[Senate Hearing 117-758]
[From the U.S. Government Publishing Office]


                                                        S. Hrg. 117-758


                     STRENGTHENING OVERSIGHT AND EQUITY IN 
                              THE APPRAISAL PROCESS

=======================================================================

                                HEARING

                               BEFORE THE

                              COMMITTEE ON
                   BANKING,HOUSING,AND URBAN AFFAIRS
                          UNITED STATES SENATE

                    ONE HUNDRED SEVENTEENTH CONGRESS

                             SECOND SESSION

                                   ON

 EXAMINING STRENGTHENING OVERSIGHT AND EQUITY IN THE APPRAISAL PROCESS

                               __________

                             MARCH 24, 2022

                               __________

  Printed for the use of the Committee on Banking, Housing, and Urban 
                                Affairs


                Available at: https: //www.govinfo.gov /

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                   U.S. GOVERNMENT PUBLISHING OFFICE                    
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            COMMITTEE ON BANKING, HOUSING, AND URBAN AFFAIRS

                     SHERROD BROWN, Ohio, Chairman

JACK REED, Rhode Island              PATRICK J. TOOMEY, Pennsylvania
ROBERT MENENDEZ, New Jersey          RICHARD C. SHELBY, Alabama
JON TESTER, Montana                  MIKE CRAPO, Idaho
MARK R. WARNER, Virginia             TIM SCOTT, South Carolina
ELIZABETH WARREN, Massachusetts      MIKE ROUNDS, South Dakota
CHRIS VAN HOLLEN, Maryland           THOM TILLIS, North Carolina
CATHERINE CORTEZ MASTO, Nevada       JOHN KENNEDY, Louisiana
TINA SMITH, Minnesota                BILL HAGERTY, Tennessee
KYRSTEN SINEMA, Arizona              CYNTHIA LUMMIS, Wyoming
JON OSSOFF, Georgia                  JERRY MORAN, Kansas
RAPHAEL G. WARNOCK, Georgia          KEVIN CRAMER, North Dakota
                                     STEVE DAINES, Montana

                     Laura Swanson, Staff Director

                 Brad Grantz, Republican Staff Director

                       Elisha Tuku, Chief Counsel

                 Dan Sullivan, Republican Chief Counsel

                      Cameron Ricker, Chief Clerk

                      Shelvin Simmons, IT Director

                        Pat Lally, Hearing Clerk

                                  (ii)

                            C O N T E N T S

                              ----------                              

                        THURSDAY, MARCH 24, 2022

                                                                   Page
Opening statement of Chairman Brown..............................     1
        Prepared statement.......................................    23

Opening statements, comments, or prepared statements of:
    Senator Toomey...............................................     3
        Prepared statement.......................................    24

                               WITNESSES

Melody Taylor, Executive Director, Property Appraisal and 
  Valuation Equity Interagency Task Force, and Regional Director, 
  Office of Fair Housing and Equal Opportunity, Region III, 
  Department of Housing and Urban
  Development....................................................     5
    Prepared statement...........................................    25
    Responses to written questions of:
        Senator Reed.............................................    29
        Senator Tillis...........................................    30
James R. Park, Executive Director, Appraisal Subcommittee of the 
  Federal Financial Institutions Examination Council.............     7
    Prepared statement...........................................    27
    Responses to written questions of:
        Senator Reed.............................................    32
        Senator Tillis...........................................    33

              Additional Material Supplied for the Record

Letter submitted by NAFCU........................................    35
Statement submitted by AEI Housing Center........................    38
Letter submitted by The Appraisal Foundation.....................    42

                                 (iii)

 
      STRENGTHENING OVERSIGHT AND EQUITY IN THE APPRAISAL PROCESS

                              ----------                              


                        THURSDAY, MARCH 24, 2022

                                       U.S. Senate,
          Committee on Banking, Housing, and Urban Affairs,
                                                    Washington, DC.
    The Committee met at 10 a.m., via Webex and in room 538, 
Dirksen Senate Office Building, Hon. Sherrod Brown, Chairman of 
the Committee, presiding.

          OPENING STATEMENT OF CHAIRMAN SHERROD BROWN

    Chairman Brown. The Senate Committee on Banking, Housing, 
and Urban Affairs will come to order. Welcome to our two 
witnesses. Thank you for joining us. Thank you for your public 
service.
    Today's hearing is in a hybrid format. I appreciate the 
witnesses being here in person. Members have the option, as you 
know.
    A home is so much more than four walls and a roof. It is 
the refuge you return to after a long, hard day at work and it 
is what keeps you safe at night. It is where you make memories 
with your children, watching them take their first steps, 
taking first day of school pictures. For a middle-class family, 
a home is their single biggest source of wealth, more than bank 
savings or retirement accounts. For those who aspire to the 
middle class, home ownership is seen as often the way to get 
there.
    It is not just physical security. It is economic security. 
Families count on the value of their home as they think about 
sending their kids to college or about how they will afford 
retirement, and how much your home is worth matters.
    For decades, from the Black codes to Jim Crow, this country 
locked Black Americans out of one opportunity after another--
the opportunity to vote, the opportunity to get an equal 
education, the opportunity to have the basic dignity of being 
able to pick your seat on a bus or a train.
    In 1933, when America was a very segregated country, by law 
in many places, the Federal Government created the Homeowners 
Loan Corporation, HOLC, essentially setting up what would 
become the 30-year mortgage so that more families could own 
their homes. Soon after, Federal policy followed the lead of 
local communities, locking in discrimination and locking out 
Black families. With redlining maps, our Government cutoff 
mortgage access and, with that, access to affordable home 
ownership in neighborhoods where Black and Brown families 
lived.
    For more than 30 years, from 1934 to 1968--the Federal 
Government endorsed the idea that homes in neighborhoods were 
worth less because of the race of the people who lived there.
    The Fair Housing Act was passed to change that, and slowly 
began to. In 1968, we affirmed that no one--no one--should be 
denied housing or discriminated against based on the color of 
their skin or where they were born. In case it was not clear, 
the courts and then Congress made it clear that using race to 
determine a home's value would finally be illegal 
discrimination.
    But just because it is illegal does not mean it does not 
happen. Look at home values across neighborhoods today. It is 
obvious that redlining of the past has not been undone. I know 
that in my own neighborhood. Talk to Black families who have 
had their home appraised, listen to the stories they tell you. 
Discrimination is still happening.
    Look what happened to the Parkers, an African American 
family in Loveland, Ohio, a Cincinnati suburb. Just last year, 
after their appraisal came in far lower than they or their 
realtor expected, the Parkers took down their family photos, 
took them off the wall, had a White friend meet a new 
appraiser. Their home was suddenly worth $92,000 more, 20 
percent more, than the appraisal when it looked like a Black 
family lived there. That is about as clear-cut an example of 
how this discrimination works as you can find. And it was last 
year. When a Black family owns a home it is worth one price. 
When a White family owns a home it is very likely worth a 
different price, in this case 20 percent higher price.
    Ms. Parker said, in an interview, she had to tell her 6-
year-old daughter--you can picture this little Black girl 
walking around with her parents as her mom and dad took down 
family pictures, took them off the wall. She told her 6-year-
old daughter, ``Sometimes because of the color of our skin we 
get treated differently.'' That is something no parent should 
have to say, no child should have to hear.
    It happens all the time. When Andre Perry of Brookings 
looked at home values he found that homes in majority-Black 
neighborhoods were worth 23 percent less than homes in 
neighborhoods with few Black residents, even when they had 
access to the same quality of schools, same access to business, 
same rates of crime--23 percent. That means 23 percent less for 
college tuition, 23 percent less for retirement, 23 percent 
less to put a down payment on the next home, 23 percent less to 
pass on to your children and your grandchildren.
    Appraisals determine the value of your home based on how 
much your neighbors' homes sold for, so the devaluation of a 
home today means that homes down the street will sell for less. 
That, in turn, means the next home that gets appraised will 
come in lower, and on and on it goes, for years and years, for 
decades and decades, for generations.
    The cycle continues unless we end it. That is the reason 
for this hearing, and the Fudge Report.
    Last year the Administration took the first step in 
announcing an initiative, headed by Secretary Fudge, to address 
bias in home appraisals. She formed an interagency task force, 
led by Melody Taylor, who has joined us today, that released an 
action plan to tackle this problem. The task force plan focuses 
on actions that Federal agencies can take today: strengthen 
oversight of fair lending laws, identify and address systemic 
issues in the appraisal process, grow and diversify the 
appraiser workforce, give consumers tools to report bias that 
they see or that is aimed at them.
    Today we will hear from Ms. Taylor and from Jim Park, the 
head of the Federal organization that oversees the appraisal 
regulatory process about what Federal agencies will do to put 
this plan into action. We will also hear what we can do to help 
them do their work.
    This is not theoretical. This is an issue that has real 
consequences for the millions of families that we serve in 
Montana and Pennsylvania and Ohio. I look forward to hearing 
what we can do to make sure millions of Americans like Ms. 
Parker never have to settle for less.
    Ranking Member Toomey.

         OPENING STATEMENT OF SENATOR PATRICK J. TOOMEY

    Senator Toomey. Thank you, Mr. Chairman. Almost a year ago 
we held a hearing on discrimination in housing, and I will say 
again today what I said then: racial discrimination is a real 
and sad part of our Nation's history. It is a fact. Sadly, it 
is also a fact that Government policies have contributed to 
this discrimination. In my view, history shows us that when it 
comes to housing in America, including housing discrimination, 
Government is often has been the problem not the solution.
    First, we should ask ourselves why the Government is micro-
managing the appraisal process. As long as taxpayers are not on 
the hook for the risk-taking and subject to existing consumer 
protection and anti-discrimination laws, each private sector 
market participant should be free to develop its own approach 
to underwriting its loans, and that flexibility should permit 
significant discretion to experiment with new technologies like 
automated valuation models or other alternatives to full 
appraisals of loan collateral. For example, when there are 
numerous bids for a home the best appraisal is probably the 
market itself.
    But unfortunately that is not the system we have today. 
Instead, taxpayers stand behind more than two-thirds of our 
mortgage loans and Federal appraisal regulation extends even to 
much of the small, remaining portion that is not backed by the 
Government. Government intervention begets more Government 
intervention. And here we are today, with my colleagues 
advocating a, quote, ``action plan,'' that will layer yet more 
regulation on top of an already byzantine and antiquated set of 
appraisal regulations.
    Thankfully, there are laws against discrimination for real 
estate transactions, including appraisals. As a result, most 
institutions have long since abandoned explicit racial 
discrimination. Even the President's nominee for HUD's Office 
of Policy Development and Research has publicly acknowledged 
that. Has the appraisal industry somehow avoided this law?
    Well, this Administration seems to believe that despite the 
progress we have made to eliminate discrimination in housing, 
the appraisal industry remains systemically racist. Yesterday, 
the Administration's task force on Property Appraisal and 
Valuation
Equity, or PAVE, released a report alleging systemic racial 
bias in home appraisals. This comes as a bit of a surprise.
    The report recommends an action plan to address this 
alleged systemic racism before the Government has sufficiently 
established that a systemic problem exists in the first place. 
In fact, the report admits that, quote, ``the exact number of 
instances of valuation bias is difficult to assess,'' end 
quote. And one of the report's recommended actions is to 
establish metrics to identify appraisal bias. Well, that 
certainly calls into question whether the authors have enough 
data to know whether their conclusion is correct.
    Of course, we should not ignore incidents of appraisals 
that appear to be attributable to race, and this happens. There 
have been news reports of home being appraised for more when 
Black owners had White people stand in for them, as the 
Chairman has relayed an anecdote to that effect. And FHFA 
reviewed millions of appraisals and found some instances where 
the appraiser included direct references to race or another 
protected class. These things are not right.
    But as bad as these anecdotes are, do they prove that there 
are systemic problems, and should the Government upend the 
appraisal regime, and in the process impose significantly 
higher costs on people buying homes, without confirmation that 
there is a systemic problem here?
    See, it is not at all clear that we have a systemic problem 
of appraisers undervaluing homes based on a borrower's race. 
The PAVE task force relied primarily upon two studies that have 
questionable analyses, that failed to control for other 
factors, other than race, that once considered may explain 
disparities. Other studies disclosed their limitations and note 
that the results are not conclusive evidence of racial bias. 
Even Fannie Mae's study, the one relied upon by the task force, 
found, and I quote, ``The differences observed in 
undervaluation between White and Black borrowers were similar 
in rate and not meaningfully different,'' end quote. That is 
from Fannie Mae.
    In another recent academic study, which the PAVE report 
fails to cite, found racial appraisal bias in mortgage 
refinance transactions to be either uncommon or to have 
relatively minor effect on valuations. Yet we are still holding 
a hearing today to address what we are told is a systemic 
problem of racial bias in home appraisals.
    So I am concerned that the PAVE report devotes only half a 
page to a discussion of the risks of over-valuing homes. 
Instead, the report recommends studying the use of alternatives 
to the sale comparison approach of appraisals and the use of 
range of value estimates instead of a single value estimate for 
appraisals.
    But rather than increasing the accuracy of appraisals, 
these suggestions increase the risk of over-valuation, and that 
risk is exacerbated for rural properties, which already can be 
challenging to appraise. I do not think we should be doing 
anything to make
appraisals of rural housing more difficult, nor should we adopt 
recommendations that, in general, could undermine confidence in
appraisals and ultimately reduce the availability of credit for 
all borrowers. The overvaluation of homes harms taxpayers on 
the hook for underwater mortgages, and it also harms borrowers, 
in many cases minority borrowers, who have been sold over-
valued homes. I hope we reject any changes that end up 
increasing the risk of over-valuation.
    As I have said before, one of the lessons we should learn 
and apply is that when it comes to housing in America, 
Government has often been the problem, not the solution.
    Thank you, Mr. Chairman.
    Chairman Brown. Thank you, Senator Toomey. I will introduce 
today's witnesses.
    Melody Taylor is the Executive Director of the Property 
Appraisal and Valuation Equity--PAVE--interagency task force, 
which Senator Toomey and I mentioned. She serves as the 
Regional Director for the Mid-Atlantic Office of Fair Housing 
and Equal Opportunity at HUD. Ms. Taylor's work includes 20 
years of experience in fair housing.
    Ms. Taylor, welcome to the Committee.
    Mr. Jim Park is the Executive Director of the Appraisal 
Subcommittee, a Member of the PAVE interagency task force. He 
has over 23 years of appraisal and mortgage banking experience, 
including serving as the Director of Research and Technical 
Issues at the Appraisal Foundation. He is also a certified 
general appraiser in Virginia.
    Mr. Park, welcome to the Committee.
    Ms. Taylor, please begin.

   STATEMENT OF MELODY TAYLOR, EXECUTIVE DIRECTOR, PROPERTY 
  APPRAISAL AND VALUATION EQUITY INTERAGENCY TASK FORCE, AND 
      REGIONAL DIRECTOR, OFFICE OF FAIR HOUSING AND EQUAL 
   OPPORTUNITY, REGION III, DEPARTMENT OF HOUSING AND URBAN 
                          DEVELOPMENT

    Ms. Taylor. Thank you, Chairman Brown, and good morning. 
Chairman Brown, Ranking Member Toomey, and other Members, I am 
extremely honored to have been invited to address the Committee 
on Banking, Housing, and Urban Affairs. As stated, appointed by 
Secretary Marcia Fudge in July 2021, I serve as the Executive 
Director of the Property Appraisal and Valuation Equity task 
force and as the Regional Director for the Office of Fair 
Housing and Equal Opportunity.
    My contributions and commitment to fair housing and civil 
rights spans over 20 years, as a career civil servant, with HUD 
and with the Department of Justice. I have also had the 
privilege of working with local government and leading fair 
housing groups here in the Nation's capital, focusing on 
insurance and lending discrimination issues.
    Each day in America, the value of our neighbors' homes 
determines whether they can use cash for refinancing their 
homes to send their children to college, start a business, 
access credit on reasonable terms, and ultimately whether their 
children and their offspring will benefit from the transfer of 
multigenerational wealth that can occur through home ownership. 
This is the American dream.
    Sadly, accounts of appraisal bias have captured national 
headlines in recent months. Yesterday, during the launch of the 
Action Plan, we heard from the Austins, a Black couple in Marin 
City, California. In early 2020, they decided to refinance and 
take advantage of low interest rates to finish the remodel on 
their home. An appraiser was needed to validate this 
transaction, but came back woefully under market. The value was 
at $995,000. Weeks later, after they whitewashed their home, 
they asked a friend to come in and pose as the homeowner, and 
this was within weeks, the appraisal came back at $1.48 
million, more than 50 percent higher.
    Research has shown that their experiences are not one-offs. 
Rather, they are part of a reoccurring pattern of racial bias. 
Further validated by a Freddie Mac study published in September 
2021, which found that appraisals for home purchases in 
majority-Black and majority-Latino neighborhoods were roughly 
twice as likely to result in a value below the actual contract 
price, compared to appraisals in predominantly White 
neighborhoods.
    Similarly, Fannie Mae examined refinance transactions, and 
found that White-owned homes are more likely than Black-owned 
homes to be appraised at values that exceed algorithmic 
prediction.
    As noted in the PAVE Action Plan, the compounding effects 
of undervalutions over time has the effect of lowering wealth 
among homeowners, thereby contributing to the expansive wealth 
gap.
    For this reason and more, on June 1st, President Biden 
announced the creation of the interagency task force on 
Property Appraisal and Valuation Equity. Cochaired by HUD 
Secretary Marcia Fudge and White House Domestic Policy Advisor 
Ambassador Susan Rice, the task force was directed to 
accomplish two things: evaluate the cause, extent, and 
consequences of racial and ethnic appraisal bias; and establish 
a set of actions to root out bias in the valuation of 
residential property.
    Immediately the task force convened 13 Cabinet-level and 
independent agencies and White House offices as members 
committed to creating meaningful, comprehensive administrative 
and policy actions.
    It is important to know we did not take this journey alone. 
Utilizing a holistic approach, we engaged and sought input from 
realtors, appraisers, philanthropists, academics, civil rights 
leaders, and people impacted by bias, to identify solutions to 
bring about change with a sense of immediacy.
    The product is a blueprint describing the history and 
impact of persistent misvaluations, early progress wins already 
made toward transforming the industry, and 21 concrete actions 
and commitments to advance equity in the home-buying process.
    Member agencies will take the following actions: make the 
appraisal industry more accountable; empower consumers; prevent 
algorithmic bias in home valuations; cultivate an appraiser 
profession that is well trained and looks like the communities 
it serves; leverage Federal data and expertise to inform 
policy, practice, and research on appraisal bias.
    In conclusion, Chairman Brown, Ranking Member Toomey, and 
other Members, I thank you for the opportunity to share this 
with you and the public, Federal and independent agencies 
taking a whole-of-Government approach to address a longstanding 
wealth gap issue in a way that will create legacies for future 
generations. We look forward to the partnership and 
opportunities to further amplify the success of this task 
force.
    Chairman Brown. Thank you, Ms. Taylor.
    Mr. Park, welcome.

   STATEMENT OF JAMES R. PARK, EXECUTIVE DIRECTOR, APPRAISAL 
SUBCOMMITTEE OF THE FEDERAL FINANCIAL INSTITUTIONS EXAMINATION 
                            COUNCIL

    Mr. Park. Good morning Chairman Brown, Ranking Member 
Toomey, and Members of the Committee. I am honored to address 
the Committee on Banking, Housing, and Urban Affairs on the 
important work of the Property Appraisal and Valuation Equity 
task force which was set up by President Biden with Secretary 
Fudge and Ambassador Rice leading a first-of-its-kind 
interagency initiative to address inequity in home appraisals. 
I have had the distinct honor, as the Executive Director of the 
Appraisal Subcommittee, of participating on the PAVE task 
force.
    For millions of Americans, building intergenerational 
wealth has meant one thing: home ownership. Appraisals and 
appraisers play a vital role in the multitrillion-dollar 
financial services market by providing key risk management 
tools that protect financial institutions and consumers. 
Numerous public accounts of appraisal bias, coupled with a lack 
of appraiser diversity and recent studies, raise serious 
concerns about appraisals and lending practices, and appraisal 
governance, shining a light on an industry that needs reform to 
promote equity.
    As background, our current appraisal regulatory system was 
established in 1989. Title XI of the Financial Institutions 
Reform, Recovery, and Enforcement Act, or FIRREA, established 
this unique appraisal regulatory system consisting of the State 
appraiser regulatory programs, the Appraisal Foundation, a 
private nonprofit, and the Appraisal Subcommittee, or ASC, as 
the Federal oversight body.
    In short, the Foundation issues the appraisal standards and 
appraiser qualifications, the States are required by law to 
implement those requirements, and the ASC enforces that 
implementation by the States. The ASC also houses the National 
Registry of appraisers and appraisal management companies.
    In addition to the PAVE task force initiative, in January 
2022, the ASC released its independent study that focused on 
the foundation's appraisal standards and appraiser 
qualification criteria. The goal of this study was to ensure 
these standards and qualifications do not facilitate or 
systematize racial or ethnic bias. The PAVE Action Plan and the 
independent report commissioned by the ASC identify serious 
shortcomings and opportunities for reform.
    Some of the pressing challenges with our current system I 
would like to highlight today include inadequate accountability 
in our current governance structure, a shortage of appraisers, 
and finally, a lack of diversity in the appraisal profession.
    On governance, the PAVE Report notes that ``the existing 
governance structure needs to be fundamentally reassessed to 
meaningfully advance equity in the industry.'' Per Title XI of 
FIRREA, the ASC is required to ``monitor and review'' the 
foundation. However, the agency has neither the enforcement 
authority nor an effective mechanism for holding the foundation 
accountable.
    The appraisal profession also faces other challenges. Since 
2009, the number of credentials on the ASC's national registry 
has declined by nearly 25 percent. Furthermore, the real 
property appraiser occupation is among the least diverse in the 
country. An extensive and typically unpaid ``trainee'' model, 
along with burdensome education and experience requirements, 
present barriers to entry that disproportionately impact people 
of color and rural residents. Trainees are often unable to find 
a supervisor, as qualified appraisers are often unwilling to 
take on the responsibility and liability of training them or 
may have reservations about training their own future 
competition, resulting in a shortage of appraisers, 
particularly in rural markets. This has driven up service times 
and appraisal fees to unacceptable levels, causing loans to be 
delayed or even lost. Appraiser qualification requirements 
should absolutely have the appropriate rigor but not pose 
unreasonable barriers to enter the profession.
    These longstanding, unaddressed issues have serious 
implications for everyday Americans. An improved governance 
structure would advance equity by ensuring greater fairness and 
transparency in the appraisal standards and appraiser 
qualifications setting process. It would also advance a more 
stable and reliable appraisal industry to serve financial 
services and consumers alike.
    The ASC stands ready to be part of the solutions to the 
challenges to bring about meaningful long-term change that will 
only come from partnerships with other stakeholders, including 
lenders, the GSEs, regulators, and legislators.
    Thank you Chairman Brown and Ranking Member Toomey and 
Members of the Committee. I appreciate the opportunity to 
appear before you today and I am happy to take your questions.
    Chairman Brown. Thank you very much, Mr. Park.
    Ms. Taylor, one biased appraisal does not just hurt the 
individual or the family selling their home. It can have, as 
you point out, a pervasive effect on an entire neighborhood. 
Walk through, if you would, how one appraisal can have an 
impact, a significant impact, on a whole community. Walk 
through that process please.
    Ms. Taylor. Thank you, Chairman Brown. In the PAVE report 
we speak to the compounding effect of undervaluation in a 
community. With regards to a homeowner, for example, if one 
were to refinance their home, for example, the undervaluation 
of a refinance transaction could have the potential to not just 
impact that individual but the entire community, thus creating 
disinvestment in the community, economic instability. It has 
the similar effect of the redlining history that we know that 
this country has created.
    And so, therefore, when one does not have the opportunity 
to have their property appraised accurately and fairly there is 
a loss of wealth to that home and the compounding interest to 
other homes in the community.
    Chairman Brown. And the future for that family.
    Ms. Taylor. Yes, sir.
    Chairman Brown. So why is that? The Secretary of HUD, after 
the Fair Housing bill of 1968, was the father of our colleague, 
Mitt Romney. He went in with good intentions. The President, 
maybe not so much, but nonetheless we passed that in 1968, the 
Equal Credit Opportunity Act, which banned discrimination and 
access to credit in 1974. As Senator Toomey said, these laws 
are explicit. They prohibit discrimination in appraisals. They 
make using a discriminatory appraisal to make or refuse a 
mortgage loan is illegal.
    So why haven't these laws not been enough to prevent this 
discrimination from happening, still today?
    Ms. Taylor. Thank you, sir. Discrimination is not a 
science, and although the laws are on the books, the home 
ownership gap is even more expansive today and it is wider 
today.
    Chairman Brown. Than '68, than 1968?
    Ms. Taylor. Than 1968. Yes, Chairman Brown. I believe 
strongly, and again, the PAVE report points to the fact that 
individuals do not know that they have been discriminated 
against. There is a lack of awareness. There is a lack of 
access to information relating to discrimination. 
Discrimination happens when a transaction happens.
    You described, in your statement, imagine someone who has 
saved up, they are in the process, they have to remove things 
from the home. It is a transactional experience, and it 
requires that individuals be able to understand where in the 
process that discrimination occurs.
    And so, again, as a part of the PAVE Action Plan, we 
highlight and note that we need to increase awareness through a 
public awareness campaign, in our housing counseling programs, 
to increase awareness there and train housing counselors to 
provide education to consumers on appraisal bias.
    Chairman Brown. Thank you. And think about the persistence 
of this. In 1933, HOLC passed, and 1934 is when the Federal 
Government essentially followed local lead in establishing 
these ABCD neighborhoods, if you will, locking in redlining, a 
little more softly to immigrants but especially to African 
Americans. Thirty-plus years, 1934 to 1968, redlining was 
legal. And in that period, 98 percent of FHA loans--98 percent 
of FHA loans; I spoke on this on the floor yesterday--went to 
White homeowners.
    Then you think, what you just outlined from 1968 to today, 
how persistent and pervasive this is. So thank you for 
clarifying that.
    My other question, Mr. Park, I have a question for you. The 
PAVE task force committed to work with Congress to allow more 
groups, beyond the appraisal industry, to comment and influence 
rulemaking procedures. Could you expand on this part of the 
Action Plan, Mr. Park, discuss whether this would improve 
existing regulations and oversight of the appraisal industry?
    Mr. Park. Thank you, Chairman Brown. Yes, the appraisal 
industry right now is lacking appropriate governance. We need 
more accountability and transparency in the standards and 
qualifications setters. They should be subject to an APA 
rulemaking process so that all facets of society, whether it be 
minorities, rural property owners, all have an opportunity to 
comment and have their opinions voiced, and their concerns 
voiced, to the standards and qualifications setters, so we have 
a fair and equitable system for everyone.
    Chairman Brown. Thank you. Senator Toomey.
    Senator Toomey. Thank you, Mr. Chairman. Let me start by 
saying, Mr. Park, I am sympathetic to the idea that appraisal 
qualification requirements can create unnecessary barriers to 
entry and have the effect of protecting the existing guild, and 
I am open to a conversation about how we make it more 
accessible to more people.
    I am concerned that while there is no question there are a 
number of terrible anecdotes of racial bias in appraisals, it 
is not clear to me that there is enough actual substantive data 
to come to the conclusion that we have systemic racism in the 
appraisal process.
    The PAVE task force acknowledges in its report that, quote, 
``valuation bias is difficult to assess,'' end quote. The 
report also recommends establishing metrics to identify bias. 
It does seem strange to suggest widespread or systemic 
disparities when the Government has not yet measured or studied 
the scope of the problem, or maybe even decide what metrics 
would indicate that there is a systemic problem.
    The report does, however, reference and base its 
recommendations primarily on two preliminary studies by Fannie 
and Freddie, which, by the way, in some important respects, 
come to contradictory conclusion.
    So I want to ask a little bit about the research upon which 
the PAVE report seems to heavily rely. Ms. Taylor, first of 
all, I am sure you have acknowledged, GSEs are primarily in the 
business of buying mortgages and selling mortgage-backed 
securities and not primarily academics. Right?
    Ms. Taylor. Yes, Senator.
    Senator Toomey. OK. Did the task force look at independent 
academic research that reached different conclusions than the 
two GSE studies?
    Ms. Taylor. Thank you for that question. Yes, we did. There 
were a number of studies that we evaluated, and I would just 
like to reiterate the FHFA study that evaluated millions of 
appraisals and the freeform text data that was used there. And 
we saw, in that particular study, where appraisers documented 
the context of a neighborhood----
    Senator Toomey. Yeah, I saw that. These are anecdotes, 
though, and it looks like most of the conclusions and most of 
the references in the report refer back to these two studies.
    Let me ask you this. The data that the GSEs relied on for 
their studies, is that publicly available data? I do not think 
it is.
    Ms. Taylor. It is not.
    Senator Toomey. It is not. Who could release that data? It 
could be anonymized. I am not suggesting that it have 
identifying information, but who has the authority to release 
that?
    Ms. Taylor. Right now that is one of the objectives of the 
PAVE Action Plan data, based on, even the industry, you know, 
came back to us to recommend that we make data publicly 
available.
    Senator Toomey. Yeah. So I think FHFA has the authority to 
do that. It could release this data, and then you could do what 
peer review of academic research normally does, is allow lots 
of people to evaluate the same data so that they can come to 
the right conclusions. And yet that is not possible when the 
data is not available.
    Let me also ask you about this. On the issue of 
undervaluations, Fannie's study of mortgage refinances found, 
and I quote, ``the differences observed in undervaluation 
between White and Black
borrowers were similar in rate and not meaningfully 
different.'' So Fannie concludes that undervaluations do not 
have any evidence of systemic differences, much less systemic 
bias.
    Now that is for undervaluations. In Fannie's research they 
found overvaluations of White-owned homes were more likely to 
occur in majority-Black neighborhoods than overvaluation of 
Black-owned homes, and you mentioned that in the report, this 
observation. But the report does not include, I do not think, 
another observation that the Fannie research comes to, which 
is, and I quote, ``the difference in frequency of 
overvaluations along race may well be due to factors other than 
racial bias in appraisals, such as gentrification,'' and there 
is a clear logic for why gentrification could create a dynamic 
where you would have this.
    So I guess the question is, how do you come to a conclusion 
that there is systemic bias in appraisals when the two primary 
sources that you used--first of all, two seems like a pretty 
low number of studies, and they contradict each other with 
respect to undervaluation?
    Ms. Taylor. Thank you for that, Ranking Member Toomey. A 
couple of things I would like to just share. So there have been 
a number of studies released over the last several years on 
this topic, and our assessment of all available literature, 
including from academics, Government entities, nonprofits, 
point to consistent evidence of inequity in home appraisals 
with Black and Latino homeowners more likely to experience 
misvaluation, even after accounting for other factors.
    What we know is that the subjectivity and the discretion of 
the appraisal process and the vast discretion given to 
appraisers is providing their opinion of value, and it does 
create a space for other forms of bias.
    Senator Toomey. Well, you have restated your conclusion. My 
point is that the data you have presented does not meaningfully 
support that conclusion, in my view. There is no doubt there 
are terrible anecdotes of racial bias in appraisals, but if we 
are going to upend an industry and have the consequence of 
raising the cost of home ownership for Americans--let us not 
kid ourselves; these reforms would increase the cost of the 
appraisal process and that means homeowners, home buyers, would 
have to pay that--if we are going to do that, I think it should 
be based on reliable data. The reports, there were just two. 
The data is proprietary, so it cannot be evaluated by 
independent academics. In important respects they contradict 
each other. And appraisals are an important component of the 
whole home-buying exercise.
    Thank you, Mr. Chairman.
    Chairman Brown. Thank you, Senator Toomey.
    Senator Menendez, from New Jersey, is recognized.
    Senator Menendez. Thank you, Mr. Chairman, and thank you 
for holding this hearing.
    Look, I know that there are some who will never see bias in 
anything and just presume that our systems work, you know, 
color-blind, efficiently, effectively, and without consequences 
for certain communities, and I wish that was the case. But that 
is simply not the case.
    Freddie Mac published a study last year on the topic of 
appraisal bias, and one of the key findings of that study was 
that appraisal gaps in minority census tracts is not being 
driven by a limited number of bad actors but rather that, 
quote, ``a large portion of appraisers are generating 
statistically significant gaps.''
    Ms. Taylor, can you give a brief overview on the standards 
for housing appraisers, particularly whether they are required 
to go under any kind of bias training?
    Ms. Taylor. Thank you for that question, Senator. Currently 
there is not a requirement for appraisers to attend fair 
housing or bias training. Although there are several States 
that do require it, it is not a requirement for certification.
    Senator Menendez. Well that appraisal workforce is a 
shrinking field, with more than 12 percent decline in appraiser 
credentials since 2011. At the same time, that workforce is 
becoming less and less representative of the population. A 
survey from the Appraisal Foundation found that 68 percent of 
appraisers are male, 92 percent are non-Hispanic Whites, and 2 
in 3 are 55 years or older. So I understand maybe why some of 
the appraisals are skewed, not because I said it but because 
Freddie Mac said it. I do not think Freddie Mac is a flaming 
liberal organization.
    When a homeowner receives a discriminatory appeal they 
suffer tangible financial injury. Consumers should not have to 
bear this cost, and in many circumstances they are unable to 
bear it. Brookings estimates that the appraisal gap can cause 
homeowners in majority-Black neighborhoods an average of 
$48,000. What legal recourse do victims of discriminatory 
appraisals have?
    Ms. Taylor. Thank you for that question, Senator. Under the 
Fair Housing Act, individuals who have been discriminated 
against are able to file a complaint through Housing and Urban 
Development Office of Fair Housing and Equal Opportunity, 
either the Department of Justice, if there is believed to be a 
pattern of practice in that area, and under the Equal Credit 
Opportunity Act if one would believe that they have been 
violated under that particular purview.
    Senator Menendez. So they could file a complaint. How long 
does a complaint normally take to get processed? Do we have any 
idea?
    Ms. Taylor. Well by statute we have 100 days, under the 
Fair Housing Act, to investigate a complaint of discrimination.
    Senator Menendez. So 100 days probably puts them outside of 
the time in which they are trying to buy that home, because 
having done real estate transactions when I was a lawyer I do 
not know of too many transactions that will allow you to wait 
100 days for a closing. And so it basically puts the individual 
in the challenge. So he or she loses out on one home because of 
an unfair appraisal. OK, so they file a complaint. Now they go 
to buy another home and maybe they suffer the same set of 
circumstances. So it is a never-ending challenge for that 
person.
    And I have also seen that, as if appraisal bias that 
routinely costs Black and Latino homeowners tens of thousands 
of dollars was not bad enough, these communities are also 
getting hit with inflated tax bills. Research indicates that 
Black-owned homes are consistently assessed at higher values 
relative to their share price than White homes, and that, 
combined with the prior Administration's changes to the State 
and local property tax deduction, minority families are being 
hit with higher tax bills on undervalued homes.
    Is this something that your department has observed, and if 
so, what can be done at a Federal level to deal with it?
    Ms. Taylor. Thank you for that question. We, in the PAVE 
Action Plan, speak to tax assessments, but we have also 
acknowledged and determined that it is a complex set of 
circumstances that differed from the scope in which we were 
evaluating home buying discrimination in the appraisal process 
and refinance processes. Tax assessments are often a very local 
initiative and controlled by local political processes, and 
therefore it was something we were unable to, in the narrow 
scope of time of this particular report, were able to address 
and identify. But we do have that purpose for future----
    Senator Menendez. Well, I hope you will pursue that. The 
final question, if I can, Mr. Chairman, in all of this, would 
housing counseling help someone navigate these challenges?
    Ms. Taylor. Thank you for that, and absolutely, sir. You 
will see, in the PAVE Action Plan, that we have identified that 
appraisal bias training will be a part of HUD's housing 
counseling operations.
    Senator Menendez. Thank you, Mr. Chairman.
    Chairman Brown. Thank you, Senator Menendez.
    Senator Tester, of Montana, is recognized.
    Senator Tester. Thank you, Mr. Chairman. I want to thank 
you and the Ranking Member for having this hearing, and I want 
to thank both Ms. Taylor and Mr. Park for the testimony that 
you have given today. I very much appreciate it.
    I come from Montana. In my State we have had challenges 
around appraisal delays, a problem in a lot of rural areas in 
our country. And that fact that Mr. Park brought up, that there 
are too few appraisers, and then you combine that with how far 
they have to travel it becomes a problem.
    And as Chairman of the Veterans' Affairs Committee, I also 
heard about the challenges that our Nation's veterans run into 
in Montana and all across the country, when they try to buy a 
home using a VA loan. And one step that I have advocated to 
help make sure these challenges are getting addressed is adding 
representatives from the VA and USDA's Rural Housing Service to 
the Appraisal Committee. In addition to FHA and VA, USDA has 
direct knowledge of the appraisal process and how it can impact 
the homebuying process.
    Mr. Park, how could ASC and your work there be improved by 
the knowledge and perspective of VA and USDA representatives, 
or is that something that would not be an improvement?
    Mr. Park. Thank you for that question, Senator Tester. In 
my opinion, adding the Veterans Administration and USDA Rural 
Housing Development to the Appraisal Subcommittee is a great 
idea. My father was a veteran, of World War II, Korea, and 
Vietnam. After retiring from the Air Force he set up an 
appraisal company. He did VA appraisals. I cut my teeth doing 
VA appraisals.
    The VA has a very unique relationship with their 
appraisers. The VA is the client of the appraiser, and that is 
unusual for the Federal Government. So they really understand 
what is going on in the appraisal market, in the appraisal 
profession. Adding USDA Rural Housing Development would give 
the subcommittee more perspective on the needs and concerns of 
rural communities. And we need more of that. We hear lots of 
complaints about shortages of appraisers in these rural 
communities.
    Senator Tester. Thank you for that. This is for both of 
you, and it deals with the shortage of appraiser issue and the 
barriers it creates for prospective home buyers as it applies 
to rural America, and may apply to urban America too. But what 
more could we do to address those shortage issues? What should 
we be doing?
    I will leave it at that. I am not going to give you 
anywhere to go. You guys tell me where you want to go. And it 
is for both of you, so go ahead, Mr. Park, and then Ms. Taylor.
    Mr. Park. Thank you for that question. Well first I think 
we need to take a real hard look at the qualification 
requirements to become an appraiser. Right now one of the 
biggest barriers to entry to becoming an appraiser is the 
experience requirement. In order to gain the necessary 
experience you have to find a supervisor, and a lot of 
appraisers, as I mentioned in my testimony, do not want to be a 
supervisor. Unless you have a family member--I am a perfect 
example--or a friend or somebody who is willing to take on that 
liability to train somebody, it can be almost impossible.
    Both in my job now, and previous jobs, I frequently have 
received calls from trainees who have gone through the 
education and gone through much of the process, and they cannot 
find a supervisor for years. It is even more difficult in rural 
markets because of the distances and the limited number of 
appraisers in these markets.
    Senator Tester. OK. Ms. Taylor.
    Ms. Taylor. Thank you for that question. I would just add 
to my colleague's statement or testimony increasing the 
training opportunities for appraisers. We believe that a well-
trained organization should look like the communities that they 
serve, so we want to make sure that appraisers are well 
trained. The Action Plan also speaks very specifically to 
reaching out to the Appraisal Foundation, their Qualifications 
Board, and requesting consideration to reduce or eliminate the 
Appraisal Qualifications Board experience requirements, but 
also to develop a comprehensive exam as an alternative path to 
credentialing, which will allow for a bit more expediency in 
that process and perhaps would increase the opportunity for 
appraisers to be onboarded in a more efficient way.
    Senator Tester. I appreciate that. Look, not only the 
liability question that you brought up, Mr. Park, but also the 
fact that we are asking people to train people who are going to 
be in competition with them does not make a lot of sense, quite 
honestly. And so the delay issue on appraisals is a big, big 
issue, and I think we need to really work on this to try to get 
this solved.
    I just wanted to address Senator Toomey, just for a second. 
At the end of his comments he said, ``In housing, Government is 
never the solution.'' I beg to differ. Thirty-year fixed-rate 
mortgages have been pretty successful to get people in.
    But I also want to agree with something Senator Toomey 
said, and that is that I do not know why we do not have more 
transparency on the information. I think it would help. I am 
talking about the information that determines whether or not 
there is systemic racism or not. I think having access to that 
information would very much help us to be able to make some 
determinations. I think that is always helpful.
    With that I want to thank you guys.
    Chairman Brown. Fifty percent is not bad. Fifty percent is 
not bad. He liked one thing you said and did not like the 
other.
    Senator Toomey. I will take that every time.
    Chairman Brown. Thank you. Senator Smith, from Minnesota, 
is recognized from her office.
    Senator Smith. Thank you, Chair Brown, and thanks the 
Committee and our testifiers. I too would like to come down on 
the side of data transparency, so I think that that is good. I 
also just want to come back to Ms. Taylor briefly just to 
clarify. I mean, do you believe that there is sufficient 
evidence of systemic disparities in the research that you have 
seen to--I mean, that it is important that we look into this 
and figure out what to do about it?
    Ms. Taylor. Thank you for that question, Senator. We do 
believe that there is sufficient evidence, although we also 
recognize and acknowledge repeatedly that we have heard that 
data needs to be available and accessible, and that we actually 
agree. In the PAVE Action Plan we note that we want to get data 
to researchers, we want to get data to the industry and others, 
akin to the Home Mortgage Disclosure Act data, which has been 
extremely impactful in helping industry and enforcement 
agencies understand where discrimination is occurring and the 
frequency of it.
    So we acknowledge that that is something that should 
happen, and the PAVE task force, beyond this report, will be 
working on creating that opportunity as well. Thank you.
    Senator Smith. Thank you. That is good. I strongly support 
that and I look forward to doing everything I can to contribute 
to getting that done.
    I think, you know, Chair Brown was getting at this in his 
opening questions. The question we are all grappling with is 
what do we do to eliminate the bias that it seems that we see 
here? The Fair Housing Act of 1968 already bans discrimination 
on the basis of race, and obviously yet we still have not 
solved this problem. I mean, we can see it so dramatically in 
the disparities and the wealth gap and home ownership gap that 
I see in my own home State of Minnesota, in Minneapolis. 
Dramatic disparities between Black families and White families.
    So a recent New York Times article suggested that remote or 
desktop appraisals of homes could be a way to reduce 
discrimination. Some of my colleagues have highlighted other 
ideas for how to reduce this bias, increasing diversity in the 
appraiser workforce, for example, training.
    I would like to just ask Ms. Taylor and Mr. Park, could you 
just comment on some of these solutions, and if there are other 
things that you think that we need to look at to address this 
bias?
    Mr. Park. Thank you for that question, Senator Smith. Part 
of the issue that we have to grapple with here is likely 
implicit or
unconscious bias on the part of appraisers. The fact that 
almost all appraisers, frankly, are White means that there may 
be some unconscious bias that creeps into appraisal reports. 
There is a lot of discretion in how appraisers make their 
adjustments, how they choose comparable sales, and how they 
ultimately reconcile to the final value conclusion. So we need 
to find ways to remove as much of that discretion as possible.
    We also need training. Appraisers, the last few years, have 
been a real education for myself, as an appraiser. It has been 
a real gut check. Appraisers are not aware, for the most part, 
about their requirements relative to the Fair Housing Act. 
Appraisers are not required to take courses on the Fair Housing 
Act or fair lending.
    So it is important that appraisers be educated and gain a 
further understanding of these issues in minority communities.
    Senator Smith. Thank you. Ms. Taylor.
    Ms. Taylor. The only thing I could add to my colleague's 
statement is that you mentioned that the Fair Housing Act 
exists and that individuals are still being discriminated 
against. And just having been a practitioner over the years, 
and the notion that we are talking about evidence and whether 
discrimination exists or not, you know, I have seen, although 
the numbers may suggest that discrimination is not on the rise, 
what we see with our partners, with the National Fair Housing 
Alliance, and in our Fair Housing Initiatives program is that 
they receive over 28,000 calls a year or more, where people 
believe that they have been discriminated against.
    And I would just add that awareness is critical to helping 
individuals know or understand. Helping them understand their 
rights and to ensure that the appraisal industry understands 
its obligations under the Fair Housing Act and Equal Credit 
Opportunity Act I believe will bring out some transformative 
change.
    Senator Smith. Thank you very much. Thanks, Mr. Chair.
    Chairman Brown. Thank you, Senator Smith.
    Senator Van Hollen, from Maryland, is recognized.
    Senator Van Hollen. Thank you, Mr. Chairman. I thank both 
of you, and thank you for the report that you did.
    I am just going to pick up really quickly on Senator 
Smith's question and your response about appraisal education 
and complaints by individuals who feel that their house has not 
been fairly appraised, because the Maryland Commission of Real 
Estate Appraisers said it receive about five complaints per 
month, which is not a huge number. And one of the issues that 
came up there is that consumers and homeowners who may feel 
that they have been discriminated against do not know the 
process for complaints, and if there was an obvious and open 
process that that would also have an accountability feature in 
the system.
    Can you talk about how we can better improve consumers' 
understanding of what their rights to appeal an appraisal might 
be, or complain if they think they have been a victim of 
discrimination? Either of you.
    Ms. Taylor.
    Ms. Taylor. So I will start first. Part of the PAVE Action 
Plan and something that we produced as recently as yesterday, 
we launched a new website, and that website provides for places 
where an individual within whatever State that they live in, 
they are able to understand or gain access to information 
regarding how to potentially appeal in that State. But under 
the discrimination or Fair Housing Act and Equal Credit 
Opportunity Act, we have created links to that website to allow 
for greater access to information as well.
    And I firmly believe, and we do not do a deep dive in the 
report on this, is that it is a grassroots effort. It is 
something that we, as an agency, as a task force, and the 13 
members that aligned and harmonized on the work that is needed 
in this area, we have a great opportunity to work with 
organizations, nonprofits, academics, philanthropists, in fact, 
to be about the business of educating the public and getting 
them information. It is definitely a process that, as we 
discovered during this task force, you know, getting to 
information and who to go to and how to file with the various 
degrees and levels of complexity is difficult, and it is 
something that we have addressed and we plan to create an 
opportunity to better serve the consumer.
    Senator Van Hollen. Thank you. I think to the extent that 
we can create more of a sort of transparent process, an 
informed process on that, that would be helpful.
    So Ms. Taylor, I do want to follow up a little bit on 
Senator Tester's questions with respect to the workforce and 
diversifying the workforce. I understand he asked about the 
suggestion that you may want to consider changing the 
supervisory requirements. Because as we know, sometimes having 
a supervisor in a structured quality program can be a good 
thing, if you can find one, but they can also be barriers to 
entry. And I gather your conclusion is in the area of 
appraisal, supervisors have been primarily a barrier to entry 
and an obstacle to greater diversification of the workforce. Is 
that correct?
    Ms. Taylor. Yes, sir.
    Senator Van Hollen. And are there other measures we can 
take to open up the doors of opportunity more to the appraisal 
profession? Can we work with community college, HBCUs, 4-year 
institutions, whatever it may be? Are there ways that we can 
increase the pathways to this kind of position so that we can 
increase the diversification of the workforce?
    Ms. Taylor. Absolutely, and in each one of your responses 
those were things that we explored as recommendations and 
commitments in the Action Plan. But I defer to my colleague 
here because he has done a little bit of work here as well.
    Senator Van Hollen. Thank you. Mr. Park.
    Mr. Park. Thank you for that question, Senator. The 
Appraisal Subcommittee, right now, recognizing the shortage of 
appraisers and the lack of new appraisers coming into the 
system, has a Federal grant program, and we are currently 
working with two States that have shortages of appraisers, 
South Dakota and Mississippi. In South Dakota, a grant has been 
provided for them to work with South Dakota State University to 
bring in more appraisers, to provide that training, to provide 
that supervisor, to provide the education so that when the 
appraiser comes out of the university they are ready to go to 
work. This is also an opportunity to provide these 
opportunities to Native Americans as well.
    In Mississippi, they are focusing on diversity, and they 
are currently, right now, setting up a system where they will 
provide this training to aspiring appraisers, and it is my 
understanding that about 50 percent of the applicants at this 
point are African American.
    One reason this is a good program is just because you are a 
certified appraiser does not mean you are qualified to 
supervise somebody, to train somebody. And if you are somebody 
who has implicit bias or does not understand the nuances of 
these issues, you are going to transfer that lack of knowledge 
to the people that you train. So we need a better system for 
bringing people into the profession, definitely.
    Senator Van Hollen. Thank you. I look forward to working 
with you on that.
    Chairman Brown. Senator Warren, from Massachusetts, is 
recognized.
    Senator Warren. Thank you, Mr. Chairman.
    So appraisals are powerful important. For example, they 
determine how much a lender will offer in financing a mortgage 
and that, in turn, affects the price that a seller can get. If 
homes are accurately appraised then the process works like it 
should, but Black and Hispanic homeowners have consistently 
faced discrimination in the appraisal process.
    According to a recent study, homes in majority-Black 
neighborhoods are valued 23 percent lower than homes with 
similar characteristics in White-majority neighborhoods, 
resulting in more than $150 billion in lost wealth for Black 
families. Because home ownership is the number one way that 
middle-class families build wealth, the disparities in home 
valuation help perpetuate the racial wealth gap.
    Research shows that the persistent undervaluation of Black- 
and Hispanic-owned homes is due, in part, to unconscious bias 
among appraisers. So it is not surprising that automated 
valuation models, AVMs, computer programs that use data to 
estimate home values, have been held up as an alternative. The 
argument goes that by taking the human element out of the 
appraisal process we can eliminate bias and discrimination, 
which sounds terrific.
    But the reality of these algorithms is a whole lot more 
complicated. Ms. Taylor, you lead the Biden administration's 
interagency task force to root out racial discrimination in the 
appraisal process. Have AVMs produced the unbiased, error-free 
valuations that home lenders and homeowners were counting on?
    Ms. Taylor. Thank you for that question, Senator Warren. We 
looked at the Urban Institute's study, which found that AVMs in 
majority-Black neighborhoods produced larger errors relative to 
the underlying sales price than AVMs in majority-White 
neighborhoods, potentially contributing to the wide housing 
wealth gap between Black and White homeowners.
    Additionally, we believe that while AVMs have the 
potential, if properly used, to reduce human bias and improve 
consistency in decisionmaking, however, just like human biased 
appraisals, they are not immune from the risk of 
discrimination. A phrase that
oftentimes many people use, you know, bad data in equals bad
outcomes, and we believe that we have to ensure that AVMs are 
responsible, or the models are responsibly created.
    Senator Warren. So I want to underscore the point you are 
making, because I think it is a very good point. The key issue 
is that AVMs are only as good as the data they use and the 
algorithms that interpret those data. And too often these 
algorithms are just a black box with little visibility into the 
data and the modeling that are going on inside. And if the 
underlying data itself reflect past racial discrimination, AVMs 
may end up compounding disparities in valuation rather than 
reducing them.
    So let me just ask you a couple of pieces about this so we 
can disaggregate this a little bit. Ms. Taylor, majority-Black 
neighborhoods tend to have a higher share of distressed home 
sales than majority-White neighborhoods. Is that fact likely to 
contribute to AVMs systematically undervaluing Black-owned 
homes?
    Ms. Taylor. Yes, ma'am.
    Senator Warren. Majority-Black neighborhoods also have 
lower household incomes, on average. So, Ms. Taylor, is that 
likely to contribute to AVMs undervaluing Black-owned homes?
    Ms. Taylor. Yes, ma'am.
    Senator Warren. And what about if neighborhoods are 
gentrifying? Is that likely to contribute to the undervaluing 
of Black-owned homes?
    Ms. Taylor. Yes, ma'am.
    Senator Warren. OK. Thank you. You know, we have pulled 
apart some of the pieces. The way I see this is that closing 
the racial wealth gap means that we need to confront decades of 
racist Federal housing policies like redlining that helped 
create it in the first place. And part of this means ensuring 
that the legacies of racial discrimination are not coded into 
the algorithms that have direct and real impact on families' 
wealth. Without the proper guardrails and oversight, AVMs may 
reinforce racial disparities in the appraisal process and 
actually worsen the racial wealth gap.
    That is why I was very glad to see the CFPB take a step 
toward issuing rules on combating algorithmic bias in AVMs. 
Regulators should follow their lead and take the necessary 
steps to make sure that AVMs are not putting home ownership and 
wealth-building even further out of reach for families of 
color.
    Thank you very much for your work. Thank you for being here 
today. And thank you, Mr. Chairman, for having this hearing.
    Chairman Brown. Thank you, Senator Warren.
    Senator Cortez Masto, from Nevada, is with us from her 
office.
    Senator Cortez Masto. Thank you, Mr. Chairman, and thank 
you to the Ranking Member for having this hearing.
    Let me follow up on Senator Warren's comments and 
questioning, and let me pose this first to Ms. Taylor and then 
to Mr. Park. With respect to AVMs, are there limits to the 
types of housing where AVMs may not be well suited? I am just 
curious.
    Ms. Taylor. I will state that in the task force's effort to 
understand AVMs and unpackage it more, what we did determine is 
that in rural markets it is not the best use of technology 
because of how properties and comparative sale values happen. 
But I will defer to my colleague to further provide clarity 
there.
    Senator Cortez Masto. Thank you.
    Mr. Park. Thank you for that question, Senator. AVMs are 
extremely data-dependent, and they need large volumes of data 
to work effectively, and you just do not have that in rural 
markets. AVMs also tend to work best in areas where the housing 
stock is homogenous. AVMs make a lot of assumptions about the 
quality of construction, the condition, and so forth, of the 
properties. So when you have urban areas or rural areas where 
the housing stock is varied, AVMs tend to break down and not be 
as reliable.
    Senator Cortez Masto. Thank you. I appreciate that. And let 
me add to the conversation on manufactured homes. We know that 
more than 20 million Americans live in manufactured homes. Many 
of them are home buyers that are Latinos, Native Americans, and 
the elderly. We want to improve the valuation for this 
important housing stock.
    Let me ask you, what is the plan for improving appraisals 
for the resale of manufactured homes? Mr. Park, if you could 
touch on that.
    Mr. Park. The PAVE task force report does not specifically 
talk about manufactured homes but the improvements----
    Senator Cortez Masto. And that is why I am concerned. There 
is a whole market out there of manufactured homes that we 
should also be pulling into the housing market to put a roof 
over people's heads and give them opportunity to own a home, 
and it is not even included in this.
    So with your experience and background, can you touch on 
this a little bit. The valuing of manufactured homes--is it an 
important product that we should be considering here as we look 
at incorporating all housing types, particularly those for 
buyers who want to own a home?
    Mr. Park. Thank you, Senator. It is somewhat implicit that 
when you are talking about rural communities you are also 
including manufactured homes and the issues associated with 
manufactured homes. Again, having enough appraisers in a 
community, having appraisers who are properly educated and know 
how to appraise manufactured homes, I have appraised quite a 
few manufactured homes myself and they pose a very difficult 
appraisal problem, a lot of times, so you really have to know 
what you are doing.
    They may not be the most expensive properties in the 
neighborhood but the difficulty in completing an appraisal 
assignment is not really related to how expensive or what the 
value of the property is. It is more related to the specific 
issues within the appraisal assignment. And manufactured homes 
certainly are an important part of the rural market, and as we 
move forward finding solutions to making sure that the 
manufactured home industry and consumers, more importantly, are 
part of that discussion.
    Senator Cortez Masto. Yeah. I appreciate that. Thank you. 
And I agree on the data transparency. I think it is so 
important.
    As I was listening to you earlier when you were talking, 
responding to some of my colleagues' questions, and I really 
appreciate your comments about appraisers needing awareness and 
training, removal of certain discretion to address what we see 
happening in communities where there is disparity.
    Let me ask you this, as somebody who works in the industry. 
How easy is it going to be to get somebody who has been working 
in this industry for a long time, a more sophisticated 
appraiser, to learn new skills or be willing to recognize the 
challenges that are faced now with some of the disparity that 
has come out in this report, and being willing to get this 
training or learn about the Fair Housing Act and Lending Act? 
What incentives, or what can we be doing, at a Federal level, 
to help those appraisers get the training or the support that 
they need to learn and become aware?
    Mr. Park. Well, there is a challenge in training people who 
have been in the industry for 30 years and have been doing 
appraisals one particular way. I think that we need to focus on 
training for them, of course, but we also need to focus on 
bringing more appraisers, younger appraisers into the 
profession, and more diverse appraisers into the profession, 
particularly in these rural markets. We really have a lack of 
new expertise coming into the appraisal profession, and I think 
with having younger people coming in we are going to have more 
people who appreciate these issues.
    Senator Cortez Masto. Thank you. I know my time is up. 
Thank you again for the panel discussion today.
    Chairman Brown. Thank you, Senator Cortez Masto.
    Thank you to the witnesses. Senator Toomey will do a short 
close and I will do a short close. Thanks so much for this 
hearing today.
    Senator Toomey. Thank you, Mr. Chairman. Yes, I also want 
to thank the witnesses. Listen, we have heard and we know that 
there are terrible anecdotes of racial bias in appraisals. The 
question that we have to determine is whether this is a 
systemic problem that requires significant reforms.
    In my opinion, the conclusions that the PAVE task force has 
come to is not supported by data that they have shown us. It is 
not to say that the data does not exist, but I do not see it in 
their report. And their conclusion relies very heavily on two 
studies. The two studies themselves have serious shortcomings. 
First of all, they are preliminary. Second, in important 
respects they disagree with each other, in terms of 
conclusions. They use proprietary data which are not available 
to the public, cannot be scrutinized. The reports themselves 
acknowledge that confounding factors other than racial bias 
could explain disparities that appear in the data.
    So for these and other reasons I think we should proceed 
cautiously before we decided to upend an industry in a way that 
will result in higher costs for homeowners.
    Thanks, Mr. Chairman.
    Chairman Brown. Thank you, Senator Toomey. I appreciate the 
Ranking Member's call for more study of appraisals. I agree the 
PAVE task force agreed. Thank you for that. We benefit always 
from more data and I look forward to working with the 
Administration and the Ranking Member and Senator Tester, who 
also chimed in, and any colleagues who want to help improve--
and Senator Smith mentioned it--want to help improve the data 
we have.
    But we see problems, as the two witnesses pointed out. So 
while on the process today we need to tackle those problems.
    I want to thank the Members of the task force for the work 
that you all did on this report. We know you saw a lot more 
than just two studies and that they consulted countless members 
of the lending and appraisal industry, regulators, civil 
rights, consumer groups.
    I want to applaud the appraisal industry for the steps it 
has already taken. It has already identified to grow and 
diversify its workforce. We need to do much, much more to grow 
the number of appraisers around the country, rural areas 
especially but other areas too, and to make sure the appraiser 
profession is open to everyone, as Ms. Taylor said a number of 
times, that it looks like the communities whom it serves.
    Thank you for being here. For Senators who wish to submit 
questions, they are due 1 week from today, Tuesday, March 31. 
To Mr. Park and Ms. Taylor, you have 45 days to respond to any 
of those questions. Thank you again.
    With that, the hearing is adjourned. Thank you.
    [Whereupon, at 12:12 p.m., the hearing was adjourned.]
    [Prepared statements, responses to written questions, and 
additional material supplied for the record follow:]
              PREPARED STATEMENT OF CHAIRMAN SHERROD BROWN
    A home is so much more than four walls and a roof.
    It's the refuge you return to after a long, hard day at work. It's 
what keeps you safe at night. It's where you make memories with your 
children--watching them take their first steps, taking first-day-of 
school pictures.
    And for middle-class families, a home is their single biggest 
source of wealth--more than bank savings or retirement accounts. And 
for those who aspire to the middle class, home ownership is often the 
way to get there.
    It's not just their physical security, it's their economic 
security. Families count on the value of their home as they think about 
sending their kids to college or about how they'll afford retirement.
    How much your home is worth matters.
    For decades, from the Black Codes to Jim Crow, this country locked 
Black Americans out of one opportunity after the other--the opportunity 
to vote, the opportunity to get an equal education, the opportunity to 
have the basic dignity of being able to pick your seat on a bus or a 
train.
    In 1933 the Federal Government created the Home Owners' Loan 
Corporation, essentially setting up what would become the 30-year 
mortgage to help more families own their own home.
    Soon after, Federal policy followed the lead of local communities, 
locking in discrimination and locking out Black families.
    With redlining maps our Government cut off mortgage access--and 
with it, access to affordable home ownership--in neighborhoods where 
Black and brown families lived.
    For more than 30 years--from 1934 to 1968--the Federal Government 
endorsed the idea that homes and neighborhoods were worth less because 
of the race of the people who lived there.
    The Fair Housing Act began to change that.
    In 1968, we affirmed that no one--no one--should be denied housing 
or discriminated against based on the color of their skin or where they 
were born.
    In case it wasn't clear, the courts and then Congress made it clear 
that using race to determine a home's value would, finally, be illegal 
discrimination.
    But just because it's illegal, doesn't mean it doesn't happen.
    Look at home values across neighborhoods today. It's obvious that 
the redlining of the past hasn't been undone.
    And talk to Black families who have had their home appraised. 
Listen to the stories they can tell you. It's obvious that 
discrimination is still happening.
    Look what happened to the Parkers, a Black family in Loveland, 
Ohio.
    Just last year, after their appraisal came in far lower than they 
or their realtor expected, the Parkers took down all their family 
photos and had a White friend meet a new appraiser.
    Their home was suddenly worth $92,000 more--that's almost 20 
percent.
    That's about as clear-cut an example of how this discrimination 
works as you could find. And it's happening today.
    When a Black family owns the home, it's worth one price.
    But when a White family owns the home, it's worth a different--20 
percent higher--price.
    Ms. Parker said in an interview that she had to tell her six-year 
old daughter, ``Sometimes because of the color of our skin, we get 
treated differently.''
    That's something no parent should ever have to say.
    Yet it happens all the time.
    When Andre Perry of the Brookings Institution looked at home 
values, he found that homes in majority-Black neighborhoods were worth 
23 percent less than homes in neighborhoods with few Black residents, 
even when they had access to the same quality schools, same access to 
businesses, and same rates of crime.
    Twenty-three percent.
    That means 23 percent less for college tuition, 23 percent less for 
retirement, 23 percent less to put into a down payment on the next 
home, and 23 percent less to pass on to your children and 
grandchildren.
    Appraisals determine the value of your home based on how much your 
neighbors' homes sold for. So the devaluation of a home today means 
that homes down the street will sell for less. That in turn means the 
next home that gets appraised will come in lower. And on and on it 
goes, for years and years--for decades, for generations.
    And the cycle will continue, unless we end it.
    Last year, the Biden-Harris administration took the first step when 
it announced an initiative headed by HUD Secretary Marcia Fudge to 
address bias in home appraisals.
    Secretary Fudge formed an interagency task force led by Melody 
Taylor that, just yesterday, released an Action Plan to tackle this 
problem.
    The Task Force's plan focuses on actions that Federal agencies can 
take today:

    strengthen oversight of fair lending laws,

    identify and address systemic issues in the appraisal 
        process,

    grow and diversify the appraiser workforce, and

    give consumers tools to report bias.

    Today, we'll hear from Ms. Taylor and from Jim Park, the head of 
the Federal organization that oversees the appraisal regulatory 
process, about what Federal agencies will do to put this plan into 
action.
    And we'll also hear what we can do to help them do their work.
    This isn't a theoretical issue. This is an issue that has real 
consequences for the families we serve.
    I look forward to hearing what we can do to make sure millions of 
Americans, like Ms. Parker, never have to settle for less.
                                 ______
                                 
            PREPARED STATEMENT OF SENATOR PATRICK J. TOOMEY
    Mr. Chairman, thank you.
    Almost a year ago, we held a hearing on discrimination in housing. 
Let me repeat what I said then: racial discrimination is a real and sad 
part of our Nation's history. It's a fact.
    Sadly, it's also a fact that Government policies contributed to 
this discrimination. In my view, history shows us that when it comes to 
housing in America, including housing discrimination, Government has 
been the problem, not the solution.
    Today we're talking about appraisals. First we should ask ourselves 
why the Government is micromanaging the appraisal process.
    As long as taxpayers are not on the hook for its risk taking, and 
subject to existing consumer protection and anti-discrimination laws, 
each private sector market participant should be free to develop its 
own approach to underwriting its loans.
    That flexibility should permit significant discretion to experiment 
with new technologies like automated valuation models or other 
alternatives to full appraisals of loan collateral. For example, when 
there are numerous bids for a home the best appraisal is the market 
itself.
    But, unfortunately, that's not the system we have today. Instead, 
taxpayers stand behind more than two-thirds of our mortgage loans, and 
Federal appraisal regulation extends even to much of the small 
remaining portion that is not backed by the Government.
    Government intervention begets more Government intervention. And 
here we are today with Democrats advocating an ``action plan'' that 
will layer yet more regulation on top of an already Byzantine and 
antiquated set of appraisal regulations.
    Thankfully, there are laws against discrimination for real estate 
transactions, including appraisals. As a result, most institutions have 
long since abandoned explicit racial discrimination.
    Even the President's nominee for HUD's office of policy development 
and research has publicly acknowledged that. Has the appraisal industry 
somehow avoided the law?
    This Administration seems to believe that despite the progress 
we've made to eliminate discrimination in housing, the appraisal 
industry remains systemically racist. Yesterday, the Administration's 
task force on Property Appraisal and Valuation Equity, or PAVE, 
released a report alleging systemic racial bias in home appraisals.
    This comes as a bit of a surprise. The report recommends an 
``action plan'' to address alleged systemic racism before the 
Government has sufficiently established that a problem exists in the 
first place.
    In fact, the report admits that ``the exact number of instances of 
valuation bias is difficult to assess.'' And one of the report's 
recommended actions is to establish metrics to identify appraisal bias. 
Well, that certainly calls into question whether the authors have 
enough information to know whether their conclusion is correct.
    Of course, we should not ignore incidents of appraisals that appear 
to be attributable to race. There have been news reports of some homes 
being appraised for more when Black homeowners had White people stand 
in for them. And FHFA
reviewed millions of appraisals and found some instances where the 
appraiser included references to race or another protected class.
    As bad as these anecdotes are, do they confirm systemic problems? 
Should the Government upend the appraisal regime, and impose 
significantly higher costs on people buying homes, without such 
confirmation?
    It isn't at all clear that we have a systemic problem of appraisers 
undervaluing homes based on a borrower's race. The PAVE task force 
primarily relied upon two studies that have questionable analyses that 
fail to control for factors other than race that, once considered, may 
explain disparities.
    Other studies disclose their limitations and note that their 
results are not conclusive evidence of racial bias. Even Fannie Mae's 
study relied on by the task force found that ``the differences observed 
in undervaluation between White and Black borrowers were similar in 
rate and not meaningfully different.''
    And another recent academic study, which the PAVE report fails to 
cite, found racial appraisal bias in mortgage refinance transactions to 
be either uncommon or have a relatively minor effect on valuations. Yet 
we are still holding a hearing today to address what we are told is a 
systemic problem of racial bias in home appraisals.
    I am concerned that the PAVE report devotes only half a page to a 
discussion of the risks of overvaluing homes. Instead, the report 
recommends studying the use of alternatives to the sales comparison 
approach of appraisal, and the use of range-of-value estimates instead 
of single value estimates for appraisals.
    Rather than increasing the accuracy of appraisals, these 
suggestions increase the risk of overvaluation. That risk is 
exacerbated for rural properties, which already can be challenging to 
appraise.
    We shouldn't do anything to make appraisals of rural housing more 
difficult. Nor should we adopt recommendations that, in general, could 
undermine confidence in appraisals, and ultimately, reduce the 
availability of credit for all borrowers.
    The overvaluation of homes harms taxpayers on the hook for 
underwater mortgages. And it also harms borrowers--in many cases, 
minority borrowers--who have been sold overvalued homes. I hope we 
reject any changes that end up increasing the risk of overvaluation.
    As I've said before, the lesson we need to learn and apply is: When 
it comes to housing in America, Government is the problem, not the 
solution.
                                 ______
                                 
                  PREPARED STATEMENT OF MELODY TAYLOR
Executive Director, Property Appraisal and Valuation Equity Interagency 
  Task Force, and Regional Director, Office of Fair Housing and Equal 
  Opportunity, Region III, Department of Housing and Urban Development
                             March 24, 2022
Introduction
    Chairman Brown, Ranking Member Toomey, and other Members, I am 
extremely honored to have been invited to address the Committee on 
Banking, Housing, and Urban Affairs.
    Appointed by Secretary Marcia Fudge in July 2021, I serve as the 
Executive Director of the Property Valuation Task Force, and as the 
Regional Director for the Office of Fair Housing and Equal Opportunity 
with over 20 years of fair housing experience. Again, I am honored to 
be here today.
    Home ownership is the primary way American families build wealth 
and pass it on to the next generation. The value of one's home in the 
refinance process determines whether they can use the home's equity to 
send their children to college, whether they can start a business by 
accessing credit on reasonable terms, and ultimately whether their 
children benefit from the transfer of intergenerational wealth. This is 
the American dream.
    Sadly, accounts of appraisal bias have captured national headlines 
in recent months. For instance, a Black couple in Marin City, 
California received an appraisal far lower than anticipated, even after 
making substantial home improvements. When they asked a White friend to 
stand in for them during a second appraisal, the home was valued 
roughly half a million dollars more than it was just weeks prior.
    A Black woman in Indianapolis did not reveal her race on a 
refinancing application, removed all family photos, only communicated 
by email, and asked a White friend to pose as her brother during the 
appraisal. Her appraisal more than doubled from her first two 
appraisals. Imagine for just a moment that sinking feeling that you 
might experience knowing that ``erasing'' yourself might be the 
difference between your child receiving an education--or not.
    Research has shown that their experiences are not one-offs. Rather, 
they are part of a pattern of racial bias. A Freddie Mac study 
published in September 2021, found that appraisals for home purchases 
in majority-Black and majority-Latino neighborhoods were roughly twice 
as likely to result in a value below the actual contract price compared 
to appraisals in predominantly White neighborhoods. Recent research by 
Fannie Mae examining refinance transactions found that overvaluations 
of White-owned homes were more likely to occur in majority-Black 
neighborhoods. These scenarios tend to be contributing factors to the 
wealth gap in communities of color.
Advancing Racial Equity and Support for Underserved Communities
    For this reason and more, on June 1, 2021--the centennial of the 
Tulsa Race Massacre--President Biden announced the creation of the 
Interagency Task Force on Property Appraisal and Valuation Equity 
(PAVE). Cochaired by HUD Secretary Marcia Fudge and White House 
Domestic Policy Advisor Ambassador Susan Rice, the Task Force was 
directed to accomplish two things: (1) evaluate the causes, extent, and 
consequences of racial and ethnic appraisal bias; and (2) establish a 
set of actions to root out racial and ethnic bias in the valuation of 
residential property. Secretary Fudge and Ambassador Rice asked me to 
serve as the Executive Director of the Task Force, and this has been 
one of the great honors of my 20-year career in fair housing.
Background of the Action Plan
    The Task Force convened 13 cabinet level and independent agencies 
and White House offices as members charged with harmonizing regulatory 
action, aligning compliance and enforcement activities, and developing 
standards and guidance which are now detailed in the recently published 
PAVE Action Plan. We did not take this journey alone. In listening 
sessions and one-on-one meetings, we met with and sought input from 
Realtors, appraisers, philanthropy, academia, civil rights leaders, and 
Americans with lived experiences of racial bias to identify solutions 
that will bring positive immediate impact to the people we all serve.
    The product is a blueprint describing the history and impact of 
persistent misvaluations, early progress that the Task Force has 
already made toward transforming the industry, 21 concrete actions, and 
future PAVE agency commitments to ensure equitable access to 
opportunity through home ownership.
Overview of the Actions
    The Action Plan provides comprehensive actions around the 
following:

  1.  Enhancing oversight and accountability: The Action Plan lays out 
        steps to enhance oversight and accountability of the appraisal 
        industry, which has long operated in a relatively closed and 
        self-regulated framework and has not been effective at 
        addressing deep-rooted inequities.

  2.  Empowering consumers: The Action Plan provides for increased 
        consumer awareness of the reconsideration of value process and 
        concrete commitments, from housing counseling to the issuance 
        of policy guidance, to improve that process.

  3.  Preventing algorithmic bias in home valuations: The Action Plan 
        seeks to reduce automated valuation models' (AVMs) reliance 
        upon biased data that could replicate past discrimination, 
        including through the intended inclusion of a nondiscrimination 
        quality control standard in the future proposed rule on AVMs.

  4.  Cultivating an appraiser profession that is well-trained and 
        diverse: The Action Plan lays out a series of steps to remove 
        unnecessary barriers that may make it more difficult for 
        underrepresented groups to access the profession, and to 
        strengthen training of existing appraisers. For example, the 
        Action Plan outlines training requirements in the area of 
        appraisal anti-bias, fair housing, and fair lending for all 
        appraisers who conduct appraisals for Federal programs, and the 
        Task Force will work with the appraisal industry to require 
        such trainings for all appraisers.

  5.  Coordinating enforcement to keep industry accountable: The Action 
        Plan includes steps to improve coordination and collaboration 
        between enforcement agencies to better identify discrimination 
        in appraisals, including by aligning investigative protocols 
        with respect to allegations of racial and ethnic bias in the 
        valuation process.

  6.  Leveraging Federal data and expertise to inform policy, practice, 
        and research on appraisal bias: The Action Plan identifies 
        instances where potentially useful datasets exist that have not 
        been shared between agencies for research, compliance, and 
        enforcement. The plan provides a strategy to foster the 
        aggregation of data to better study, understand and address 
        appraisal bias.
Conclusion
    In conclusion, I thank you for your interest in this issue and the 
solutions that Federal agencies, industry, and others have 
collaboratively created. Our immediate and long-term actions will 
unleash opportunity for children and families in every neighborhood and 
corner of our Nation. We look forward to expanding and amplifying these 
successes in partnership with you. Again, thank you.
                                 ______
                                 
                  PREPARED STATEMENT OF JAMES R. PARK
  Executive Director, Appraisal Subcommittee of the Federal Financial 
                    Institutions Examination Council
                             March 24, 2022
    Chairman Brown, Ranking Member Toomey, and Members of the 
Committee, I am honored to address the Committee on Banking, Housing, 
and Urban Affairs on the important work of the Property Appraisal and 
Valuation Equity Task Force which was set up by President Biden with 
Secretary Fudge and Ambassador Rice leading a first-of-its-kind 
interagency initiative to address inequity in home appraisals. I have 
had the distinct honor, as the Executive Director of the ASC, of 
participating on the PAVE Task Force.
    For millions of Americans, building intergenerational wealth has 
meant one thing: home ownership. Appraisals and appraisers play a vital 
role in the multitrillion-dollar financial services market by providing 
key risk management tools that protect financial institutions and 
consumers. Numerous public accounts of appraisal bias, coupled with a 
lack of appraiser diversity and recent studies, raise serious concerns 
about appraisals and lending practices, and appraisal governance--
shining a light on an industry that needs reform to promote equity.
    As background, our current appraisal regulatory system was 
established in 1989. Title XI of the Financial Institutions Reform, 
Recovery, and Enforcement Act (FIRREA) established this unique 
appraisal regulatory system consisting of the State appraiser 
regulatory programs, the Appraisal Foundation (Foundation), a private 
nonprofit, and the Appraisal Subcommittee, or ASC, as the Federal 
oversight body. In short:

    the Foundation issues the appraisal standards and appraiser 
        qualifications;

    the States are required by Federal law to implement those 
        requirements; and

    the ASC enforces that implementation by the States.

    The ASC also houses the National Registries of appraisers and 
appraisal management companies.
    In addition to the PAVE Task Force initiative, in January 2022, the 
ASC released its independent study that focused on the Foundation's 
appraisal standards and appraiser qualification criteria. The goal of 
this study was to ensure these standards or qualifications do not 
facilitate or systematize racial or ethnic bias. The PAVE Action Plan 
and the independent report commissioned by the ASC identify serious 
shortcomings and opportunities for reform.
    Some of the pressing challenges with our current system I would 
like to highlight today include:

    inadequate accountability in our current governance 
        structure;

    a shortage of appraisers; and finally,

    a lack of diversity in the appraisal profession.

    On governance, the PAVE Report notes that ``the existing governance 
structure needs to be fundamentally reassessed to meaningfully advance 
equity in the industry.'' Per Title XI of FIRREA, the ASC is required 
to ``monitor and review'' the Foundation; however, the agency has 
neither the enforcement authority, nor an effective mechanism, for 
holding the Foundation accountable.
    The appraisal profession also faces other challenges. Since 2009, 
the number of credentials on the ASC's Appraiser Registry has declined 
by nearly 25 percent. Furthermore, the real property appraiser 
occupation is among the least diverse in the country. An extensive and 
typically unpaid ``trainee'' model, along with burdensome education and 
experience requirements, present barriers to entry that 
disproportionately impact people of color and rural residents. Trainees 
are often unable to find a supervisor, as qualified appraisers are 
often unwilling to take on the responsibility and liability of training 
them or may have reservations about training their own
future competition, resulting in a shortage of appraisers, particularly 
in rural markets. This has driven up service times and appraisal fees 
to unacceptable levels causing loans to be delayed or even lost. 
Appraiser qualification requirements should have the appropriate rigor 
but not pose unreasonable barriers to enter the profession.
    These longstanding, unaddressed issues have serious implications 
for everyday Americans. An improved governance structure would advance 
equity by ensuring greater fairness and transparency in the appraisal 
standards and appraiser qualifications setting process. It would also 
advance a more stable and reliable appraisal industry to serve 
financial services and consumers alike. The ASC stands ready to be part 
of the solutions to the challenges to bring about meaningful long-term 
change that will only come from partnerships with other stakeholders, 
including lenders, GSEs, regulators and legislators.
    Thank you Chairman Brown and Ranking Member Toomey and Members of 
the Committee. I appreciate the opportunity to appear before you today 
and I am happy to take your questions.
         RESPONSES TO WRITTEN QUESTIONS OF SENATOR REED
                       FROM MELODY TAYLOR

Q.1. The Property Appraisal and Valuation Equity (PAVE) Action 
Plan discusses appraisal bias generally, but it is unclear 
which of those proposals address unconscious bias in 
particular. Which of the actions recommended in the PAVE report 
would counteract unconscious bias?

A.1. The PAVE Action Plan identifies concrete actions and areas 
of focus that agencies have committed to take to eliminate 
bias, including unconscious bias, and advance equity in home 
appraisals.
    One area of focus that addresses unconscious bias is 
Building a well-trained, accessible, and diverse appraiser 
workforce, which includes requiring ``appraisal anti-bias, fair 
housing, and fair lending training for all appraisers who 
conduct appraisals for Federal programs and work with the 
appraisal industry to require such trainings for all 
appraisers.'' Additionally, the Action Plan highlights a 
commitment from the Office of Fair Housing and Equal 
Opportunity's Fair Housing Initiative Program, which will 
provide funding opportunities to allow qualified fair housing 
organizations to conduct education and outreach pertaining to 
appraisal bias and discrimination.
    Moreover, under the theme of Strengthening guardrails 
against unlawful discrimination in all stages of residential 
valuation, the Action Plan provides that ``Agencies 
participating in AVM rulemaking commit to address potential 
bias by including a nondiscrimination quality control standard 
in the proposed rule.'' While AVMs have the potential, if 
properly used, to reduce human bias and improve consistency in 
decision making, these systems are not immune from the risk of 
discrimination.

Q.2. The PAVE Action Plan notes that The Appraisal Foundation 
has developed a virtual training program titled, ``Practical 
Applications of Real Estate Appraisal'' (PAREA), which could 
provide an alternative to the traditional in-person supervisor-
trainee model. Could such a program supplement or substitute 
for training under a supervisor in the field? How could such a 
training program reduce bias in the appraisal process?

A.2. The Appraisal Foundation's Practical Applications of Real 
Estate Appraisal (PAREA) could provide an alternative to the 
traditional supervisor-trainee model. PAREA was adopted by The 
Appraisal Foundation, through its Appraiser Qualifications 
Board (AQB), on October 16, 2020, and became effective, January 
1, 2021. The Appraisal Foundation designed PAREA to allow 
individuals to gain appraisal experience in simulated, virtual, 
and augmented environments. PAREA was designed to meet or 
exceed the current appraisal training methodology and although 
it eliminates the current requirement for prospective 
appraisers to find a supervisor in the field it requires 
participants to have mentors so that ``participants interact 
with qualified, competent, and experienced appraisers at key 
designated touchstones throughout the process to ensure proper 
comprehension for all of the training.''\1\
---------------------------------------------------------------------------
     \1\ Second Exposure Draft of Practical Applications of Real Estate 
Appraisal (PAREA), 7 https://appraisalfoundation.sharefile.com/share/
view/sff895f953c7b4708b21824107574259b.
---------------------------------------------------------------------------
    In explaining why it created PAREA, The Appraisal 
Foundation acknowledged that appraiser trainees experienced 
numerous, well-documented difficulties in finding qualified 
supervisory appraisers and these difficulties presented a 
significant challenge to entry into the appraisal profession. 
By providing an alternative model for gaining appraisal 
experience, PAREA has promise to open doors to the appraisal 
profession to individuals who have historically been excluded 
from it. Nevertheless, there are open questions about PAREA's 
viability as a solution to eliminate the barriers to entry into 
the profession.
    To date, PAREA has not been implemented, nor has The 
Appraisal Foundation published definitive timelines for 
consumer use. States have the authority to adopt the use of 
PAREA; however, in many cases it may require rule making and or 
statutory changes. Moreover, the capacity or other key details 
of the PAREA program have not been defined and there will be a 
cost to participate in the program, which could act as a 
barrier. As such, should PAREA ever be fully implemented, there 
is no assurance persons of color would have the ability to 
access the program in a timely manner. Additionally, entry into 
PAREA, as with many educational programs, will be cost-based 
(estimated $2,000-$5,000), which may present an additional 
barrier to entry.
                                ------                                


        RESPONSES TO WRITTEN QUESTIONS OF SENATOR TILLIS
                       FROM MELODY TAYLOR

Q.1. Various studies on this topic cite news stories of alleged 
racial bias in appraisals. While allegations of any unlawful 
action or bias should always be investigated and, if need be, 
sent to the courts, can you provide to me the specific number 
of convictions of appraisers who have been found to be 
discriminatory in their work?

A.1. HUD's Office of Fair Housing and Equal Opportunity 
investigates complaints of alleged discrimination in all phases 
of real estate related transactions, including appraisals. 
However, HUD's enforcement of the Fair Housing Act is limited 
to civil enforcement, so its investigations have not and cannot 
result in criminal convictions for discriminatory appraisals.
    Although the number of filed complaints with HUD on 
appraisal bias has risen over recent years, the extent of the 
problem could be far larger, and we caution that these 
statistics are not an indicator of prevalence, and that more 
research on this issue is needed. There are also numerous other 
avenues for an individual to file a complaint of bias, for 
example through the Appraisal Subcommittee Hotline, Consumer 
Financial Protection Bureau, State appraiser regulatory 
agencies, and State and local agencies that enforce housing 
laws.
    As the PAVE Action Plan details, many consumers are 
unfamiliar or unaware of many channels available to them. We 
believe that more consumer education, and in turn, more data is 
needed to understand the full extent of inequity in home 
appraisals across this country. What is clear is that racial 
bias in home appraisals exists, and HUD is focused on 
rectifying that bias. Recently, HUD approved a conciliation 
agreement between a complainant and JPMorgan Chase where the 
complainant alleged discrimination in the appraisal process 
based on the complainant's race in violation of subsection 
804(a) and Section 805 of Title VIII of the Civil Rights Act of 
1968, as amended.
    The terms of the agreement included relief for the 
complainant in the amount of $50,000, and relief in the public 
interest with all JPM Chase's Home Lending Advisors and Client 
Care Specialists nationwide receiving mandatory training on the 
Reconsideration of Value (ROV) process and fair lending issues 
related to appraisals (including how to handle complaints of 
discrimination in the appraisal process and the process for 
customer to submit a ROV request).
    HUD looks forward to working with Congress and appraisal 
industry stakeholders to ensure that we all live up to the 
ideal that was cemented into law decades ago through the Fair 
Housing Act--that all people have equal opportunity in the 
pursuit of housing and access to generational wealth that 
owning a home affords, regardless of their race or other 
protected class.

Q.2. Some policymakers and special interest groups are 
currently advocating that the education requirements for 
becoming an appraiser be dramatically reduced. Do you believe 
this will help more competent appraisers enter into the 
profession or could this have further compounding effects?

A.2. Currently, no degree programs fully satisfy the Appraisal 
Qualification Board's education requirements for 
certification--even postsecondary degrees. There is limited 
support that a college degree makes appraisers more ethical, 
accurate or credible. Alternatively, if evidence is developed 
supporting a college degree requirement, the PAVE Action Plan 
recommends automatically qualifying relevant real estate 
programs from accredited Institutions of Higher Education as 
fulfilling the credentialing requirements to sit for an exam 
which will expand access and pathways to the profession.
    Additionally, industry stakeholders did provide commentary 
that the current supply of appraisers is not adequate to cover 
the demand for residential appraisals, and that this is 
negatively impacting the home buying experience for communities 
across the country, including rural areas. The PAVE Action Plan 
details how the Task Force will work to lower barriers to entry 
in the appraiser workforce, to include proposing changes to the 
AQB criteria and engagement with State appraisal regulatory 
agencies to identify leading practices that could be scaled 
nationally to advance equity in the appraiser workforce. In 
particular, the Action Plan committed to developing a 
legislative proposal that modernizes the governance structure 
of the appraisal industry by expanding greater authorities to 
the Appraisal Subcommittee (ASC) which, if adopted, would give 
the ASC greater oversight in the issuance of appraisal 
standards and qualification criteria.
    PAVE is also seeking reforms to the appraisal industry's 
governance structure to increase public participation in the 
assessment of appraiser qualification criteria and expand 
pathways into the profession. In so doing, PAVE aims to ensure 
that appraiser criteria further the public interest without 
creating needless barriers to entry that makes appraisers less 
representative of the populations they serve and less available 
where they are needed
                                ------                                


          RESPONSE TO WRITTEN QUESTION OF SENATOR REED
                       FROM JAMES R. PARK

Q.1. How does the Appraisal Subcommittee currently exercise its 
existing oversight powers over The Appraisal Foundation to 
address racial bias in the appraisal process? Are there 
existing powers the Appraisal Subcommittee that could be used 
more effectively to reduce bias in appraisals?

A.1. The ASC has very limited oversight powers over the 
Appraisal Foundation (Foundation), a private nonprofit. The ASC 
is limited to monitoring and reviewing the Foundation but lacks 
the enforcement and rulemaking authority necessary to provide 
effective oversight. Therefore, the agency's ability to 
directly reduce or impact bias in appraisals through the 
Foundation is limited as well. Until 2020, the Foundation 
accepted an annual grant from the ASC which provided the ASC a 
degree of Foundation oversight. However, since 2020, the 
Foundation has stopped accepting ASC grants further limiting 
the ASC's ability to influence Foundation actions. The ASC has 
offered the Foundation approximately $2.75 million in Federal 
grants over the past three years which were declined over 
concerns that accepting Federal funds for the work to develop 
USPAP changes could compromise over 80 percent of their annual 
revenue. The ASC's 2022 Notice of Funding Availability to the 
Foundation made it clear that in addition to funding for the 
standards and qualifications setting boards, funds could also 
be used for diversity, equity and inclusion projects such as 
diversifying the appraisal industry and the Foundation Boards.
    The ASC has been actively working within our authority to 
identify the root causes and solutions to bias in appraisals 
and the lack of diversity in the industry. The agency hosted 
two public (virtual) roundtables on bias and diversity problems 
with over 700 attendees. The ASC also commissioned an 
independent report on the appraisal standards and appraiser 
qualifications to ensure that neither set of requirements 
systematize or encourage bias in appraisals or the 
credentialing of appraisers. The study pointed out several 
problems with the standards and qualifications setting process 
and the standards and qualifications themselves. The report 
also included recommendations for addressing the problems. 
Increased oversight and enforcement authority over the 
standards and qualifications setters to ensure a fair and 
equitable process would greatly enhance the ASC's ability 
effectuate changes in appraisal practice and appraiser 
education. The ASC staff and ASC member agencies also made 
significant contributions to the PAVE Task Force.
                                ------                                


        RESPONSES TO WRITTEN QUESTIONS OF SENATOR TILLIS
                       FROM JAMES R. PARK

Q.1. Various studies on this topic cite news stories of alleged 
racial bias in appraisals. While allegations of any unlawful 
action or bias should always be investigated and, if need be, 
sent to the courts, can you provide to me the specific number 
of convictions of appraisers who have been found to be 
discriminatory in their work?

A.1. No, because investigations and convictions in these areas 
would be under the jurisdiction of State or Federal agencies 
over which the ASC has no authority.

Q.2. Some policymakers and special interest groups are 
currently advocating that the education requirements for 
becoming an appraiser be dramatically reduced. Do you believe 
this will help more competent appraisers enter into the 
profession or could this have further compounding effects?

A.2. There are two parts to the education requirements to 
obtain an appraiser credential:\1\ college degree or course 
requirements and a core curriculum of education on appraisal 
practice.
---------------------------------------------------------------------------
     \1\ These requirements vary depending on whether one is seeking to 
obtain a Licensed, Certified Residential, Certified General credential.
---------------------------------------------------------------------------
    The PAVE Task Force and other studies have been focusing on 
reducing or eliminating the college degree and college course 
requirements. Other than the need to make Fair Housing Training 
part of the core curriculum, I am not aware of any requests to 
change the core curriculum education related to appraisal 
practice.
    The college degree and college course requirements became 
effective in 2015. I am not aware of any studies or research 
done before or after implementation that supported the 
conclusion that having a college degree or college courses 
leads to someone being a more ethical or competent appraiser. 
However, there is plenty of research that indicates people of 
color and rural citizens are less likely to have college 
degrees or coursework.
    Since the college degree and course requirements became 
effective, the numbers of appraisers entering the profession 
have dropped and complaints of appraiser shortages are growing. 
It is also important to keep in mind that the experience 
requirements, which forces trainee appraisers to find someone 
willing to supervise them, can serve as a barrier to entering 
the profession that is equal to or greater than the college 
degree or course requirements.

Q.3. As you know, the Appraisal Subcommittee maintains the 
Appraisal Complaint National Hotline.
    How many Fair Housing Complaints have been processed by the 
Appraisal Complaint National Hotline?

A.3. The original Appraisal Complaint National Hotline did not 
include referrals of fair housing complaints. Dodd-Frank 
amended Title XI of FIRREA to authorize complaint referrals 
only for alleged violations of Uniform Standards of 
Professional Appraisal Practice (USPAP) and/or appraiser 
independence. However, as a result of the PAVE recommendations, 
the ASC will determine ways to highlight the processing of Fair 
Housing complaints in order to assist and educate consumers.

Q.4. How many complaints concerning appraisers and appraisal 
management companies have been referred to State regulatory 
agencies?

A.4. The Hotline was opened in March 2013. There have been 
3,399 referrals against appraisers and 304 against appraisal 
management companies (AMC) generated over the past 24 months.
    The Appraisal Complaint National Hotline refers 
complainants to appropriate State and/or Federal agencies to 
handle complaints of alleged violations of the (USPAP) and/or 
appraisal independence requirements. Intake of complaints are 
handled based on existing protocols established by the State or 
Federal agency receiving the complaint. The Hotline does not 
initiate complaints, act on behalf of complainants, arbitrate 
complaints, assist in appealing the outcome of complaints, or 
follow up on complaint referrals previously provided. 
Therefore, we do not have information regarding the number of 
referrals that resulted in actual complaints being filed at the 
State or Federal levels.

Q.5. Has the number of complaints received through the hotline 
increased or decreased over the past 24 months?

A.5. From 2020-2021 the number of referrals against appraisers 
has increased from 579 to 610, or 5 percent, and from 12 to 22, 
or 83 percent, for AMCs.

Q.6. If an increase, does that indicate appraisers are doing a 
better job and less education and experience should be 
required?

A.6. The number of referrals against appraisers has risen 
slightly while the number of complaints against AMCs has almost 
doubled. We do not have enough data to attribute either 
increase to a specific reason or set of reasons.
              Additional Material Supplied for the Record
                       LETTER SUBMITTED BY NAFCU
[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]

               STATEMENT SUBMITTED BY AEI HOUSING CENTER
[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]

              LETTER SUBMITTED BY THE APPRAISAL FOUNDATION
[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]

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