Good afternoon —
Last year, HousingWire made a commitment to explore and report on racial inequity in housing — looking at both the potential causes of inequity and the consequences for individuals, communities, companies and our industry. This is an open-ended commitment, since it's an ongoing issue.
This week, we published a two-part series on racial bias in appraisals that covers the historical angle and how the decisions made more than a century ago are still reverberating for Black homeowners today.
Part 1 looks at the ugly foundations of appraising and how the discredited science of eugenics informed the models and practices of the profession from the start. Federally mandated redlining was a natural application of this mindset.
Part 2 tries to quantify how widespread appraisal bias is and how it plays out in valuations today.
I think it's important to note that appraisal bias doesn't happen in a vacuum and won't be solved by any one part of our industry acting alone. Home valuations are designed to mitigate the risk for lenders and then investors, which these days is most likely a government-sponsored enterprise. It took a village to create the current appraisal system, and all of those players will have to be involved in any systemic change.
A recent article by former MBA CEO Dave Stevens makes this clear, as he laid out actions that lenders, appraisers and the GSEs should take to address the issue:
First: Every lender should have an escalation process for second-level review for any appraisal to a minority borrower that comes in below value or estimated value. If warranted, lenders should proactively support a second appraisal.
Second: The industry needs to adopt more color-blind processes to appraise a home. One possible solution is to separate the individual who measures the home and takes photos from the actual person doing the write up and assessment of value so as to reduce the impact of on-site, location-based racial bias.
Third: The efforts to automate property valuation should be enhanced. There are new products which can help, and while the GSEs are being controlled on experimental and new products, pilots, and technologies, this is one area that should be approved for significant focus.
Until tomorrow —
Sarah Wheeler
HousingWire Editor in Chief
P.S. The two-part series is part of the premium content available to our HW+ members. Sign up for HW+ here or a discounted group membership here.
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