers?
Mr. Bishop. Yes, sir. It is difficult to get into the
appraisal business, particularly the residential side of the
business. Most appraisal companies are small, and
independently-owned, with one or two appraisers in the company,
and the common theme is, they do not have time to take somebody
and train them. They cannot afford to pay them while they are
doing it, and it takes away from their time to produce their
own appraisal, so it costs them money. That is the common
theme, which suggests that the current supervisor-trainee model
is not adequate for allowing entrants into the market,
particularly in the smaller residential-type appraisal
businesses. That is where the PAREA--Practical Applications for
Real Estate Appraisal--is an alternative to earning appraisal
experience by working for someone like me, who would take you
and mentor you through a 6-month or 1-year process to learn the
basics of appraising a residential house, and then you could
get licensed.
The PAREA Program will actually involve taking these
individuals and training them, and they will be matched up with
someone like me, an experienced appraiser. We envision it as a
series of case studies where they start off with a basic
appraisal, and each one gets a little bit more, not nuanced or
complicated, but it takes them through what a residential
appraiser would experience, working with me as their mentor, so
that on the outcome, they would then be qualified as a licensed
appraiser to go start doing appraisals.
Mr. Meeks. Mr. Bishop, I want to follow up with you
because, to me, any time you have an industry like that, and it
seems to be a block, it always comes to the point where there
are excuses. I am not saying that you are giving one today, you
are telling it as it is, but others give excuses which block
people from getting in, and we have to open that up. And I
think that is an area Congress can work on also, so that we can
eliminate these barriers that continually exist. And I would
like to follow up with you, but I am limited on time.
Mr. Bishop. Yes, I would be glad to follow up in writing on
any questions you have.
Mr. Meeks. Yes, please.
Mr. Bishop. Or just call me and I can talk to you.
Mr. Meeks. Very good. Let me jump to Ms. Rice, because I
have another question that, truth of the matter is, I do not
know which is best. Ms. Rice, unconscious bias is pervasive
throughout so many different aspects of the mortgage and
lending process, and I do not know which one is best. One is
prescriptive and the other one is more algorithm-driven. Which
is best, because I can see abuses in both? What would you say
is the best way to utilize it?
Ms. Rice. Congressman Meeks, thank you for the question. I
worked on a case a number of years ago in which a judge opined
that appraising was an art and not a science, and the art is
where we bring in a lot of discretion, subjectivity. And I
think what we are trying to do is move the field away from
being more discretionary and having a lot of subjectivity in
the process to one that is more scientific, more uniform, and
more standardized. The algorithmic-based systems can be
problematic because they are using data that has bias embedded
and baked into the data.
Mr. Meeks. Thank you.
Ms. Rice. So, both need help.
Chairwoman Waters. Thank you, Mr. Meeks.
The gentlewoman from Missouri, Mrs. Wagner, is now
recognized for 5 minutes.
Mrs. Wagner. Thank you, Madam Chairwoman.
Mr. Peter, the PAVE Task Force acknowledged in its own
report that, ``Much of the gap in rates of homeownership can be
traced to socioeconomic factors that differ on average between
Black and White homeowners.'' The task force went on to
recommend 21 actions. Did any of those relate to the above
statement?
Mr. Peter. No, they did not.
Mrs. Wagner. What would be the result of taking these
actions if they result in improper evaluation of homes?
Mr. Peter. Thank you for the question. The consequences
could be really catastrophic, particularly for minorities and
people living in rural areas. There, you do not have as many
home sales, so if you mis-valuate properties in this area, you
could easily exaggerate home price boom-and-bust cycles, which
would expose those to a larger default.
Mrs. Wagner. And whom do you think would be most affected
by the taking of these actions and the improper valuation of
homes?
Mr. Peter. It would be mostly lower-income people, and
there is a history of this every time the Federal Government
has gotten involved in the housing market. They tried to fix
big problems, like in 1967 when they tried to eliminate all
substandard housing. It has crashed and burned, and it has
ruined neighborhoods, particularly for minorities in lower-
income neighborhoods. Likewise, in 1995, there wasthe National
Homeownership Strategy, where the goal was to raise the
national homeownership rate up past levels that we have ever
seen before. And, of course, it created a massive home price
boom that later came crashing down and ended up in millions,
tens of millions of foreclosures, and it ended up wrecking the
economy. And, again, the people hurt the most were lower-income
minorities.
Mrs. Wagner. Mr. Peter, have past Presidential task forces
or strategies on housing topics--and you just outlined a few
examples here--created meaningful changes or results? And,
probably more importantly, what should be our takeaway from the
previous times that the Federal Government has substantially
increased its role in the housing market?
Mr. Peter. I think we really need to be careful with
Federal takeovers of the appraisal industry, and as I already
mentioned, in the past, these actions have crashed and burned.
And again, if you were to repeat something like this, the
danger of doing it wrong could far outweigh the benefits of
doing it right. And furthermore, I think the Federal Government
has not proven its case. All of the claims in the PAVE report
are unsubstantiated, and instead, we should be focusing on
improving the socioeconomic status of lower-income minority
Americans so we can actually address the root causes and not
the symptoms here.
Mrs. Wagner. The root causes, absolutely. Mr. Peter, if the
recommendations of the PAVE Task Force went into effect, could
you detail what some of the results might be for potential home
buyers in rural America?
Mr. Peter. As I stated before, I think it would potentially
mis-value homes in rural areas, and the consequences could be
dire, but then also, the PAVE report talks about releasing data
publicly. And, of course, the data would be restricted, the
data that can be released to the public would be heavily
restricted, at which point it would actually be useless to use
for independent researchers such as myself to verify what the
government has done. But the PAVE Task Force is recommending,
and then the government would be having all the data
internally, but after the PAVE Task Force's recommendations and
what they have come up with, I am very skeptical that the
government is going to come up with the proper analysis. And,
hence, I think we need to be very careful about the PAVE Task
Force recommendations.
Mrs. Wagner. I thank you very much for your very frank and
honest input. I, too, am skeptical of most of these Federal
agency task forces and recommendations going forward. I thank
you for your testimony.
I thank all of our witnesses, and I yield back the
remainder of my time.
Chairwoman Waters. Thank you very much. The gentleman from
Georgia, Mr. Scott, who is also the Chair of the House
Agriculture Committee, is now recognized for 5 minutes.
Mr. Scott. Thank you, Madam Chairwoman. Ms. Rice, I want
you to help shine a light on just who has generational wealth
in America today, and also the many ways in which this kind of
accumulated wealth can impact the social mobility of the
average American family. So, to start with, who would you say
holds the majority of American wealth today?
Ms. Rice. Congressman Scott, thank you for the question. We
know that we have grave racial wealth disparities in the United
States. When it comes to households with children, families
with children, Black households have $0.01 of wealth for every
$1 of wealth held by White households, and Latino households
have $0.08 for every $1 of wealth held by White households.
Mr. Scott. That is very remarkable. Now, tell me some of
the common ways that middle-class people inherit wealth?
Ms. Rice. Many families inherit wealth because they get it
from their parents, and that wealth is passed down, and for the
typical family, most wealth is held in home equity. So,
homeownership really is the path to wealth-building and has
been the path to wealth-building for the typical American
family for hundreds of years.
Mr. Scott. I am glad you mentioned real estate as one of
the assets that families pass down to their children and
grandchildren. But also in your testimony, you also say, ``Home
value in the United States is the cornerstone of generational
wealth.'' And you further stated that historical appraisal
practices have created some of the worst inequities and
inequalities among Black and Hispanic families. So, Ms. Rice,
can you explain to us how lower appraisals limit the amount of
equity that a homeowner can earn from their home if they were
to sell or refinance?
Ms. Rice. Certainly. Thank you for the question. When a
home is undervalued, what that means is that as the borrower is
paying down their mortgage debt, they are not seeing an
appreciation in the equity that they are able to amass in the
home. And the lower the equity in your home, that means that
you are not going to be able to transfer as much wealth to your
children when you make your transition.
Mr. Scott. What do you believe is the root cause of this
under-evaluation, and how can we here in Congress work together
towards a more equitable valuation of homes?
Ms. Rice. There are many root causes, and this is an issue
I have been working on for almost 40 years. One of the root
causes is a lack of diversity in the appraisal field, a lack of
familiarity with appraisers who are appraising properties in
underserved communities of color. We also have a long, long
history of race-conscious policies in the appraisal sector, and
that data has flooded our marketplace, if you will. And a lot
of the technologies that we use in the appraisal field are
built on data that is embedded with this biased information,
and that also yields disparate outcomes.
Mr. Scott. Mr. Kelker, Ms. Rice mentioned technology. Do
you believe that technology, such as online appraisals, is the
answer to ending discrimination in the appraisal industry?
Mr. Kelker. I don't believe that is the sole answer to
ending discrimination. However, the addition of technology-
based solutions help a third party, whether it is an AMC or a
lender, to evaluate the quality of the appraisal data that they
are receiving from the field. So, it helps--
Mr. Scott. Thank you.
Mr. Kelker. Okay.
Mr. Scott. My time has expired. Thank you, sir.
Mr. Kelker. Certainly.
Chairwoman Waters. Thank you very much. The gentleman from
Texas, Mr. Sessions, is now recognized for 5 minutes.
Mr. Sessions. Madam Chairwoman, thank you very much.
Mr. Bunton, you have sat through this entire hearing, been
here, heard the testimony of the president of The Appraisal
Foundation. You have listened to Ms. Rice and others today talk
about the numbers of people, supposedly the data that is
flawed, the data that might be biased, the lack of minority
participation. I heard you enumerate the people who work within
your industry that are on your boards, the people who would
represent you and The Appraisal Foundation. The chairwoman
spoke of this in her few minutes. She was highlighting the
issues, and discrimination, and bias that became very apparent
today in the hearing.
Would you tell me what you think you heard that was
discrimination and bias? Is your takeaway as the president that
you would walk out of here and say to your organization, I
heard in this hearing this discrimination and bias and what you
might want to do about it, because I have heard numbers that
suggest minority participation back home in States, in
localities, do not necessarily represent the numbers that we
want. But what did you hear?
Mr. Bunton. I think there is a problem, the press reports.
There are three things I would talk about as far as bias and
discrimination. One, identify the problem. Right now, there is
no aggregation of data, how many complaints are actually out
there at the State level, Civil Rights Commission, or with HUD,
so that is one.
Mr. Sessions. Was there testimony given today related to
that, because we heard that the numbers don't exist there.
Mr. Bunton. Correct. That is what I am saying. We need to
find that out. We need to get our arms around the size of the
problem. If we don't know where we are today, how will we
measure success 12 months from now? There are a lot of
anecdotal, a lot of press reports, very concerning press
reports, but I have not seen any specific data that tells me
the depth and breadth of the problem.
Mr. Sessions. Do you think this hearing today developed
that issue? Are you going to walk out and say, well, this
hearing produced results that I need to go back, or are you
going to have to go back and define these yourself as opposed
to this hearing producing them?
Mr. Bunton. I think it is important to focus on the issue.
It is an important issue, from our perspective, the area of
awareness, education, making sure appraisers are aware of
unconscious bias. But also one other thing, sir, and that is
enforcement. The Federal entity, the Appraisal Subcommittee,
when it goes out and does compliance reviews to the various
States, it does not check for consistent compliance of our
standards. So we write the standards, but if we are not
checking on the enforcement of it, we are going to have a
problem.
Mr. Sessions. What are they there to do if they are not
there to check on the--
Mr. Bunton. They check administrative matters, like when
the case was filed, how long did it take to adjudicate it, and
things like that. But they do not seem--
Mr. Sessions. They sure seem to be biased in that process.
Mr. Bunton. It is a little surprising that doesn't occur.
Mr. Sessions. It does or does not occur?
Mr. Bunton. It does not occur.
Mr. Sessions. It does not occur. So, perhaps part of what
we need to do is to ask the questions of those people who do
these audits, and you are suggesting you have not seen that
bias that is there.
Mr. Bunton. That is correct.
Mr. Sessions. I want to be very sympathetic to any person
who would choose to enter the marketplace in any area that
would be important for them based upon their qualifications and
desires. And I want to be very much supportive of not just Mr.
Meeks' comments, but also the chairwoman. I am simply saying I
did not hear these in the testimony that was given today. So,
it would be my one question for you to go back and to really
listen to what Ms. Rice said about things that are embedded in
databases.
I saw from her testimony what may have been old data. There
was no date that appeared. For us here today, perhaps if this
were 1983, I thought those terms that were embedded in, what
she brought forth were out of the norm also, so I want to agree
with her. But I would like to have you go back and take a look
at the databases that you look at across the country and see
what your current snapshot is, because I want to be very
sympathetic to the ideas that this bias or discrimination
exists. And I want to thank the chairwoman in this endeavor,
and I think that we need to look deeper for those viewpoints.
And I thank the chairwoman for bringing this together today.
Chairwoman Waters. You are welcome. The gentleman from
Texas, Mr. Green, who is also the Chair of our Subcommittee on
Oversight and Investigations, is now recognized for 5 minutes.
Mr. Green. Thank you, Madam Chairwoman. I, too, greatly
appreciate this hearing today, and I have had some experience
with these circumstances. I have talked to REALTORS and persons
who claim that their properties have been undervalued. This
starts with the person who appraises the property. Sometimes,
the attitudes are not such that you feel comfortable with the
person you are working with, but let us get beyond that and you
get your appraisal. At some point, you decide that this is not
an appropriate appraisal. It is too low. You have to now go to
your bank, you have to now try to get the person who made the
actual appraisal to reconsider, and that attitude that you
experienced at the genesis of the process becomes even more
prevalent as you challenge the appraisal.
Discrimination is illogical. It makes no sense for people
to do it, but it happens. And it seems to me that there should
be some process by which persons who receive an undervalued
appraisal can appeal to someone other than the bank and the
person who initiated the original appraisal. So let me ask you
Ms. Rice, your thoughts on some sort of process that gives us
at least some third party to appeal to.
Ms. Rice. Thank you so much, Congressman Green, for the
question, and I did want to correct something for the record.
The anecdotes and the research in my testimony is all recent.
It is not dated information. It is all very recent, within the
past couple of years. So your question about the
reconsideration process is very important, because oftentimes,
when consumers experience undervaluation, the first thing that
they have to do is go back to the lender and ask the lender to
order a second appraisal or have the appraiser reevaluate it.
And so, the call is made by the lender. It is not made
necessarily by the appraiser or made by the consumer. If the
lender will not grant the request for reconsideration, then the
initial appraisal, which may undervalue the property, will
stand.
So we agree with you absolutely, Congressman Green, that
there has to be a reform of that process. And what we are
suggesting is that consumers be considered, that the law be
changed so that consumers are considered as the intended user
for the appraiser. After all, it is the consumer who pays for
the appraisal, so the consumer should have the right to request
a reconsideration and have that request granted.
Mr. Green. Ms. Rice, perhaps the industry itself could do
more to monitor these things. For example, if you had some sort
of third party involved, some entity that is not vested in this
process, you can track the number of persons who are giving us
appraisals that are undervalued. You can then have that
information compiled such that the things that have been talked
about earlier that we don't have, we could have that
information. Are your thoughts in the reclamation process
having the third party or some entity to perform this function
of re-evaluation?
Ms. Rice. One of the things that we do agree on is that the
Appraisal Committee should be elevated to a Federal agency, and
it could be that third-party agency that you are talking about,
Congressman Green, that has expanded and increased authority to
provide oversight. One of the things I do want to point out is
that there has been a lot of talk about the over-appraisal of
values in the lead-up to the foreclosure crisis. But I want to
point out that most of those abuses, the lion's share of them
happened in the subprime sector, which was not regulated. So,
we do need appropriate regulation over the valuation of
properties.
Mr. Green. Thank you, and I will just close with this:
Unfortunately, many people will never experience what it is
like to be alone with a person of a different hue, who has an
attitude, and you are trying your best to appeal to the person,
but this person, for whatever reasons, chooses to treat you
with disrespect. That happens in this process.
Thank you, and I yield back.
Chairwoman Waters. Thank you very much, Mr. Green.
The gentleman from Florida, Mr. Posey, is now recognized
for 5 minutes.
Mr. Posey. Thank you, Chairwoman Waters. Mr. Peter, are
there any peer-reviewed studies or meta analyses of multiple
studies that establish a strong case for the existence of
racial bias in real estate appraisals?
Mr. Peter. No, sir, I am not aware of any. In fact, I am
only aware of studies that disprove it.
Mr. Posey. The purpose of a real estate appraisal is to
provide an estimate of market value on a property that is
prospectively going to be sold or bought. What does your
research suggest about the accuracy and overall error rates
associated with single appraisals that is a reliable metric of
market value, and what should be done to improve the overall
accuracy of appraisal methods?
Mr. Peter. Thank you, sir. That is a great question. And
what our research has shown is that under-appraisals, as they
come in, actually provide a great value to borrowers. So if the
appraisal comes in far below the negotiated sale price, it
provides a consumer benefit, because the borrower now has the
opportunity to go back and renegotiate the sale price. It gives
him power to go back to the seller.
And oftentimes, what the research found--Fannie Mae found
that the larger the difference is between the actual negotiated
sale price and the undervaluation, the larger degree of
revaluation and the greater the consumer benefit. And also, the
research shows that there is not much drop-off, meaning not
many loans that come in under-appraised end up dropping off the
market. So, they are just getting renegotiated and still get
done.
Mr. Posey. Very good. Now, who gets harmed when an
appraisal comes in for more than the actual value that it
should be?
Mr. Peter. Could you repeat that?
Mr. Posey. Who is harmed when--
Mr. Peter. Oh, who is harmed?
Mr. Posey. --when an appraisal comes in.
Mr. Peter. Yes. If an appraisal comes in low in a purchase
transaction, it ultimately benefits the buyer, but the seller,
of course, has to renegotiate, and they are losing some money
on the sale price. But you cannot have it both ways. If under-
appraisals are the issue, then you are providing a benefit to
the consumer and the seller is losing somebody. You cannot have
it both ways.
Mr. Posey. Yes. I would think that to insist that appraisal
just meets the criteria that somebody wants can do more harm to
that person than good. Do you agree with that assessment?
Mr. Peter. Yes, absolutely. And on refinance appraisals,
oftentimes it is the approach comes in, what do you need, and
that oftentimes allows borrowers to borrow more than they can
actually afford. And what we have seen is kind of the studies
out there from Kermani and Wang from UC Berkeley which show
that actually, if you wouldn't have all of these foreclosures
in these neighborhoods, the home price appreciation in White
and majority-minority neighborhoods would actually be similar,
but it is the foreclosures that bring down the return for these
minority borrowers. So that is, I think, what we need to
address. Next to socioeconomic status, I think we need to
really address the lending practices that exist in some of
these minority neighborhoods.
Mr. Posey. Very good. I appreciate it, and I yield back,
Madam Chairwoman.
Chairwoman Waters. Thank you. The gentleman from Missouri,
Mr. Cleaver, who is also the Chair of our Subcommittee on
Housing, Community Development, and Insurance, is now
recognized for 5 minutes.
Mr. Cleaver. Thank you, Madam Chairwoman. Ms. Rice, are you
familiar with the term, ``rubophobia?''
Ms. Rice. No, sir, I am not.
Mr. Cleaver. Maybe I made it up. But the point is, there
are those of us who have apprehension about some of this new
technology like artificial intelligence (AI). And so, we are
becoming well-known across the country as either [inaudible] or
we are suffering from, ``rubophobia.'' The issue is, human
beings tend to trust AI as much as they trust other human
beings. So, when we talk about bias, do you believe that bias
can be programmed into AI?
Ms. Rice. Congressman Cleaver, thank you for the question.
Yes, absolutely. AI systems, algorithmic systems are just a
reflection of human performances. AI reflects what happens in
the marketplace, so if there is discrimination in the
marketplace, then the AI system or the algorithm doesn't have
to be an artificially intelligent system; it could be a linear
regression system. It will pick up and reflect the bias that is
embedded into the data. So, if you have communities of color
where there are sort of systemic undervaluations of prices, any
algorithmic model that is going to value a property is going to
repeat the undervaluation. And, in fact, algorithmic systems
could actually amplify bias and undervaluation.
Now, I heard my colleague here, Mr. Peter, say that he
thinks that undervaluation of a property is a good thing for
consumers. I don't want my property undervalued, because it is
a not a good thing for consumers in the long run. Accurate
appraisals are what we want. That is the goal, not undervalued
or overvalued appraisals. Neither are good.
Mr. Cleaver. You can also practice some psychiatry. Thank
you. It is helping treat me. Mr. Peter, do you believe that
there are dangers in AI, in particular as we as we think about
the issue of appraisals?
Mr. Peter. Yes, I think there are some concerns that are
out there, and I am not an expert on this. But I would like to
add at the same point, that you have these models that could
also be tweaked, even without AI, especially when you have
competition between Fannie and Freddie. If they were to be put
in charge of these AVMs, they could compete with each other and
it could lead really to a race to the bottom. It happened
during the 2000s with automated underwriting systems, where
they progressively competed against each other. Each one
thought they were smarter than the other, but because they were
the market, it led to detriments to consumers.
Mr. Cleaver. Thank you. Actually, I don't have enough time
for everybody to deal with this, but LBJ pushed through the
Fair Housing Act of 1968. Is there an immediate need to upgrade
the Fair Housing Act of 1968?
Mr. Bishop. I am not familiar enough with the Fair Housing
Act of 1968, but there is a Fair Housing Act out there right
now that appraisers should get educated on. If they haven't,
then we are in support of the PAVE Action Plan recommendation
to educate appraisers. Nothing could help an appraiser more
than to learn about the history of the housing markets, and
redlining, and things along that line that were completely
inappropriate up to this point in time. They also need to learn
about their unconscious bias, how to recognize it, and then how
to interrupt it so that it doesn't appear in their reports.
Fair Housing is part of that education along with everything
else and we support that.
Mr. Cleaver. Thank you. I yield back my time.
Chairwoman Waters. Thank you. The gentleman from Missouri,
Mr. Luetkemeyer, is now recognized for 5 minutes.
Mr. Luetkemeyer. Thank you, Madam Chairwoman. Mr. Bishop,
you are the sole appraiser on this panel, if I am not mistaken.
That is your business that you run. Is that correct?
Mr. Bishop. Yes, sir.
Mr. Luetkemeyer. I was a bank examiner for a couple of
years, and I was in the banking business for 30 years as well
as the insurance business. I have looked at, if not hundreds,
thousands of appraisals through my time, and I have gone
through lots and lots of situations where people come in and
they want you to over-appraise or under-appraise, based on
whatever they are trying to accomplish with the mortgage they
are trying to get or the insurance they are trying to get.
It is interesting to watch a different dynamic of how this
all goes on. But I also have a really, really good friend, one
of my closest friends, who is an appraiser, and he constantly
talks to me about the problems in the field itself today and
the industry with people not wanting to come in because of the
restrictive nature of the regulations that came out a few years
ago with regards to having to have a college education. You
have to have 2 years of apprenticeship. I am not sure if those
are still the samec, because when I, myself, and Mr. Cleaver
over here were chairman and ranking member of the Housing and
Insurance Subcommittee a few years ago, we worked on this issue
a little bit.
Can you tell me the problems that we have right now with
the appraisal process, of getting educated to become an
appraiser, that we need to maybe take a look at? I think my
friend, Mr. Sessions, here had a great discussion with Mr.
Bunton a minute ago with regards to enforcement. And I think
those two go together from the standpoint that we need to get
the right people in there who had the right education, rank
balance of this, and then be able to enforce the folks who are
bad actors in there to clean it up and maybe do a better job so
we don't have this perceived problem we are talking about this
morning.
Mr. Bishop. Yes, sir. That is a great question. As I
alluded to or answered earlier, the Appraisal Diversity
Initiative (ADI) is one step. The University Relations
Committee Program that the Appraisal Institute has is another
step to get the profession exposed to young folks at college
level in HBCUs, community colleges, and universities. That is
underway right now as well. The present Institute has had the
education and relief foundation available for scholarships for
women and minorities for a number of years to help them pay the
cost of the initial education that licensing requires, that is
what ADI does. ADI is simply a scholarship program. There are
150 folks who have entered at age 18, and have graduated and
been placed in positions to do appraisals as trainees, and
another 100 or so in a program right now.
Mr. Luetkemeyer. Okay. Let me stop right there. I think
there are a couple of problems here. One is education, the
amount of education that you have to have to be able to qualify
to get your appraisers license, the amount of time it takes to
become an appraiser, the apprentice process, because they just
said a while ago that the appraisers don't want to have a
trainee there because it takes away from their time, and costs
them money. And a person going through the apprentice process
really can't afford to have 4 years of education, not being
able to get really much of an income for 2 years as they go
through the apprentice process as well. I think those are
problems with all of that, and it deters people from getting
in. And I can tell you, I have 13 counties in my district, and
I am going to bet that, safely, 7 to 8 of them are probably
going to have a single appraiser in the county, or none, zero.
There is a huge problem with people beginning in the profession
being able to actually do the work.
And so, I think we need to work with both the Foundation
and the Institute to try and find a way to make itz, not
necessarily easier, but to streamline the process here so that
people can become appraisers and fill a need here or fill a
gap, because I can tell you the time it takes to get one if you
do a closing alone, it might take another 30 days to 6 weeks to
get an appraisal because of the lack of people in a profession.
That is a big problem when you are trying to finance a new home
or buy a new home and get it appraised and get it financed.
Mr. Bishop. Yes, I have experienced that for about 30
years, trying to hire appraisers and get them through the
initial training process. It is 3 education programs that costs
you about $2,500. You can do it over about 3 or 4 weeks if you
really press hard. Most people take a little bit longer--
Mr. Luetkemeyer. Are you guys looking at a new way to
streamline this, put some processes in place, new education
requirements?
Mr. Bishop. Right. We are the appraisers. So if we don't
set the policy for education, the Foundation does.
Mr. Luetkemeyer. Mr. Bunton?
Mr. Bunton. Yes, the hearing you referenced a few years
ago, since that time, we have reduced the amount of experience
required for the licensure level from 2,000 hours over 12
months, to 1,000 hours over 6 months. There is no more college
required for the license level. For certified residential, we
reduced the experience to 1,500 hours, and we eliminated the 4-
year degree, and now it is an associate's degree or equivalent
with 10 classes. And as I mentioned earlier, with the simulated
training, you don't need to supervise appraisers anymore--
Mr. Luetkemeyer. Sir, have you seen an improvement in the
numbers as a result of that?
Mr. Bunton. Yes.
Mr. Luetkemeyer. Okay. Thank you very much. I yield back.
Chairwoman Waters. Thank you. The gentleman from Colorado,
Mr. Perlmutter, who is also the Chair of our Subcommittee on
Consumer Protection and Financial Institutions, is now
recognized for 5 minutes.
Mr. Perlmutter. Thanks, Madam Chairwoman. And I guess where
I am coming from is I would like more education and less
discrimination. That is what I would like to see so that we
have a system that really works for everybody, that there isn't
bias against a person, there is no bias to go high on the loan,
or high on the mortgage, or low on the mortgage. I represented
a lot of appraisers as part of my law practice over the years,
both commercial and residential. So appraisers are really
important to the whole process, and we have to make sure it is
as transparent and honest and without bias as possible. And I
think everybody who is testifying today would agree with that.
I will start with you, Ms. Rice. You have given some
anecdotes and some other pieces of data within your testimony,
including the one you kind of mentioned earlier in your
testimony about a couple where there was a $145,000 increase in
the home's appraisal when it was a White woman who greeted the
appraiser versus the Black man. And for anybody who sees that
kind of differential, it has to be infuriating. In your
presentation, you have a recommendation for congressional
action, your testimony describing how Congress should encourage
the Foundation to limit discretion and provide more consistency
in the appraisal process. Can you amplify that, elaborate on
that for me, please?
Ms. Rice. Certainly. There is not one panacea. There are a
number of things that need to be addressed. For example, the
common way that appraisers are required to conduct what is
called a sales comparison, use the sales comparison approach to
appraise a property, now that standard is set by the
Government-Sponsored Enterprises (GSEs), not necessarily by The
Appraisal Foundation. But that sales comparison approach yields
more discretion and subjectivity into the process because the
appraisers can select which comparables they are using, and
then the appraiser also has to use their expertise in order to
make adjustments to get the comparable to match the subject
property.
That whole process is highly subjective. So, we are
advocating sort of using more standardized procedures and
policies to select comparables and to determine adjustments,
but also there can be other approaches that could be adopted.
We don't have to use the sales comparison approach, and this is
something that we did in the insurance industry. We helped move
the insurance industry from being more artistic in the
valuation of property to a more scientific approach that didn't
involve the greater utilization of technologies to make sure
that you are getting the measurements accurate, that you are
getting the number of rooms accurate, that you are getting the
type of materials accurate, and things of that nature. But it
moved to a much more scientific and more accurate approach.
Mr. Perlmutter. Okay. And I guess back when I was
representing appraisers, and this is more on the commercial
side, you had sales, you had income, and you had cost. You
looked at all three, and at this point, you have to really
trust the appraiser to take those three things into
consideration to come up with an appropriate appraisal. I guess
I would like to talk to you, Mr. Bishop, and to you, Mr.
Bunton. Have either of you, in an effort to get rid of a
potential bias in the system, been working with the Urban
League, Fannie Mae, or Freddie Mac, to attract a more diverse
workforce so that we know that appraisers across the country
look like the country?
Mr. Bishop. Right. Absolutely, the appraisers should mirror
the communities, the faces of the communities they work in, and
that is the diversity effort. And the endeavors that I
mentioned, another problem or another potential roadblock is
when an appraiser is a trainee, the client won't allow a
trainee to go look at a property, a bank, so I will have to go
look at it with them. They can't go on their own. Even though I
determine, as their mentor, that they are completely capable of
inspecting a property on their own, it is the client's
regulation, the lender's regulation that a trainee cannot be
the sole person to do the property inspection. So, there is
somewhat of a barrier right there just from the client.
Mr. Perlmutter. Yes. My time has expired, so thank you.
And, Mr. Bunton, I will get back to you. Thank you. I yield
back.
Chairwoman Waters. Thank you. The gentleman from Texas, Mr.
Williams, is now recognized for 5 minutes.
Mr. Williams of Texas. Thank you, Madam Chairwoman. And I
want to commend you, Mr. Peter, for your testimony and body of
work demonstrating that a few bad actors should not be used to
label the entire appraisal industry as racist. But before we
get into more questions, poking holes into this narrative being
driven by the Democrats, I wanted to take a second to talk
about the President's budget request that was released
yesterday.
In this proposal, President Biden wants to implement a tax
on unrealized gains that he estimates will generate over $360
billion in tax revenue. He wants the IRS to act as an
appraiser. Now, imagine that. Imagine the IRS acting as an
appraiser and assigning a taxable value on a variety of
illiquid assets. I am very concerned that this unconstitutional
tax is being considered because it says the President is
inserting a third party, which is the IRS, which hasn't had
quite that good of a record in the past on these issues, so to
estimate a tax value on asset instead of the free market.
An appraisal value of something is irrelevant if there are
no buyers willing to pay for it. I know about that because I am
in the car business. And we are talking about appraisals in the
housing markets, so there must be a lender willing to give the
prospective borrower the land or the loan based on the
appraised value of a home. Now, this two-party agreement
doesn't exist in the President's proposal to generate tax
revenue based on unrealized gains and this market is completely
removed from the equation. So while we are told this will only
affect the ultra-wealthy, we all know that this is not true. If
this proves to generate increased tax revenues, the thresholds
will be lowered to affect many more people in the future,
mainly all people.
So, Mr. Bunton, can you discuss the negative consequences
of taxing unrealized capital gains?
Mr. Bunton. I think that is a little bit out of my league,
so I am not really competent, to be candid with you.
Mr. Williams of Texas. Would you like to answer that, Mr.
Peter?
Mr. Peter. I kind of have the same answer, but if I may,
sir, I would like to make a point about Congressman Green's
earlier point about finding a third party to perform evaluation
of appraisers. Two years ago, we developed a statistical
approach at the AEI Housing Center that would tell you within a
day's work if appraiser A is perhaps biased, if appraiser B is
not, if appraiser C is just incompetent. So, I would like to
volunteer the AEI Housing Center for such an approach if FHA,
Fannie Mae or Freddie Mac were to make the data available to us
on an anonymized basis.
Mr. Williams of Texas. Okay. I will just say some of the
negative consequences of taking unrealized capital gains, that
is dangerous because they have no cost and they just guess, and
the consumer or the borrower is the one who pays the price.
Competition is a form of government protection or consumer
protection, and if you have an appraiser who understands true
market value of a house, the owner can request a second
opinion. Now, this process takes more time and more money,
something that lenders want to avoid as much as possible. The
accuracy is extremely important for the lenders, which are the
ones that hire the appraisers in order to underwrite a loan for
the correct amount. So, rather than looking to centralize this
process and create more avenues for lawyers to get involved, we
should be looking at ways to get more appraisers into the
market. We talked about that today.
The bottom line is, you create more competition, which
basically can drive prices down. And if you have more
competition, lenders will have more options to choose from if
the appraisers there use consistently undervalued homes.
Lenders will choose to do business with the businesses based on
their performance and accuracy, so the best appraisers will
rise to the top while the others will lose their market share.
So, a competitive marketplace will drive out bad actors as it
does in everything, and not another layer of government
bureaucracy.
Mr. Peter, my last question is, what are some of the ways
we can increase the number of appraisers in the market so we
can ensure that this is as competitive an industry as possible?
Mr. Peter. This seems probably a question more
appropriately directed at my colleagues here. But what we have
outlined in our previous work is that the appraisal industry
should actively recruit with minority Black colleges to
diversify the industry. But at the same time, scapegoating the
whole industry certainly is not going to be good for finding
new recruits to the industry.
Mr. Williams of Texas. What I will say is that competition
is key in anything. We have competition among the private
sector. The consumers decide what the prices are, which drives
prices down and takes services up, and that is what we need to
be doing. The IRS can never touch that. They don't understand
competition and they don't understand services.
With that, Madam Chairwoman, I yield back.
Chairwoman Waters. Thank you. The gentlewoman from Ohio,
Mrs. Beatty, who is also the Chair of our Subcommittee on
Diversity and Inclusion, is now recognized for 5 minutes.
Mrs. Beatty. Madam Chairwoman, thank you, and I would also
like to thank the witnesses for being here today. Madam
Chairwoman, a special thank you to you for being a consistent
champion of housing and funding. I was pleased also to see the
President has requested an $11 billion increase to HUD's budget
for the 2023 Fiscal Year to address the housing challenges in
the nation. And we certainly do have challenges that we have
yet to overcome, many of which we have discussed or heard from
our witnesses today.
And that leads me to my first question, which is for you,
Ms. Rice. But before the question to you, let me just say thank
you as a point of personal privilege in knowing you, and
knowing that the Congressional Black Caucus Foundation during
our ALC gave you a housing award for all of your work.
You shared in your testimony anecdotal information about
Black homeowners facing appraisal biases. We frequently know
and have heard of the stories of Black families having to,
``Whitewash,'' their homes, which means removing all traces of
their rich culture and heritage, resulting in the home
receiving a higher valuation price than its original appraisal
by 40 percent or more. I have experienced this firsthand as a
child, with my father. I believe it is not possible for the
Uniform Standards of Professional Appraisal Practice to say
that biases in appraisals are prohibited when individuals are
forced to remove traces of their race or ethnicity in order to
receive a fair valuation of their home.
Do you think the basis of the valuation process should be
reevaluated to identify opportunities for potential appraisal
bias?
Ms. Rice. Congresswoman Beatty, thank you so much for the
question. Yes, I do.
Mrs. Beatty. Okay. Let me go to my next question, and I may
have time to come back with a follow-up, Ms. Rice.
This question is for Mr. Kelker. One of the things most
glaring from the PAVE report and all of the witnesses'
testimony today is the lack of consistent data collection on
appraisals and property valuation over time. As Chair of the
Subcommittee on Diversity and Inclusion, we previously issued
requests for data from banks, from asset management firms, and
from insurance companies. And we did this in an effort to
promote diversity as well as to promote transparency and to
establish a baseline measure for future success in D&I
practices, but also for changing cultures and creating equity.
Can you explain how the impact of data collection of
residential property appraisals can promote equity in home
valuation? If we have enough time, what would be the primary
area of focus when collecting specific types of data for the
appraisal industry?
Mr. Kelker. The data that would be collected would be the
physical characteristics as well as the market data that is
contained in appraisals. But with respect to any individual
AMC, I don't think anyone has enough concentration of data to
actually be very useful. That data ultimately ends up at places
like Fannie and Freddie, but through FHA, where I believe it
can be accumulated and analyzed and in many ways become useful
to the marketplace and for regulatory purposes.
Mrs. Beatty. Thank you. Ms. Rice, let me circle back and
ask you, how can the appraisal industry mitigate implicit and
unconscious bias in the valuation of residential property?
Ms. Rice. Training on fair housing issues is critically
important and updating the current training that appraisers
have to receive, we think is necessary. We think that there are
gaps in the current training program, but we also have to
change the system, because it is in part the system that is
driving some of the disparities that we are seeing. So, we have
to change the system so that we are increasing standardization
for more uniform outcomes and more accurate appraisals.
Mrs. Beatty. Okay. I yield back. My time is up.
Chairwoman Waters. Thank you. The gentleman from Tennessee,
Mr. Kustoff, is now recognized for 5 minutes.
Mr. Kustoff. Thank you, Madam Chairwoman, and thank you to
the witnesses for appearing today.
Mr. Bishop, we talked about the PAVE report that was
released last week. I think we all know that the regulatory
structure for real estate appraisal is outdated. We have talked
about that. It has been untouched since 1989. I have a bill,
H.R. 5756, the Portal for Appraisal Licensing (PAL) Act, which
I introduced with Congressman Perlmutter. It is bipartisan
legislation that would establish a nationwide cloud-based
licensing system for real estate appraiser certification and
licensing. It would also direct the Appraisal Subcommittee to
work with State appraisal regulatory agencies to establish
consistent license application and renewal procedures for
appraisers.
Could you talk about how this legislation, if it were
enacted, could increase coordination across State lines, and
whether it would help the profession?
Mr. Bishop. Thank you, and that is a great question.
Absolutely, it would help. I am licensed in three States. I
have a primary State right now. In the last 5 years, I have
been fingerprinted twice for two different States. I have 3
application renewals, one in January, one in April, and one in
June. One is very easy and accommodating. It is almost a
formality. For the others, I have to recreate basically what I
am recreating from my primary State to give that State, which
is duplication, and it takes time to do that. There are a lot
of appraisers that are in multiple States, as many as 30 and
40. The PAL Act, which we support and really wish that it could
get passed, would simply be a data warehousing, a place for all
of the appraiser data. My fingerprints should be in one place
that any State could see. My education will be in one place
that any State could see. It wouldn't change the State
registration process for the individual States. I would still
have to apply, still pay their fees, but all of the
certification and identification criteria would be warehoused
in one spot.
And the most important thing about the PAL Act is, if I
were to get in trouble in my primary State and leave or be
forced or asked to leave, right now, I could go to another
State and possibly set up, and they wouldn't know it because
there is no collaboration between them. If the PAL Act were in
place, that would go on my record in my primary State, and any
other State could see it.
Mr. Kustoff. I hate to argue against myself, but thinking
about the other side, can you think of any reason or any
arguments not to enact the PAL Act?
Mr. Bishop. None.
Mr. Kustoff. That is a great answer. Thank you very much.
Mr. Peter, in November of last year, November of 2021, The New
York Times published a column about Orange Mound, which is a
community in Memphis, just outside my district. It has
struggled, but it is a very proud community. From 2009 to 2019,
property values in Orange Mound decreased around 30 percent.
Can you discuss, if you would, the impact that the Great
Recession had on low-income and minority communities, and why
communities like Orange Mound have had a difficult time
recovering since then?
Mr. Peter. Yes, absolutely. I am not familiar with your
particular community, but I can speak more broadly about lower-
income minority communities in general. And what happened was
during the run-up in the housing boom, during the 2000s, these
communities took on a lot of leverage and a lot of it was
government-sponsored or government-driven. And because of this
over-leverage, which drove up prices higher and higher, the
ensuing collapse in home prices was much more severe in these
neighborhoods. And these borrowers also had less financial
resiliency to withstand the leverage that was provided to them
because oftentimes, they had employment issues, or they had
marital issues. Once you increase prices in these neighborhoods
by the motion that we did, and oftentimes these borrowers got
in late into the housing boom.
They got in, in 2005, 2006, 2007, so they really didn't
have much time to build up equity. They were predominantly hurt
and really quickly hurt once the market turned and house prices
started collapsing, so they were the last ones in, and they
were the first ones out. And because of the devastation wrought
by the financial crisis, you also had a lot of foreclosures.
You had a lot of homes that fell in disrepair. And these
communities just had a really hard time catching up and
repairing some of the damage done, that came about from
problematic lending standards, which was driven by the
government.
Mr. Kustoff. Thank you, Mr. Peter. I yield back.
Chairwoman Waters. Thank you. The gentlewoman from
Massachusetts, Ms. Pressley, who is also the Vice Chair of our
Subcommittee on Consumer Protection and Financial Institutions,
is now recognized for 5 minutes.
Ms. Pressley. Thank you, Madam Chairwoman. When we say,
``Black Lives Matter,'' that must also mean that Black
communities matter, Black businesses, Black homes, and Black
wealth matters. And yet, the systemic evaluation of Black
communities and homes adds up to around $156 billion in lost
equity, equity that could have been invested in education, in
starting small businesses, or as a buffer during the financial
hardship. Ninety-seven percent of appraisers are White and
almost 70 percent are men. And while lack of diversity in the
field and individual biases undoubtedly contribute to the
discrimination Black people face, the widespread undervaluation
of Black-owned homes points to a more systemic issue concerning
how we appraise homes, and the industry writ large.
Ms. Rice, homes in Black neighborhoods are valued 23
percent less, on average, than those in comparable White
neighborhoods, despite similar characteristics and amenities.
The average homeowner in a Black neighborhood loses $48,000 per
home due to appraisal bias. Don't you agree that this indicates
a wider issue of systemic racism in the appraisal industry?
Ms. Rice. Yes, I do. There is definitely a systemic
problem.
Ms. Pressley. Thank you. We cannot separate the rampant
appraisal bias against Black homeowners from our nation's
history of segregation and redlining. When establishing a
property's value, appraisers use comparable sales of similar
properties in that neighborhood. However, they often select
lower-value comparable sales in Black and minority
neighborhoods, leading to undervalued appraisals.
Ms. Rice, even if appraisers use appropriate comparable
sales, can you tell us how historical discriminatory practices,
such as redlining, are baked into current property values
perpetuating the impact of past discrimination today?
Ms. Rice. Thank you, first of all, Congresswoman Pressley,
for the question. What redlining does, both lending redlining
and insurance redlining, is it causes a restriction of
competition in the market, so you have a decreased number of
transactions. You have a decreased number of players in those
communities, and some of those communities don't have access to
lending or insurance products at all. When you rob a community
of competition, you are automatically deflating valuations in
those communities, because you are not supporting the demand
that otherwise could be there.
Ms. Pressley. And building upon that, Ms. Rice, how do
these compounding effects of low appraisals in a community
dampen home values in that neighborhood, reducing the realized
wealth of all of the homeowners who live there?
Ms. Rice. Right. Because of the way that appraisals are
done in the residential space, the sales comparison approach,
in order to assess the property value for your subject
property, you have to rely on values of adjacent properties in
that community where the subject property is located. So, if
all of the values, or if even some of the values of those
properties upon which you are relying for your comparables are
deflated or artificially deflated, that is going to result in a
deflation of the value for your subject property.
Ms. Pressley. Thank you. I yield back.
Ms. Rice. Is it okay if I mention one thing, because I am
very familiar with the Orange Mound community in Tennessee?
Chairwoman Waters. Yes, please go ahead.
Ms. Rice. First of all, the Orange Mound community has
suffered from decades and decades and decades of redlining
practices and discrimination. There has always been a
hyperconcentration of subprime mortgage lenders operating in
that community. Orange Mound wasn't subjected to subprime
lenders in 2004, 2005, or 2006. Just as most communities of
color throughout the United States, it has always been
subjected to a hyperconcentration of subprime lenders in those
communities that utilize abusive lending products which drive
consumers into foreclosure. So. it has nothing to do with
government policies, or Federal policies, or anything like
that. It was all market-based and it was all private sector,
market-based abusive practices that caused hyper foreclosures
in the Orange Mound neighborhood, and, ultimately, distressed
property sales in that community.
Chairwoman Waters. Thank you. The gentlelady yields back.
The gentleman from Tennessee, Mr. Rose, is now recognized
for 5 minutes.
Mr. Rose. Thank you, Chairwoman Waters, and thank you to
our witnesses for taking time from your schedules to join us
today. I will dive right into my questioning.
Under the agency actions to advance valuation equity, the
PAVE report describes steps that should be taken for building a
well-trained, accessible, and diverse appraiser workforce. It
states that agencies should update appraiser qualification
criteria related to the appraiser education experience and
examination requirements to lower barriers to entry in the
appraiser profession, while at the same time increasing
requirements for anti-bias, fair housing, and fair lending
training for appraisers. Mr. Peter, does increasing training
requirements lower barriers to entry and make the industry more
attractive to prospective appraisers?
Mr. Peter. First of all, to back up, I think the government
has not made the case that there is widespread and systemic
bias going on, and I think the evidence in the PAVE report is
more than flawed. For example, the FHFA blog post that is
mentioned, while there is no excuse for the incendiary language
used, it cites 16 examples out of millions of appraisals that
use such language, but the total instances where these were
occurring was not provided. So, this really suggests to me that
the total number couldn't have been very large.
Similarly, the Freddie Mac report that the PAVE report
relied on was entirely contradicted by a study by Fannie Mae
and also by a study that we have done in-house. And then, the
Brookings Institution report that was referred to earlier,
which claimed that the 23-percent undervaluation in certain
neighborhoods, which a large minority presents, the study said
that by just using 23 control variables, we control for all the
differences in home care group characteristics and neighborhood
amenities. That is just a preposterous statement to make.
And with our research that we have done, we show that by
just adding one additional variable, so going from 23 to 24
variables, by adding the credit score of all of the borrowers
in the neighborhood, which is a very powerful indicator for
socioeconomic status, we can explain away the entire difference
that the Brookings study attributed to raising the
socioeconomic status. So, I think we should address
socioeconomic status first before we address anything else.
Mr. Rose. Thank you. And, Mr. Bishop, I would also be
interested in hearing your thoughts on this question.
Mr. Bishop. Right. Obviously, if you increase requirements,
then it makes it a longer process, and a more expensive
process. And anybody looking at it to get in is going to see
increasing as a negative. I don't know why, how they would see
that as a positive, other than if they were of the mindset that
with education, more is better. But, yes, increasing
requirements would be a negative.
Mr. Rose. Thank you. One of the action items of the PAVE
report is that HUD will require FHA lenders to track usage and
outcomes of reconsiderations of value and to report this data
to the FHA so that HUD can evaluate the impact that
reconsiderations of value might have on possible
discrimination. Mr. Peter, would the cost of increased
reporting requirements like this impact the cost of buying a
new home?
Mr. Peter. Ultimately, yes, but I think it is not needed.
The data already exists. Fannie Mae and Freddie Mac already
have the data. Two years ago, we developed a statistical
approach to test every single appraiser in this country for
racial bias--2 years ago. This has not been done. We went to
Fannie Mae and Freddie Mac. We suggested it, do this or give us
the anonymized data and we will do it for you. Two days later,
we could give you the answer if appraiser A is biased,
appraiser C is maybe incompetent, and then, you do some more
investigation of these cases, but that has not been done. So,
this really suggests to me that there is an ulterior motive
which really sets up the stage for Federal Government to take
over the appraisal process.
Mr. Rose. Sure. And appraisals are typically done under
tight timelines, as we know, that buyers and sellers have
agreed upon in most cases. Mr. Peter, and Mr. Bishop, in the
little time we have left, would any of the task force's
recommendations slow down the appraisal process and risk sales
falling through? Mr. Bishop, I will let you go first.
Mr. Bishop. Well, yes, it is timeline-centric, and
appraisers turn it in on a deadline, and it is nearly the day
before. So, yes, increasing that could prolong the closings,
ultimately.
Mr. Rose. Mr. Peter?
Mr. Peter. Yes, I would concur with that.
Mr. Rose. Okay. Thank you both. And, Chairwoman Waters, I
yield back.
Chairwoman Waters. Thank you. The gentleman from Illinois,
Mr. Foster, who is also the Chair of our Task Force on
Artificial Intelligence, is now recognized for 5 minutes.
Mr. Foster. Thank you, Madam Chairwoman. Some of the worst
damage that was done in the bursting of the housing bubble 10
years ago happened to minority communities where people
invested into houses at the peak of the bubble value. And I
just want to follow up on Representative Hill's comments about
the damage that can be done by overvaluing appraisals and
encouraging people to make decisions which, in retrospect,
wreck their lives, that we made some progress in Dodd-Frank
with the ability-to-pay requirements that at least guaranteed
that if you kept your job, you could maintain the mortgage
payments. It did not protect you, however, from ending up
underwater if you invested into a bubbly market.
And about 10 years ago, I gave a series of presentations at
the American Enterprise Institute on a concept that for
essentially countercyclical loan-to-value limits, instead of
just using the appraised value, which was meant to be a
snapshot of what the market value was today, you would give
also look at the probability that this was a bubbly market. The
simplest way to do this is if the local housing index had
appreciated by 20 percent or 40 percent in the last few years,
you would actually only allow the loan to be made against, not
the current market value, the appraised value of the house, but
what the appraisal would have been 5 years ago was corrected by
the housing index. And at the time, the American Enterprise
Institute, and I think others, had some enthusiasm for
following up on mechanisms for making that happen. Is there
anyone who is familiar with the state-of-the-art? Yes, please?
Mr. Peter. Yes, very recently, we suggested exactly this
countercyclical approach to FHFA in its request for input on
its capital rule. So, we have taken this concept and proposed
it to the regulator. Of coursec, it was unfortunately ignored,
but in terms of better mortgage products that build equity much
faster. And we have a proposal out there that would work by
shortening amortization schedules, so going with a 20- or 15-
year mortgage but providing assistance to lower-income, first-
generation homebuyers so that they could have set the
difference in payment between a 30-year and a 20-year mortgage.
This would allow them to build equity much faster. It could
provide basically a vaccine to the entire neighborhood. If
prices would decline, it gives people more staying power. And
it is not just one person, but if you provide it to multiple
people in this area, they could all benefit from each other
and--
Mr. Foster. Sure. That was a huge chain reaction in
neighborhoods where people would end up underwater, lose their
jobs, and the house would get dumped onto the market in
foreclosure, and then everyone in the neighborhood would be
further underwater and just fend for itself. But the tough part
about that is that part of the solution is to say, when a
bubble is happening, you have to say, no, this is a bad thing
for you to invest in. You have to buy a smaller house or
perhaps no house at all with the amount of equity you have. And
this is a very tough conversation. And I think that is one of
the reasons why there was some industry opposition at the time,
but that is a thread that is continuing.
So, I would like to encourage you to keep thinking about
that and look at specific ways to implement that because that
was sort of the missing piece in a lot of this discussion.
Mr. Peter. Congressman, we are going to follow up with you
on this proposal.
Mr. Foster. Okay. Any other--yes?
Ms. Rice. Thank you so much for your question, Congressman
Foster. And one thing that I would like to remind everyone is
that in the lead-up to the foreclosure crisis, most of the
abuses that we saw, the hyper-valuation of properties occurred
in the subprime space, which was highly unregulated. But also,
most of the loans that were generated in the subprime space
were refinances, not home purchases. So, we also have to be
careful as we look at the appraising of assets, of properties,
when homes are being refinanced as well. That can also lead to
grave problems and disparities. And many of the cases that are
now sort of winding their way through HUD, or DOJ, or through
the courts, or that are at private fair housing organizations
involve refinance situations. The Austin family, for example,
were refinancing their home, and that was the situation.
Mr. Foster. No, I agree. Some of the most tragic
conversations I had were with families who lost homes they have
been in for 40 years.
Ms. Rice. Exactly.
Mr. Foster. Anyway, my time is up. I yield back.
Chairwoman Waters. The gentleman from Ohio, Mr. Gonzalez,
is now recognized for 5 minutes.
Mr. Gonzalez of Ohio. Thank you, Chairwoman Waters, and
thank you to our witnesses for being here today and for your
testimonies. Let me start by saying something I think is pretty
obvious, which is that it is important that we identify ways to
reduce wealth disparities, and that promoting homeownership and
building equity is an incredibly important piece of the
equation, especially for young families. It is my hope that we
can work in a bipartisan way in this committee and throughout
others to incentivize building and help create new pathways to
homeownerships for all Americans. One of my favorite sayings
that I have always tried to live by is, ``In God we trust. All
others bring data.'' I don't know exactly who said it, but I
think it is pretty valuable.
And, Mr. Peter, I want to start with you because you talk a
lot about the data that was used in the PAVE study. And I would
like for you to comment specifically on the quality of the data
that was used, what was rejected. And maybe just from your
standpoint, if data is ultimately going to help us solve this
problem, and I think it is, start with a good set of clean
data, let us see what it tells us, and then let us make the
necessary adjustments. Walk me through your sort of analysis,
if you will, at a high level of the quality of the data and the
analysis used.
Mr. Peter. Initially, we were equally shocked by these
reports in the newspapers about appraisal discrimination, but
then we thought, well, we could use the data that already
exists and that we have within the Housing Center to really get
to the bottom of this. And we ran a statistical approach where
we could test the entire housing market, and we found that
systemic bias was not widespread. That is what we found for the
entirety of the market.
Mr. Gonzalez of Ohio. So, was the data that PAVE relied on
faulty, or was it lacking context?
Mr. Peter. Some of the data that PAVE used, which was the
study by Freddie Mac, was never released to the public. Once we
read the report, we went to Freddie and said, hey, could you
release the data so we could replicate what you have done, and
also we have some ideas that we think would be important to
test namely what is the impact of socioeconomic status on these
differences that you are finding, and Freddie Mac said, no, we
can't do this. But then, we went to--
Mr. Gonzalez of Ohio. Why? It seems like we would want that
data public. I would love to see it.
Mr. Peter. I would like to see it, too.
Mr. Gonzalez of Ohio. I would like to have the academic
community really analyze this, and speed it up, and let us see
what is there.
Mr. Peter. We then went to a third-party provider who had
similar access to similar data, and the data will still be
under the pay wall, but we fed them the code that they should
be running. And they ran the code for us, and then we
discovered the differences that Freddie Mac found and
attributed to race-based were not race-based. They were
actually due to socioeconomic status.
Mr. Gonzalez of Ohio. Okay. So from your analysis, the
conclusion is that there are other factors that are--
Mr. Peter. There are very much other factors, and we have
not really explored them.
Mr. Gonzalez of Ohio. I want to go back to something that I
think is sort of the crux of the whole thing, which is we want
to close the racial wealth gap. I think that is a noble goal
that we all share, and it has been persistent and it has been
stubborn, and we haven't been able to sort of crack it. Housing
is a component of that obviously. From a housing solution
standpoint, what policies would you advocate for that could
help us close the racial wealth gap?
Mr. Peter. Number one, we need more supply.
Mr. Gonzalez of Ohio. Supply of houses.
Mr. Peter. Supply of houses. The lack of a supply of houses
is what is driving up home prices, and it is pricing out lower-
income minorities from the market. That has been going on for
the last couple of years, and it is a real tragedy. So, that is
number one. We need more supply, but at the same time, this is
not a Federal Government issue. This is a local and State
issue, and it needs to be handled at those levels, and there is
already movement in that direction by certain States,
California, for example. If California can pass this, anyone
else should be able to pass this.
Mr. Gonzalez of Ohio. Yes.
Mr. Peter. At the same time, for foreclosure of loan
lending practices, the practices where you give borrowers more
and more debt that they cannot sustain, that is really
dangerous. And especially borrowers who get in late in the boom
cycle, they are the first ones to get foreclosed on, so we need
to break this cycle. And there is academic research which
conclusively shows that neighborhoods in minority and White
neighborhoods would have the same home price appreciation, so
you would be building the same amount of equity, but at the
same rate of equity. The difference is that minorities tend to
default more, and that wipes them out completely, so we need to
break that cycle, and we need better loan products. We have the
Wealth-Building Home Loan out there. We have the LIFT home
program out there that we have proposed.
Mr. Gonzalez of Ohio. I have 30 seconds. Better mortgage
products, I agree completely. Go as deep as you can on that in
30 seconds. What do we need?
Mr. Peter. We need to subsidize wealth-building and not
debt. Down payment assistance, for example, would just get fed
through and drive up home prices higher. So if two people want
to buy the same home and you give everyone $20,000 more, that
would get capitalized in higher home prices. What we are
proposing is, buy down the interest rate. By buying down the
interest rate, you are building up more equity each month, so
you are building up this cushion that protects it from
foreclosures. That would be one big step that we should
undertake, and if there is Federal Government money to be spent
for it, a limited amount, that would be fine.
Mr. Gonzalez of Ohio. Thank you, and I yield back.
Mr. Perlmutter. [presiding]. The gentleman's time has
expired.
The gentleman from Florida, Mr. Lawson, is now recognized
for 5 minutes.
Mr. Lawson. Thank you, Mr. Chairman, and I welcome all of
the witnesses to the committee today. And I probably want Mr.
Bishop and Mr. Bunton to comment on this. There had been many
cases regarding discriminatory appraisers from people of color.
I remember hearing about a family in Jacksonville, Florida,
which is in my district, who wanted to refinance their home and
pay down the mortgage. When the appraiser came back with a
shockingly low estimate, they decided to get a second appraisal
with a new appraiser, that made the home appear as if the
husband was doing the appraisal. He just happened to be married
to a Black female. And what they did was, they took down all of
the pictures and everything in the house to make it appear that
it was only a White person included, and all of a sudden, the
second appraisal went up 40 percent, which is pretty
significant to go up 40 percent.
Mr. Bishop, first, what happens in a situation like this if
a complaint is filed with the appraisal company for
discrimination, bias? How is it reported, and how is the issue
handled?
Mr. Bishop. Thank you for your question. And it is
important to understand that any time a property owner feels
like they have been discriminated against in the appraisal
process, they should do exactly what those folks did, which is
just start asking questions why, if they truly feel that way. I
don't know enough about the situation to be able to render an
opinion as to why there was a 40-percent higher conclusion on
the second appraisal. But what I can tell you is that if I were
to be given the two appraisals, and we could understand the
scope of work, then we might understand why there was a
difference in the conclusion. It could have been a mistake. It
could have been a different set of instructions. But
absolutely, if the reason was because those homeowners had to
take the decoration of their home and change it, that is just
unacceptable.
Mr. Lawson. Okay. Mr. Bunton?
Mr. Bunton. I would suggest that they file a complaint with
the Florida Real Estate Appraiser Board. Our standards clearly
prohibit bias and discrimination, and that is the yardstick
that board would use on the actions of those appraisers. And
they have a wide array of disciplinary actions ranging from a
warning letter to suspension, revocations, and fines, but that
is the recourse that a homeowner would have.
Mr. Lawson. This is a hypothetical question to the panel. I
know my time is running out. Does the appraiser sometimes form
a relationship with financial institutions, the banks and so
forth, and have an expectation from the banks, the financial
institutions, that the appraiser will come in at a same amount
when they are dealing with minorities? The lenders--
Mr. Bunton. Is that to me as well?
Mr. Lawson. Yes.
Mr. Bunton. Yes.
Mr. Lawson. I would like to know, because some institutions
only want to use the same appraisers.
Mr. Bunton. Right.
Mr. Lawson. And so, is it a relationship established that
in order for you all to do business, you have to come in with
an appraisal that is the amount that each financial institution
is looking for?
Mr. Bunton. The Dodd-Frank Act had a whole section on
appraiser independence. This used to be a huge problem. ``If
you don't hit the number, I am not going to use you anymore.''
And now, it is much more of an arm's-length transaction. So, if
that kind of conversation is occurring, then the Federal
banking agency that is in charge of that bank should be
notified, because that is against the law.
Mr. Lawson. Okay. Would anyone else care to comment?
Mr. Bishop. Yes, I would. The structure setup, the
regulatory structure setup within most lending institutions now
doesn't allow me to talk directly to the lender. I talk to an
intermediary, kind of like an appraisal manager. That is where
the appraisal management company concept comes in. It puts a
wall up between the appraiser and the borrower in both
commercial and residential. So, I wouldn't even be able to talk
to the lender in such a circumstance. And if that is going on,
if they are circumventing that, then absolutely, that is
against the law.
Mr. Lawson. Okay. I have some other questions I may have to
submit in writing, but anyway, my time is running out. And with
that, I yield back.
Mr. Perlmutter. The gentleman from Florida yields back.
The gentleman from South Carolina, Mr. Timmons, is now
recognized for 5 minutes.
Mr. Timmons. Thank you, Mr. Chairman. The appraisal
industry is by its very nature somewhat subjective. The metrics
we use to measure the value of properties are constantly
changing, and the true value of properties varies from bar to
bar, depending on their priorities. I bought a property 11
years ago, and the value has changed over 10 times because
people are moving into Greenville, South Carolina. They are
moving into the upstate from all over the country. We have
cranes everywhere. It is fantastic. Let's go to a different
part of South Carolina where people are not moving. The
population growth, demographics, all of these variables make it
really hard to have consistency. But I would say that the
appraisal industry overall is doing a good job, and I hope the
appraisal we are about to do on the property that I have comes
back great. Fingers crossed.
But Mr. Peter, I want to ask, is there an opportunity to
make use of technologies, such as Automated Valuation Models
(AVMs) to try and eliminate some of this subjectivity?
Mr. Peter. Yes, and there is certainly already some of that
in use. Fannie and Freddie are using now what is called
appraisal waivers. This started even before the pandemic, but
because of the pandemic, it really got turbocharged, where
people basically submit a self-evaluation of the property's
value. And then, Fannie and Freddie check, does it fall within
our range, and if it does, then you don't need an appraisal.
The problem with this is, and we have looked at this in great
detail, is that so far, we haven't found that it is actually
having a salutary effect in the market, but we have found
evidence of gaming.
And once it becomes widespread knowledge in the
marketplace, which it always does, then you could have problems
through gaming the system. And especially when Fannie and
Freddie are competing against each other for market share, it
could really get problematic because they are trying to move
out the risk curve a little bit further and further to gain
business, of course at the expense of the other who does the
same who responds in kind. And we have seen this during the
2000s with automated underwriting where this could quickly
spiral out of control and then you end up with a massive bust.
Mr. Timmons. The gaming--are they just manipulating factors
in the appraisal, or how are they gaming the system?
Mr. Peter. What we have found is there is a certain amount
of punching at a certain LTV point. For example, at an 80 LTV
that, you know if you go $1 above 80, you need mortgage
insurance. So, what we found is that at 80, at an LTV,
generally a value that is awarded with a waiver is much greater
than the value awarded by an appraiser. I don't really know how
exactly this happens, but there is some evidence that at these
price points, at the same at 80, at 70, at 60, every time where
the pricing changes, that with a waiver, you get a higher
valuation. And of course, if someone figured this out at these
price points, it is easier to see how this could eventually
become widespread throughout the market, and then you end up
with waivers awarding higher values across-the-board in human
appraisals.
Mr. Timmons. Are there any standards in place, common data
standards for AVMs?
Mr. Peter. As far as I am aware, there are not. This is all
in a black box that Fannie and Freddie have. And we think for
AVMs to be used, you should have capital to back it up to
withstand your losses, but Fannie and Freddie are chronically
undercapitalized. They don't have the capital to back this up.
So if a private lender is using AVM, you have the capital to
withstand any severe losses, but with the government doing it,
there is always the danger that you don't have capital and to
get gamed and exploited.
Mr. Timmons. Sure. Thank you. The Consumer Financial
Protection Bureau (CFPB) has shown interest in publishing a
rulemaking on AVMs. I tend to favor a light-touch regulatory
system that is very clear in its rulemaking and consequences.
The CFPB tends to take the complete opposite tack under this
Administration. Under Director Chopra, they love to issue
opaque and burdensome rules so they can regulate industry by
enforcement. What impact would overreach by the CFPB in this
space have on the industry, and does the CFPB have a strong
record of appropriately regulating emerging technology?
Mr. Peter. The problem with the government taking this
whole process over is always that it could be politicized
eventually. And it is easy to see how you could quickly be mis-
valuing properties across the whole country, for political
purposes of increasing valuation in minority neighborhoods, for
example. But of course, if you don't use the market-- let the
market decide what the real value is. You can easily see how
you could be driving a housing boom, and then eventually, when
the party is over and the music stops, as it always does, you
are going to have a massive price correction.
Mr. Timmons. So, AVMs could be used effectively using
appropriately-transparent variables and making sure that the
algorithms are all--there are no politics in it.
Mr. Peter. If a private lender is doing this, with enough
capital, how about it? No problems with AVMs. We use AVMs in
our research all the time.
Mr. Timmons. Thank you, Mr. Peter. Mr. Chairman, I yield
back.
Mr. Perlmutter. The gentleman from South Carolina yields
back.
The gentlewoman from North Carolina, Ms. Adams, is now
recognized for 5 minutes.
Ms. Adams. Thank you, Mr. Chairman, and I thank Chairwoman
Waters and Ranking Member McHenry for hosting today's hearing.
And to our witnesses, thank you for your attendance.
Mr. Perlmutter. Ms. Adams, there seems to be a problem with
your microphone. You might see what happened there. Let's stop
the clock for a second.
Ms. Adams. Can you hear me now?
Mr. Perlmutter. Just barely. We heard you loud and clear
for a second or two, and then it kind of was muted or muffled
again.
Ms. Adams. What about now?
Mr. Perlmutter. Just barely, yes.
Ms. Adams. Can you hear me now?
Mr. Perlmutter. It's getting better.
Ms. Adams. Can you hear me now?
Mr. Perlmutter. Just barely. I think what we would like to
do is to move on to Mr. Davidson, and then come back to you, if
that is okay.
Ms. Adams. Yes, Mr. Chairman. What about now?
Mr. Perlmutter. Now, we can hear you.
Ms. Adams. Great. Thank you so much. I want to thank
Chairwoman Waters and Ranking Member McHenry for hosting the
hearing. And to our witnesses, thank you as well.
For far too many of our neighbors pursuing the American
Dream, a decent, affordable place is just that: a dream. I am
proud that this committee is working with the Biden
Administration on the PAVE Task Force to help turn what is too
often a dream into reality. Collectively, one common thread I
have heard today is that we don't want bias. We all want to
treat people fairly. We all want to make sure that our
neighbors and friends and families can enjoy the fruits of
their labor in the comfort of their own fairly-appraised homes.
And one of the ways we do that is straightforward: We need to
train, we need to recruit, and we need to retain more diverse
talent.
One of my proudest efforts here in the Congress was
founding the bipartisan HBCU Caucus--that is, for Historically
Black Colleges and Universities (HBCUs)--which I Chair with
French Hill of Arkansas, who serves with me here on the
Financial Services Committee, and he has been a great partner
as we fight to secure resources. In fact, I attended his HBCU
summit in Little Rock this past October, and we shined a
spotlight on the need for companies to strengthen their
pipelines of diverse talent by working with our HBCUs. That is
the essence of the HBCU Partnership Challenge. That is what it
does. We facilitate those connections. And that is why, for my
Fifth Annual STEAM Days of Action, which is going on right now,
we are convening members with the HBCU presidents, corporate
partners, and Members of Congress.
Mr. Bishop, in your testimony you discussed your Appraisal
Diversity Initiative, and I am glad to see that you are
thinking seriously about how to diversify your workforce. So my
question is, to what extent have you tapped into HBCUs to help
build a diverse workforce, and how can we help you and your
colleagues in the industry further your efforts?
Mr. Bishop. Thank you, Congresswoman Adams. That is an
awesome question, and the answer is in our University Relations
Committee. We have reached out to HBCUs, as well as community
colleges and universities, and we are placing ambassadors in
each of those educational facilities. And those ambassadors
will be our members who will introduce the appraisal profession
to their students, and I would welcome any help. I can put you
in contact if we can communicate with the member who is the
Chair of the University Relations Committee, and he is right
now in the middle of that process of identifying contacts at
the schools and HBCUs as well. And if we need help there, it
would be greatly appreciated.
Ms. Adams. We have the expertise, and we certainly are
willing to do it. Thank you so much.
Mr. Kelker, in your testimony you also discussed the need
to train and retain a diverse future generation of appraisers,
and I completely agree with that. So to be clear, you have an
obligation to every American to do so. My question is, have you
and your colleagues partnered with any HBCUs or other schools
to begin training that diverse future generation of appraisers
that you are looking for, and if not, how can we help you do
so?
Mr. Kelker. I would say that to date, we have not done a
partnership with college campuses, largely because our
qualification requirements are determined by our client base.
And at this point in time, we are not allowed to use trainees
or people with less experience yet. So until we can do
something with some of those requirements, it is difficult to
work on a pipeline of people that we can use.
Ms. Adams. Thank you so much. Thank you, Mr. Kelker, and I
have about a minute left. I yield that remaining time to Ms.
Rice to respond to the comments that Mr. Peter made about
existing research in this area.
Ms. Rice. Thank you so much, Congresswoman. Yes, I take
exception to the AEI's approach to research in this area
because what they are doing is essentially applying certain
socioeconomic factors that are highly correlated to race to try
to mitigate away or explain away disparities, real disparities
that exist in the marketplace. For example, Mr. Peter mentioned
credit scores. And if you just add credit scores into the
equation, then it explains away the disparities that we are
seeing in property valuations. But credit scores are highly
correlated to race and the racial composition of the
neighborhood, but appraisers don't use credit scores when they
are assessing the property value.
Mr. Perlmutter. Thank you, Ms. Rice. I am going to--
Ms. Rice. It would be totally inappropriate for them to do
that.
Mr. Perlmutter. Ms. Rice, Ms. Adams' time has expired.
Ms. Adams. I am of time. Thank you, Mr. Chairman. I yield
back.
Mr. Perlmutter. The gentlelady from North Carolina yields
back.
The gentleman from Ohio, Mr. Davidson, is now recognized
for 5 minutes.
Mr. Davidson. I thank the chairman. I also thank the
chairwoman and the ranking member for scheduling another
hearing on housing, but at least it is a new topic on how we
appraise the value and to the extent that race is a motivating
factor in valuations, and evaluations have sort of a trade
school kind of approach. There is a right answer within a
range. So, when you look at disparity in valuation, I think it
is interesting to see some of the research that you have done,
Mr. Peter, in this space. There are lots of correlations. Ms.
Rice, you highlighted that. And maybe that is where we can pick
up.
Frankly, in your testimony you cite a Brookings study from
2018 to support your claim that there is an inherent bias
because somehow there is a disparate impact in valuations. And
I am just curious, when you look at the granularity of that,
you picked up on credit scores as a factor, but to what extent
do you see that? You can continue your thought, Ms. Rice. But
also in the same neighborhood, same block, do you get a
different valuation on a comparable property? There are
certainly some things that we should be alerted to, but could
you address that?
Ms. Rice. Certainly, and thank you so much for the
question. We did in part base our analysis on the Brookings
Institution study, but we also based it on the analysis done by
the Federal Housing Finance Agency (FHFA), which found that in
thousands of appraisals recently conducted, there existed
inappropriate language and references to race or racial
composition of a neighborhood or the racial demographics of a
neighborhood. We also based it on the Fannie Mae study and the
Freddie Mac study. So, there are multiple studies--
Mr. Davidson. I appreciate what you cite. And maybe, Mr.
Peter, I would just give you a chance to respond to that, and I
appreciate the research that you have gotten. Maybe you could
clarify what your point is there?
Mr. Peter. Yes. Thank you. In regards to the FHFA blog
post, it cited 16 examples, and it said that out of millions of
appraisals, there were thousands of instances, but it also
cited that there were a lot of false positives. So the fact
that it didn't provide the exact number suggests to me that it
cannot be very large. That is number one.
The second part about the Brookings study is that credit
scores were just mentioned, and it was a study done by the
Federal Reserve Board, so not just a research study, but
underwritten by all of the Fed Governors, and from 2005, which
found that credit scores are raised blind. So, that is the
evidence. That is a fact. And similarly, in the Brookings
study, they used single mothers with children under 18 as a
control variable, as an explanatory variable. This, of course,
is very much correlated with race, too. So if Brookings is
using it, why can't we be using credit scores?
And regarding your point about location, location is very
important. And even if you have the same home, an identical
home newly built right next to each other, but one has beach
access, and the other one doesn't have beach access, you could
easily see how that could really be affecting home valuations.
And the Brooking study has nothing in there that controls for
natural amenities, so that is another flaw of this study.
Mr. Davidson. Yes, location, location, location, is
certainly a huge factor there. And I think there are some
things that we could probably disagree on and certainly have
for a couple of hours now. But I think one of the things we
can't disagree on is, if there is discrimination, there is
legal recourse. We have already made it illegal to do this
activity. So if we identify it, what is the state of lawsuits?
What kind of lawsuits are being brought for this kind of
discrimination? We are having a hearing on it. Is it all
throughout our courts all over the country, Mr. Peter?
Mr. Peter. I am not very familiar with lawsuits. I don't
think there are many instances. Based on our data, which
suggests that discrimination, racial bias by appraisers is not
widespread and systemic, so I think that is where we should be
starting.
Mr. Davidson. I would like to just slightly shift our focus
to kind of go to, where is the housing market headed? I
recently saw an interview by Gary Berman from Tricon
Residential where he discussed the shift in housing demand,
specifically pertaining to millennials. And Mr. Berman stated
that on a weekly basis, there are roughly 200 to 300 homes
available, and that his company gets roughly 10,000 leasing
inquiries. He attributes much of this demand to millennials who
desire to move into, ``turnkey dwellings,'' where the burden of
maintenance is on someone else. I have two questions: first, do
you agree with this; and second, what are the long-term
implications for the housing market?
Mr. Peter. The longstanding problem is that we have been
not supplying enough housing. And what has been holding back
the supply is really government regulation, especially in the
land-use front. So if we were to allow moderately higher
density in areas around walkable, commercial areas, I think, by
right, that would make a large impact.
Mr. Davidson. Yes, thanks for addressing supply. My time
has expired, and I yield back.
Mr. Perlmutter. The gentleman's time has expired.
The gentlewoman from Pennsylvania, Ms. Dean, is now
recognized for 5 minutes.
Ms. Dean. Thank you, Mr. Chairman, and thank you to all of
our witnesses for testifying today about disparities in home
valuations.
I want to take a moment to step back and reiterate why we
are having this hearing. In our country, homeownership is
literally rooted in the foundation of our country, and it is
and remains one of the most important tools for families to
build wealth. It can mean having the means to help pay for your
kids going to college, or to help you retire with dignity. And
in fact, for decades, our government policy supported White
families in becoming homeowners, while excluding families of
color from the same opportunity. Now, as we look at appraisals
today, regardless of some of the arguments on the data, it is
nevertheless clear that families of color are too often not
getting a fair shake. And I don't understand an argument that,
oh, a low appraisal might do you some good. That seems really
insufficient, puzzling, and disappointing to me.
I represent a district in the suburbs of Philadelphia.
Multiple studies have found that in Philadelphia, homes in
Black neighborhoods are devalued by 27 percent compared to
similar homes in White neighborhoods. Ms. Rice, can you speak
to the impact of this chronic under-evaluation, particularly
the compounding effect in terms of wealth-building?
Ms. Rice. Thank you so much, Congresswoman Dean, for the
question. Certainly, in individual instances it can be
devastating, because a person could lose the ability to
purchase a home, if the property is under-appraised, but in a
refinance situation, the family could lose the ability to lower
their monthly debt. They could lose the ability to send their
children to school or to start a business, and ultimately, the
lower property valuations translate to tens of thousands of
dollars per family of lost wealth for that family, lost wealth
that family could use in order to sustain them through
financial difficulties and other kinds of issues.
Ms. Dean. And over time, over decades, in terms of, if you
wanted to move up to a larger house, if your property value is
chronically and unfairly held back, it will limit your ability
and your mobility. Mr. Bishop, how do we ensure that appraisers
clearly understand their obligations under the Fair Housing Act
and the Equal Credit Opportunity Act?
Mr. Bishop. Thank you for your question, Congresswoman
Dean. The education, education awareness, it is in our canons,
it is in our ethics, it is in our guidelines. We just amended
the canons. We amended the guidelines. We have enhanced our
ethics to address those situations more stringently than we
had. Basically, it is good for any business or any entity that
has been around a long time to revisit their bylaws,
regulations, structures, things like that. And that is what we
have done, and we are going to continue to do it. We have an
education that we are developing right now for our members to
take in those areas that you just addressed in question.
Ms. Dean. Thank you very much, and if I can, I will try to
fit in both Mr. Kelker and Mr. Bunton. The demographics of the
appraisal industry do not reflect our country's diversity, we
all can see that, and the numbers sadly support that.
Appraisers are overwhelmingly White male and approaching the
age of retirement. I say that not as a statement of any insult,
but just as a statement of fact, and a lack of diversity is
impacting property values and appraisals. Mr. Kelker, how are
appraisal management companies engaging in diversity and
inclusion efforts?
Mr. Kelker. As a matter of course, we attempt to recruit as
broadly as we can, specifically in markets where we believe
that they are underserved or the coverage is thin. But just
given the numbers that have been discussed during this hearing,
there are very few candidates who are available. And during the
last couple of years when the market has been as hot as it has
been, we have had trouble recruiting anyone, because everyone
is busy. I think the real solution is to improve the number of
people coming into the profession so that there is a greater
pool to recruit from.
Ms. Dean. You have 2 seconds, Mr. Bunton.
Mr. Bunton. --for the simulated training that I talked
about before.
Ms. Dean. Terrific. Thank you very much. That is what I was
thinking, back to education, and I yield back. Thank you, Mr.
Chairman.
Mr. Perlmutter. The gentlelady's time has expired. We have
been going for 2 hours and 45 minutes, and I think it is time
to let the witnesses stretch their legs, so, without objection,
we will take a 5-minute recess.
[brief recess]
Mr. Perlmutter. Take your seats, please. Thank you. Okay.
We will begin again.
The gentleman from California, Mr. Sherman, who is also the
Chair of our Subcommittee on Investor Protection,
Entrepreneurship, and Capital Markets, is now recognized for 5
minutes.
Mr. Sherman. It seems that we are dealing with two separate
issues here. One is whether certain neighborhoods are
underappreciated, and the other is whether individual houses
are given a low value just because an African-American or
Hispanic family lives there. Ms. Dean points out to us that
neighborhoods in Philadelphia that are predominantly populated
by people of color tend to appraise for 27 percent less. A low
price might be good for the buyer, but it is bad for the
seller. It is bad for the refinancer. But a low appraisal
doesn't do anybody any good. But we should not blame appraisers
for the racism that has existed and continues to exist in our
society.
An appraiser looks at a home and accurately determines that
it is going to sell for $300,000. They can't give an appraisal
of $400,000 by saying if it hadn't been for the racism that led
to the road being here instead of there, if it hadn't been for
the racism that led to the trash dump being here rather than
there, then the house would be worth $400,000. The appraisal
industry has to deal with a society where racist decisions have
led to certain neighborhoods selling for less than they
otherwise would. And racism is not just something that existed
in the past, it exists today, and has an effect on whether
property sells in one neighborhood for less than it would sell,
the exact same physical structure, in another neighborhood.
I want to focus, though, on the issue of undervaluing a
particular house because it seems that the seller is a family
of color. We had the widely-publicized example of bringing in
an appraiser while there are pictures on the walls of an
African-American family, taking those pictures down, putting a
different couple sitting there as if they are the owners,
putting up pictures of a White family and the house appraising
for more. Mr. Peter, I am sure you are familiar with those
reports. Do they reflect a tendency of appraisers to undervalue
a particular house simply because it seems to be inhabited by
an African-American family?
Mr. Peter. Thank you, Congressman. I certainly believe that
there are instances where appraisers are biased. However, our
research, based on 240,000 loans, which is the only study that
has actually used big data, shows that this bias is not
systemic and widespread. And there is also academic research
that has backed this up as of recently, and Fannie Mae research
comes to the same conclusion. Soc, I think when we find under-
appraisals in largely minority neighborhoods, that Freddie Mac
pointed out in its research, once we start controlling for
socioeconomic status differences--
Mr. Sherman. In my questioning here, I am not looking at
full neighborhoods. I am saying the same house in the same
location gets appraised differently. I will ask Pledger Bishop
to also respond to this. Is this just one idiosyncratic
article, or is there more evidence to say that an appraiser
would appraise the house differently based upon the ethnicity
of the pictures on the wall?
Mr. Bishop. Thank you for your question, Congressman
Sherman. I have heard of those stories and read about those
stories. And that is about what I know. I know about the
allegations. And if true, if that is really what happened, and
if the appraiser did that because they are biased, then that is
unacceptable. And they should be taken care of.
Mr. Sherman. That is a problem more likely to affect cities
other than Los Angeles. So much of Los Angeles is tract homes,
and for an appraiser to look at the Milan model in a home where
there are 50 identical homes in the neighborhood and come up
with a row of appraisal is going to be very different than in
some of our older cities where the homes are one of a kind.
Mr. Perlmutter. Mr. Sherman?
Mr. Sherman. Yes.
Mr. Perlmutter. Your time has expired, sir.
Mr. Sherman. Thank you.
Mr. Perlmutter. The gentleman from California yields back.
The gentleman from Illinois, Mr. Garcia, is now recognized
for 5 minutes.
Mr. Garcia of Illinois. Thank you, Mr. Chairman, and Mr.
Ranking Member. And I want to thank all of the witnesses for
joining us today to address the issue of home appraisal bias
and discrimination. In 2021, the Latino homeownership rate
remained steady, and Latinos are projected to represent half of
new homeowners in the next decade. However, discrimination
against Latinos in the appraisal process poses a serious harm
to our community and contributes to the widening wealth gap in
our nation. Communities of color deserve the opportunity to
purchase or sell a home at a fair price to build wealth. We
must take action so that Latino and Black communities are not
shortchanged by a discriminatory system that aims at keeping
neighborhoods, like the ones I represent, segregated and
undervalued.
A question for Ms. Lisa Rice. In your testimony, you
reference qualitative research that has displayed appraisers as
active participants of discrimination against communities of
color. One appraiser assumed neighborhoods were, ``getting
better,'' and housing values were increasing, ``because all of
the Mexican people were moving out.'' I represent a district
with working-class Latino and immigrant families, communities,
and this community has been hit hard by gentrification and
displacement and discrimination within the appraisal process.
Can you speak to the impact of discrimination in the housing
market and how that has perpetuated gentrification and the
undervaluation in communities of color?
Ms. Rice. Thank you, Congressman Garcia, for the question.
Yes, discrimination has very debilitating impacts, not just for
the individual consumer involved, because when an individual
consumer experiences discrimination, they can be denied a
housing opportunity. And we know that homeownership leads to
stability and other great benefits for families, particularly
families with children. So, for example, homeownership for
families with children leads to higher educational attainment
for children. There are many, many benefits to homeownership.
Denying people the opportunity or doing anything that would
result in denying a person an opportunity for homeownership has
debilitating impacts for that family, but it also has
debilitating impacts for a community. And let me say, I don't
think that most appraisers are discriminatory or out there
practicing discrimination, but I definitely think that we have
some systemic issues and we also have some appraisers who are
engaging in behaviors that they should not be.
Mr. Garcia of Illinois. Thank you for that. A question for
Mr. Bishop. The issue of discrimination at every point in the
housing market, from loan applications to appraisals, is
exacerbated by the lack of diversity in the housing and
appraisal field. A recent report found that 85 percent of
appraisers nationwide were White, and less than 5 percent
identified as Latino. Can you speak towards the major
challenges for recruiting diverse appraisers and what more can
be done to shift these numbers?
Mr. Bishop. That is an excellent question, Congressman
Garcia. And as I have said before, we have ADI, we have the
Appraisal Institute, AIERF, with scholarships. Those are
scholarships. We have our efforts in the universities to
promote the profession at that level. And other than that, the
obstacles to this are simply time required and expense required
in just obtaining a license, and then post-licensing, getting
the experience. We have talked about it. PAREA should satisfy
the experience part. The ADI Initiative, the Appraisal
Institute Education Relief Fund should provide opportunities in
the cost arena. So short of that, we have to promote the
profession as viable for entrance into the profession and
introduce it, and that is the tricky part. Believe it or not,
in my experience, in my world, it is second-job, third-job
opportunity folks who find appraising and want to get in, so
they are not coming out of the university. So we have to find
those folks, too, and try to promote the profession in order to
diversify.
And this is a top priority for the Appraisal Institute. Our
strategic planning board adopted a new strategic plan in the
last quarter and diversity was one of the top initiatives from
that strategic plan.
Mr. Perlmutter. The gentleman's time has expired.
Mr. Garcia of Illinois. Thank you for that. My time has
expired. Mr. Chairman, I yield back.
Mr. Perlmutter. The gentleman yields back.
The gentlewoman from Texas, Ms. Garcia, who is also the
Vice Chair of our Subcommittee on Diversity and Inclusion, is
now recognized for 5 minutes.
Ms. Garcia of Texas. Thank you, Mr. Chairman, and I want to
thank the chairwoman for bringing this really important topic
to our attention and giving us an opportunity to discuss it.
And I must say, Mr. Chairman, that I feel a little kind of
almost distraught at some of the comments that I have heard,
and I apologize that I have been bouncing back and forth
between here and the Judiciary Committee, so I didn't get to
hear them all. But it is just perplexing to me why we are where
we are today on this issue. It doesn't appear to be a new
issue. And I don't know how long these groups have been working
on this issue, but it is really disheartening to see that we
are where we are today. And as has already been said by so many
others, this is about building generational wealth. It is about
especially minorities gaining access to a home and then passing
it on to their children, being able to sell it, being able to
leverage it.
And it is unfortunate that the appraisal process has proved
to be unreliable and consistently holding back minorities who
seek to close the wealth gap and build financial homeownership.
We have already heard all the numbers, and I am just going to
repeat the number of appraisers again: Out of 80,000
appraisers, 97 percent are White. I don't think I have seen
that number in any other sector. Why is that? What is it that
you all have not been doing that you should have been doing 10
years ago? This is now a very structural issue. Four percent
Latino, 1 percent Black, and 1 percent Asian, and then the
breakdown with male and female is 69 to 30. And I heard Mr.
Kelker say that--I think I heard him say, and I am hopeful I
didn't hear it right--somebody tells you that you can't go to
universities to recruit. Is that what you said, sir?
Mr. Kelker. That is not what I said. What I said was that
our clients really determine who we can use in terms of
experience. And someone coming right out of school generally
does not have enough experience, would be a trainee, or within
sufficient experience to be approved to do work for pretty much
any of our clients.
Ms. Garcia of Texas. But I thought I heard you say that you
weren't allowed to recruit, when you were responding to the
question about recruitment in Historically Black Colleges and
Universities, and, I will add, Hispanic-Serving Institutions.
Do you actively recruit at these universities to try to get it
down from the 97.7-percent White?
Mr. Kelker. We don't recruit at colleges. We recruit
generally in a marketplace where we are looking for experienced
appraisers.
Ms. Garcia of Texas. But the question is why, sir? That is
the thing that I find so perplexing. If we know we have a
problem, what is stopping you from recruiting at colleges? I am
not understanding.
Mr. Kelker. I think what I am trying to convey is that
recruiting at colleges, while we could recruit, we could not
use those individuals until they get licensed and get
sufficient experience to meet our client's requirements.
Ms. Garcia of Texas. I see we are not making any movement
here. So, let me ask the two folks who mentioned scholarships.
What kind of scholarships are there, how many do you have, and
are you actively recruiting at HBCUs and at Hispanic-Serving
Institutions to make sure we do get minority appraisers?
Mr. Bishop. Yes, we are, and the scholarships are
plentiful. Initially, they will cover the education.
Ms. Garcia of Texas. And do you go to the colleges to make
sure they know that there are scholarships available, and there
is a career track there for them to seek?
Mr. Bishop. That is what the ambassadors and the
appraisal--
Ms. Garcia of Texas. And how long have you been doing that,
sir?
Mr. Bishop. We have been in the universities. This is a
concerted effort at consolidating and identifying in the
university so that we can promote that.
Ms. Garcia of Texas. Sir, the question was how long have
you been doing this?
Mr. Bishop. Right. It is 2 years.
Ms. Garcia of Texas. Because the numbers do not reflect
that anybody is doing anything.
Mr. Bishop. We started with the University Relations 2
years ago.
Ms. Garcia of Texas. And what about you, sir? You put your
hand up really quickly, because--
Mr. Bunton. Yes, we are starting it this year when we
rolled out this simulated training, so they will have the
education, simulated training, and even sit for the State exam.
There is a lot of corporate interest in these scholarships for
minorities and for--
Ms. Garcia of Texas. But you are just starting this year.
What is your goal?
Mr. Bunton. Right. Our goal?
Ms. Garcia of Texas. Yes. What is your goal? What is your
target?
Mr. Bunton. Our target is, we did a diversity study of the
profession last year to see if all of those numbers we hear
from the Bureau of Labor Statistics are the same. Our goal is
to make appraisal professionals look more like America. So, we
are going to start with, depending on the corporate support
that we get, as many people as we can possibly get through the
system.
Ms. Garcia of Texas. Mr. Chairman, my time has expired. And
I did have a question for Ms. Rice, but I will submit it for
the record. Thank you, and I yield back.
Mr. Perlmutter. The gentlelady's time has expired, and she
yields back.
The gentlewoman from Michigan, Ms. Tlaib, is now recognized
for 5 minutes.
Ms. Tlaib. Thank you so much, Mr. Chairman, for taking the
time and recognizing me. Thank you so much, all of you, for
really leading this important effort. In Michigan, we know just
how important homeownership is in empowering communities of
color to build wealth.
All 12 of the communities that I represent are in Wayne
County, Michigan. And we have lost more Black homeownership
than any other State in the country, in Michigan, but Wayne
County really was hit the hardest. I was alarmed, but not
surprised, to read Detroit Future City's report which, Mr.
Chairman, if I may, I would like to submit for the record, this
week on homeownership in Detroit, which found that Black
mortgage applicants were consistently more likely to be denied
more than White applicants across all income groups.
In fact, upper-income Black applicants were denied more
frequently than moderate-income White applicants. The most
frequent reasons cited for denial were credit history and
appraisals. We all know this is unacceptable. I know my folks
are really tired of being studied. They are exhausted by the
task forces, and the commissions. We already know what the
issue is. Very little has been done to minimize and monitor the
appraisers' use of discretion, particularly with regards to
fair housing. And I think we have seen the harms that approach
has caused to residents in communities like mine. And again,
Madam Chairwoman, if I may, I would like to submit for the
record, Detroit Future City's report.
Chairwoman Waters. Without objection, it is so ordered.
Thank you.
Ms. Tlaib. Mr. Bunton, how can the Uniform Standards of
Professional Appraisal Practice be improved to limit
discriminatory appraiser discretion and mitigate fair lending
risk?
Mr. Bunton. Our Standards Board is actually viewing the
ethics rule right now to make sure it is abundantly clear. One
of the things that we want to make sure is that people
understand that they file a complaint with their State
appraiser regulatory agency because most agencies published the
disciplinary action. And that would be a huge deterrent for
appraisers when they see their colleagues being disciplined by
the governing body.
Ms. Tlaib. So, like telling on, that is good. Ms. Rice, in
your view, what would be the benefits of minimizing and
monitoring discretion in the appraisal process?
Ms. Rice. I apologize. I didn't hear that.
Ms. Tlaib. Oh, that is okay. I talk really fast. I'm sorry.
Ms. Rice, so what would be the benefits of minimizing and
monitoring discretion in the appraisal process?
Ms. Rice. Minimizing discretion would lead to more
standardization and uniformity in the process so that we remove
subjectivity. Discretion and subjectivity have been found in
thousands of fair housing cases to lead to discriminatory
outcomes.
Ms. Tlaib. I know you heard a little bit about my district,
but also in my district, the condition of our housing stock
presents an additional challenge to mortgage lending
appraisals. Much of our housing stock was built in the early
and mid-20th Century and is in need of costly repairs. In fact,
more than half of the homes in my district are valued at less
than $100,000. Detroit Future City's report found that in some
Detroit neighborhoods, unoccupied homes need an estimated
$80,000 to $120,000 just in home repair, while the house itself
may be offered at $20,000 to $60,000. There are very few home
improvement loans available to my residents, just like many of
our folks across the country, and residents are denied at a
higher rate for home purchases. It is clear that the system
isn't working for communities like mine.
And so, Ms. Rice, do you have any recommendations for how
the appraisal industry should address this gap in home
valuations created by home repair needs?
Ms. Rice. It would be extremely difficult for the appraisal
industry to be able to address those kinds of gaps because they
are so deep. And they are caused by so many errant factors, and
so that is one of the reasons. I will just say that we have
supported things like the Neighborhood Homes Investment Act to
make up that gap that is needed for those repairs.
Ms. Tlaib. With that, and this is for anybody on the panel,
are there ways that we can better integrate home repair needs
into the appraisal and home mortgage process? This is something
that continues to come from much of the members of the housing
justice work group that I created. How do we address that? Any
other ideas and policy changes?
Ms. Rice. Yes. There is a mortgage product called an
Acquisition Rehab Mortgage product. And what happens then is
the appraiser will assess the value of the home after the
repair is done. If that after-repair value comes out where it
needs to be, then the loan can go through. The homeowner can
purchase the house and rehab it.
Ms. Tlaib. Thank you so much. It is a very, very important
hearing. I appreciate it. I yield back, Madam Chairwoman.
Chairwoman Waters. Thank you. The gentlewoman from Georgia,
Ms. Williams, who is also the Vice Chair of our Subcommittee on
Oversight and Investigations, is now recognized for 5 minutes.
Ms. Williams of Georgia. Thank you, Madam Chairwoman.
Unfortunately, the City of Atlanta, in my district, leads the
nation in the racial wealth gap. Addressing the root causes of
the racial wealth gap will help us create the promise of the
American Dream for all, regardless of their race or ZIP Code,
while adding trillions in output to our economy. One of the
biggest routes to address is disparities in homeownership,
which accounts for 27 percent of the Black-White racial wealth
gap. Unfortunately, bias and discrimination in appraisals have
systemically lowered home values in neighborhoods that have
more residents of color, across generations. This has inhibited
wealth-building for Black and Brown communities.
Mr. Bishop, how important is it for the appraisal industry
to be reflective of the neighborhoods they are assessing across
our country, to help end systemic undervaluation of homes in
neighborhoods that have more residents of color?
Mr. Bishop. Thank you for your question. It is very
important. Diversity is one of our top initiatives in our new
strategic plan. And I have gone through several initiatives to
try to promote diversity, including community colleges, HBCUs,
or University Relations Committee efforts, ADI, and our
Appraisal Institute Education & Relief Foundation scholarships.
In addition to that, the PAREA Program is envisioned to open
the doors for the experience component of licensing to allow
individuals entering the profession a quicker path to
licensing.
Ms. Williams of Georgia. Thank you, Mr. Bishop. I am
currently working on legislation to help expand the appraisal
workforce, including adding appraiser trainees to the National
Registry of Appraisers. By doing this, we can ensure that more
trainees can gain experience and become licensed. So Mr.
Bishop, to follow on that, how can an effort like this to
better integrate the training pipeline help recruit and retain
more diverse appraisal professionals into the industry?
Mr. Bishop. I would expect that as more new entrants of
diverse individuals, people of color, and women and other
minorities are entering the program or the profession, they
should be telling their colleagues and your peers about this,
which should generate more interest in creating more diversity.
And so, that would be one place where it would start.
Another place where we might be able to help this is to get
some of the clients that I worked for to allow trainees to do
some of the inspections and do the appraisals we heard. Mr.
Kelker already talked about how their clients won't allow
trainees to be considered for their business model. We get that
in my market a lot with the folks in my office, the trainees.
It takes longer for them to get their experience hours to get
licensed. So, that would be another area where acceptance of a
trainee in the appraisal jobs that are out there would help as
well.
Ms. Williams of Georgia. Thank you, Mr. Bishop. Ms. Rice,
what other common-sense steps can be taken to ensure that
efforts to resolve appraiser shortages also serve to
significantly increase diversity in the industry?
Ms. Rice. Thank you so much for the question. There are
many steps that can be taken, but the one that I will mention
here is the increased use of technology. Now, it will not be a
panacea, and we have to make sure that the technology is
debiased, and there are plenty of mechanisms for doing that. My
agency, the National Fair Housing Alliance, just released a new
framework, a state-of-the-art framework for effective
monitoring of algorithmic systems to make sure that they are
debiased. But increased use of technology can help us build
more science into the process, more uniformity into the
process, and more accuracy into the process.
Ms. Williams of Georgia. Thank you, Ms. Rice, and thank
you, Madam Chairwoman, for leading in this work as we continue
to close the racial wealth gap in this country. I yield back
the balance of my time.
Chairwoman Waters. Thank you. Will the gentlelady yield to
me? Thank you. I would like to ask a question. What are the
qualifications for being an appraiser? What do you require?
Mr. Bunton. For the entry level, for the licensed level, it
is 150 hours of valuation education. That is classroom hours,
not credit hours. It is 1,000 hours of experience over 6
months, and then you must sit and pass a State exam.
Chairwoman Waters. So, you said you reduced the
requirements from 4 years to 2 years?
Mr. Bunton. That is for the next category, for certified
residential.
Chairwoman Waters. Okay. Thank you.
Mr. Bunton. For license, there is no college requirement
whatsoever.
Chairwoman Waters. So, experience counts a lot?
Mr. Bunton. It does.
Chairwoman Waters. And how much experience do you have to
have if you have very little college?
Mr. Bunton. You must have 1,000 hours of experience over a
minimum of 6 months. That makes you minimally qualified.
Chairwoman Waters. So, over a period of 6 months that you
have done what?
Mr. Bunton. You have worked with a supervising appraiser in
the field to perform assignments, because there is such a
variety of real estate out there, that you need a certain
amount of seasoning.
Chairwoman Waters. So, if you have an experienced
Realtist--do you know what a Realtist is?
Mr. Bunton. Yes.
Chairwoman Waters. Okay. If you have experienced Realtists,
say they have been in the business for 5, 10 years, how does
that experience count?
Mr. Bunton. I don't really know.
Chairwoman Waters. It doesn't count. We are going to talk
about it later. Thank you very much.
The gentleman from Massachusetts, Mr. Auchincloss, who is
also the Vice Chair of the committee, is now recognized for 5
minutes.
Mr. Auchincloss. Madam Chairwoman, I am happy to yield some
time back to the chairwoman if she wants to continue that line
of questioning.
Chairwoman Waters. Thank you very much. I would appreciate
that, because what I am thinking is that we have a lot of
experienced Realtists. And it seems as if there are ways in
which people could basically become an appraiser without having
formalized education, and I want to know how it all works.
Mr. Bunton. It is something that our Qualifications Board
has looked at for a long time. There are many people in the
real estate industry, so to speak, who have a--
Chairwoman Waters. How does that experience count?
Mr. Bunton. It doesn't count right now.
Chairwoman Waters. So if you are a Realtist, and you have
been doing this for 15 years, and now you want to become an
assessor, you have to start from scratch and get some training
and education?
Mr. Bunton. Yes.
Chairwoman Waters. Thank you very much. I yield back. That
is what we have to deal with.
Mr. Auchincloss. I appreciate the chairwoman calling
another edifying hearing on housing issues. And for this and
any other subject on housing, I feel compelled to start with
the imperative as we look to lower costs for families in
America, and as we look to rectify the injustices of redlining
and other discriminatory measures that we build more housing.
We need to build more housing in this country. My home State of
Massachusetts, I regret to say, is one of the laggards here.
In the last 20 years, in the Greater Boston metropolitan
area, round numbers, we have created something like 2.5 jobs
for every one housing unit. And you don't need to be an
appraiser or a Ph.D. economist in housing issues to understand
what happens next. Housing prices gallop by double-digit
inflation, and its lower-income base stayers who are left
behind are disproportionately, people of color. So, we need to
build more housing. I am proud to say that the Housing Choice
Act of Massachusetts is making progress there, but it needs a
whole-of-government effort, including, in my opinion, tying
infrastructure funding at the Federal level to liberalization
of land use regulations at the State and local levels. The
Federal Government needs to have leverage here.
Turning now to the issue at hand, Mr. Bunton, for you
first, please. Following the housing crisis, Fannie Mae
conducted a study about the accuracy of appraisals during the
home buying process. And this study found that two appraisers
can evaluate the same home at the same time of day, but that
knowledge of the contract price can affect its valuation, that
there is significant confirmation bias. Now, Fannie Mae and
Freddie Mac hold the majority of residential mortgages, north
of 60 percent, and we know that information like that from any
Federal agency should help guide policy and standards. Based on
this report, did your organization put in place new standards
to reduce confirmation bias?
Mr. Bunton. No.
Mr. Auchincloss. If you would like to follow up on the
record with any approaches you might take in the future to
reduce confirmation bias, I know the committee would appreciate
that.
Mr. Bunton. Will do.
Mr. Auchincloss. For Mr. Kelker, an Appraisal Management
Company (AMC) is supposed to provide a barrier between the
lender and the appraiser to decrease improper influence. Do you
think that this barrier has affected confirmation bias?
Mr. Kelker. I don't know if it has affected confirmation
bias. I think when an appraiser has a purchase agreement in
front of them that has a certain value on it, say it is
$200,000, that when he or she does an analysis of the property,
if they come up with $198,000 instead of 200,000, then there is
back and forth between the AMC and the appraiser, the AMC and
the lender. So if the contract price is within the range, they
are generally going to go with the contract price. Value is not
absolute. It occurs in ranges.
Mr. Auchincloss. Very well. Ms. Rice, I want to give you
the floor for this final minute. You had been mentioning in
your previous answer the importance of technology here, not a
panacea, as you said, but potentially a source of support. Are
there any tools currently at appraisers' disposal to detect
implicit bias in real time before it gets to the lender? Any
kind of red flag technology?
Ms. Rice. No. No, there isn't.
Mr. Auchincloss. Might that technology be important as we
look to reduce bias in appraisals?
Ms. Rice. Yes. If it were built correctly, yes, it would.
Mr. Auchincloss. And are there standards by which that
technology could be evaluated to ensure that it was built
correctly, to your knowledge?
Ms. Rice. Yes.
Mr. Auchincloss. Where are those standards?
Ms. Rice. I mentioned that we just released a framework.
Mr. Auchincloss. Terrific. Thank you, Ms. Rice. And, Madam
Chairwoman, I yield back, and thank you again for a great
hearing.
Chairwoman Waters. The gentlewoman from New York, Ms.
Ocasio-Cortez, is now recognized for 5 minutes.
Ms. Ocasio-Cortez. Thank you, Madam Chairwoman, and thank
you to our witnesses who are here sharing their testimony
today.
Today, we are focusing on the discriminatory and racist
practices in home appraisals in our country. But we also know
that many Black families and communities are disproportionately
facing foreclosure now that pandemic foreclosure moratoriums
have ended and mortgage servicers are beginning to ramp up back
to full capacity.
Madam Chairwoman, I ask for unanimous consent to submit for
the record the City article highlighting New York City's Black
neighborhoods facing a foreclosure crisis.
Chairwoman Waters. Without objection, it is so ordered.
Ms. Ocasio-Cortez. In New York City, we are starting to see
that the majority Black ZIP Codes had an average of 8.48
percent of homeowners who had fallen behind on their payments
for more than 30 days. That percentage is 4 times that of the
majority White ZIP Code average, and 1.5 times that of the
majority Hispanic ZIP Code average from September. Ms. Rice,
data suggests that New York City's Black neighborhoods, which
were devastated by the economic shocks and the pandemic as well
as decades of predatory lending, are most at risk of
foreclosure. Is this consistent with what you have observed?
Ms. Rice. Yes.
Ms. Ocasio-Cortez. We also know that most of the Black
neighborhoods with high concentrations of struggling homeowners
are in Southeast Queens and in many parts of the Bronx, areas
that lenders had previously targeted with subprime loans in the
run up to the 2008 financial crisis. Ms. Rice, we know that
none of these financial institutions ever really paid a true
cost for the financial crisis that they precipitated,
especially not for the kinds of financial discrimination that
Black homeowners faced and continue to face. Would you say that
is a fair assessment?
Ms. Rice. Yes, it is.
Ms. Ocasio-Cortez. In your opinion, at the very least, in
the short term, should loan servicers provide loan
modifications in order to make residents' monthly payments more
doable to avoid foreclosure?
Ms. Rice. Yes.
Ms. Ocasio-Cortez. What we are seeing here is a history and
a blatant pattern. We have the pandemic and the way that banks
had serviced their mortgages and loans during the pandemic. You
also have that compounding on the injustices and one of the
greatest wealth transfers out of the Black community in the
entire United States during the 2008 financial crisis. But what
we are also seeing is that we know when faced with the
possibility of foreclosure, residents are more likely to sell
their homes out of desperation, only to then be faced with
discrimination in the appraisal value of their home when they
are trying to get out of it.
Ms. Rice, the U.S. Bureau of Labor Statistics found that of
the roughly 80,000 appraisers in the United States, 97.7
percent identify as White, correct?
Ms. Rice. That is correct.
Ms. Ocasio-Cortez. And we also know that across all
majority Black neighborhoods, owner-occupied homes are
undervalued by $48,000 per home on average, amounting to $156
billion in cumulative losses to Black wealth, correct?
Ms. Rice. That is correct, as per the Brookings
Institution.
Ms. Ocasio-Cortez. This is a scandal. This is shocking, and
it should truly be an affront to every single person in this
country who believes in any form of financial, social, and
economic equity. In fact, a study by the Brookings Institution
found that on average, homes in neighborhoods where the share
of the population is 50-percent Black are valued at roughly
half the price as homes in neighborhoods with no Black
residents. We must do better. And it has just laid bare the
legacy from redlining to the way that that has transformed
into, accumulated, and built into the eventual 2008 subprime
loan crisis because it was Black, and Brown, and low-income
communities that were especially targeted with subprime loans,
and then for the pandemic foreclosure rates to be higher.
Ms. Rice, do you have any advice for us as Members of
Congress, or even the general American public, in what we
should be doing in order to right this wrong?
Ms. Rice. Sure. I see the time is running out, so I will
just say briefly, adopt the recommendations in the PAVE Action
Plan, and implement those actions. And we also have a bevy of
recommendations that we put forth in our analysis and study of
the appraisal industry that I also would recommend being put in
place.
Ms. Ocasio-Cortez. Thank you very much.
Chairwoman Waters. Thank you very much.
I now ask unanimous consent to insert statements from James
Park, executive director of the Appraisal Subcommittee of the
Federal Financial Institutions Examination Council, and from
Jillian White, Head of Better-Plus at Better.
Without objection, it is so ordered.
At this time, I would like to thank our witnesses for their
testimony today.
The Chair notes that some Members may have additional
questions for these witnesses, which they may wish to submit in
writing. Without objection, the hearing record will remain open
for 5 legislative days for Members to submit written questions
to these witnesses and to place their responses in the record.
Also, without objection, Members will have 5 legislative days
to submit extraneous materials to the Chair for inclusion in
the record.
With that, this hearing is adjourned.
[Whereupon, at 1:29 p.m., the hearing was adjourned.]
A P P E N D I X
March 29, 2022
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