CFPB Tackles Algorithmic Bias in Home Valuations

The Central Financial Protection Bureau (CFPB) on February 23rd, 2022, outlined options to assist in ensuring accurate and fair computer-driven home valuations. Addressing fair lending risks to homeowners and homebuyers, and citing the Dodd-Frank Wall Street Reform and Consumer Protection Act, the CFPB believes proper safeguards will be necessary to avoid perpetuating historical lending and home value disparities prevalent in the appraisal process.

Automated Valuation Models (AVMs), or algorithmic computer models, are currently used by mortgage lenders and appraisers to improve valuation accuracy. However, flawed models driven by intentional and unintentional biases can pose significant risks to homeowners and homebuyers.

CFPB contends overvaluation can create reselling challenges, lead to higher rates of foreclosure, and may deplete family wealth, or disregard a borrowers’ ability to repay. Low valuations are also an issue because it can jeopardize home sales. prevent homeowners from refinancing, restrict homeowners from building wealth. or making repairs. The Federal Housing Finance Agency recently identified discriminatory statements in some home appraisals, and both Fannie Mae and Freddie Mac have found appraisal disparities for communities and borrowers of color as well.

To strengthen oversight of AVMs, the CFPB, along with its federal partners, intends to protect against the manipulation of data, seek to avoid conflicts of interest, and continue monitoring and accounting for additional factors as necessary.

The CFPB is looking for feedback from small businesses, mortgage brokers and mortgage companies. Comments can be emailed to 2022-SBREFA-AVM@cfpb.gov and are due by May 13, 2022.

Want to know more? Join the discussion by calling (831) 325-3369 or contact info@firstlinecompliance.com.