FHFA Addresses Appraisal Bias | Client Finance Monitor

The Federal Housing Finance Company (FHFA) addresses appraisal bias mirrored within the not too long ago launched Uniform Appraisal Dataset (UAD) Aggregate Statistics Data File and Dashboard. The UAD info is derived from greater than 47 million value determinations carried out between 2013 and June 30, 2022.  Because the title suggests, the UAD standardizes numerous information components relating to an appraisal. Lenders promoting loans to Fannie Mae and Freddie Mac should submit appraisal info within the UAD format. 

FHFA focuses on value determinations that report a valuation decrease than the contract gross sales value of the house, which the FHFA refers to as an “undervaluation.” The FHFA assesses the relative charges of undervaluation in census tracts through which Whites comprise as much as 50% of the residents (White tracts), minorities comprise between 50.1% and 80% of the residents (minority tracts), and minorities comprise over 80% of the residents (excessive minority tracts). The FHFA notes that whereas “controlling for observable traits might clarify a few of the hole in undervaluation between White and . . . minority areas, it’s not more likely to clarify all the distinction.”

The FHFA cites 2021 appraisal statistics that mirror a fee of undervaluation of 13.4% in White tracts, 19.2% in minority tracts and 23.3% in excessive minority tracts. The FHFA notes that, primarily based on these numbers, the proportion of properties which are undervalued in excessive minority tracts is 74% increased than in White tracts, and the proportion of properties which are undervalued in minority tracts is 43% increased than in White tracts. The FHFA additionally notes that in 2021 on a nationwide foundation, 15.2% of value determinations have been beneath the contract gross sales value, 26.7% of value determinations have been equal to the contract gross sales value, and 58.1% of value determinations have been above the contract gross sales value. 

The FHFA advises that:

“From a sensible perspective, compliance departments of lenders and appraisal administration corporations might use the UAD Combination Statistics Dashboards to slender the scope of an examination or compliance evaluate associated to appraisal bias.  For instance, in 2021 within the Charlotte, North Carolina Metropolitan Statistical Space, reviewers might wish to deal with minority tracts …which have the next proportion of undervaluation than excessive minority and White tracts.”

The FHFA concludes by stating:

“This analysis notice highlights just a few ways in which the UAD Combination Statistics Dashboards can be utilized to discover potential appraisal bias—utilizing the ‘tract % minority inhabitants’ property attribute and the ‘% of value determinations beneath contract value’ property statistic.  The hole in undervaluation is notable, and the brand new datasets could also be useful in higher understanding the disparities.”