Preventing and Detecting Bias in Appraisal Valuation Practices

Discrimination and bias in residential mortgage lending appraisal valuation practices undermine fairness and equal opportunity in the housing market. Appraisal bias can lead to unfair lending practices, resulting in disparities in access to homeownership and perpetuating socioeconomic inequalities. To combat this issue, lenders must take proactive measures to prevent and detect such bias. That’s why we’ve compiled actionable recommendations for you that can make a real difference in preventing and detecting bias in residential mortgage lending appraisal valuation practices.

By implementing these recommendations, lenders can support a fair and unbiased lending environment, ensuring peace of mind regarding their appraisal quality. These recommendations provide actionable steps for lenders to eliminate discrimination and bias and ensure that appraisals are conducted in a fair and compliant manner. With a commitment to implementing these measures, lenders can play a pivotal role in promoting equitable access to homeownership.

Establish a Reconsideration of Value (ROV) Policy and Procedure

• Establish a robust ROV policy and procedure if one is not already in place. The ROV process allows borrowers and other relevant stakeholders to challenge an appraisal value if they believe it is unjust. Clear guidelines and a streamlined process should be established to facilitate thorough and impartial reviews of appraisal valuations.

Conduct First-Level and Second-Level Appraisal Reviews

• Implement a comprehensive appraisal review process, consisting of both first-level and second-level reviews. These reviews should be conducted during qualification and underwriting processes as well as in the quality control space. Undervaluation and overvaluation risk flags as well as CU / LCA risk scores equal to or above 4 should be thoroughly investigated, preferably with a second level review by a more senior appraisal reviewer.

Establish an Appraiser Scorecard and Monitor the AQM List

• Develop an appraiser scorecard that assesses appraiser performance and tracks key metrics related to quality and unbiased valuation. The scorecard can include factors such as accuracy, consistency, timeliness, and appraisal language. You should review for prohibited and subjective language within the appraisal that could indicate potential bias. Additionally, monitor the Appraisal Quality Management (AQM) list to identify appraisers with potential performance or quality issues.

Check for Disciplinary Actions for Assigned Appraisers

• Perform thorough due diligence by checking for any disciplinary actions or complaints against any assigned appraisers. This verification process can be conducted through state regulatory agencies, professional appraiser associations, or other relevant industry bodies. Appraisers with a history of disciplinary action should be excluded from consideration.

Aggregate Appraisal-Related Data

• Establish mechanisms to aggregate and analyze appraisal-related data and findings to identify potential trends and patterns indicative of discrimination or bias. By reviewing the data collected from appraisal reviews, ROV requests, and other relevant sources, you can identify any systemic issues or patterns of biased valuation that need to be addressed.

Preventing and detecting bias in appraisal valuation practices requires a proactive and vigilant approach from mortgage lenders. By implementing the recommendations outlined above, lenders can foster fairness, equality, and unbiased lending practices. This entails establishing robust policies, conducting thorough appraisal reviews, monitoring appraiser performance, and analyzing appraisal-related data.

Eliminating bias in appraisal valuation practices is both morally imperative and essential for the long-term sustainability of the mortgage lending industry. Through increased transparency and a commitment to fairness and integrity, lenders can enhance their reputation, attract diverse borrowers, and contribute to the stability and growth of the housing market.

Questions? If you have additional questions about QC or appraisal valuation practices, contact Brock at bmiller@myservion.com.