By SCOTT KIMBLER
Racial inequity and home appraisals have caught the attention of leaders at the American Enterprise Institute Housing Center in Washington, D.C.
AEI is a think tank supported by contributions and designed to keep an eye on policies and trends regarding the U.S. housing market. Leaders there say their goals are to provide transparent and objective mortgage and housing market trends, foster a stable system of mortgage finance that promotes sustainable homeownership, and develop market-based solutions to the nation’s shortage of economical housing.
Tobias Peter, research fellow and assistant director of the AEI Housing Center, explained how people have been uncovering racial bias in appraising in recent years, oftentimes making news headlines.
“A black homeowner wants to get an appraisal and the appraiser comes in and they get the lowball appraisal. Then they whitewash the home, get a friend to stand in, then get another appraisal. It is oftentimes quite the jump. As much as 25% or more that the home value jumps. That is obviously quite disconcerting, and it has been used by President Biden and all the way down, who has talked about this and has presented that there is widespread discrimination in the housing market and that needs to be remedied,” Peter said.
Peter says the administration is beginning the steps of possible market regulations.
“He (Biden) has created the PAVE Task Force,” Peter said. “PAVE stands for Property and Appraisal Valuation Equity Task Force with the goal of investigating this and establishing a formative set of recommendations to rot out racial and ethnic violations in home evaluations. In March 2022, PAVE came out with their recommendations, and one of the recommendations is that they need to collect data to better study and monitor evaluation bias.”
Peter says the government may be getting ahead of itself in combatting a perceived issue.
“We (AEI) had studied evaluation bias on an aggregate level and released a study in January 2021. We found that appraisal bias was not widespread across the country when we compared appraisals for white and for black refinances,” Peter said.
Peter said AEI told the Feds they need to look at individual appraisers to see if they are biased, if they are inaccurate, or if they are doing this for the benefit of the borrowers and maybe even the lenders. Fannie Mae and Freddie Mac have still not conducted a study, even though PAVE has said the data needs further analysis.
Peter said that some elected leaders don’t seem to care if all of the information is available before pursuing the issue.
“Representative Maxine Waters, D-CA, introduced a bill based on the PAVE recommendations that said the government should set up its own agency that would then set home values,” Peter said. “The danger is that once the government sets home values, that could easily get politicized and lead to mis-valuations in the market. The market would then have to correct the mis-valuations and you find yourself with the unintended consequences of lower income, minority home buyers buying at inflated home prices. And then when the music stops, they are faced with severe home price declines, which generally ends often in foreclosures, loss of their home, and damage to credit scores. That is something we want to avoid.”
Leaders at AEI took it upon themselves to find a target market – in this case Atlanta – to do a study of their own.
“We chose Atlanta because of available data and the racial makeup of the large metro area,” Peter said. “We looked at 28 appraisers in the Metro Atlanta area. In the first category of bias, we could not see data for bad appraisals, only data for good appraisals, so bias was very hard to focus in on. Freddie and Fannie have more complete data and could easily close in on that aspect. In the second part of the study, we looked for inaccuracies and found that some appraisers appeared suspicious as they were off very far from the mark. Those are the appraisers we recommended to be studied in greater detail.”
Peter said there were many factors that could go into an off-the-mark appraisal and he recommended to the feds that the appraisers in question be more closely examined. If foul play was found, he recommend further investigation by local and state governing bodies.
Peter said AEI has turned over the findings of their study to the Feds and have asked again that Fannie and Freddie take it upon themselves to do more research at a national level before considering new regulations or legislation of the free housing market.
According to Peter, as of mid-December, the organization had not received feedback from the Feds that there was any intent to do so.
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