FHFA will report appraisal bias cases to state licensing authorities

While the Federal Housing Finance Agency made 17 referrals to the Department of Housing and Urban Development regarding alleged appraisal bias, it did not take the additional step of filing complaints with state regulators, a report from its Office of the Inspector General found.

The agency agreed with the report’s findings and pledged to follow through with its recommendations.

HUD is responsible for Fair Housing Act enforcement, and as part of the referrals, FHFA provided it with approximately 25.6 million active appraisal records. The FHFA also gave the records to the Department of Justice and the Consumer Financial Protection Bureau.

The FHFA’s Inspector General office’s report evaluates the agency’s actions taken as a result of the December 2021 report on appraisal bias.

“In our view, the FHFA is well positioned to ensure that such complaints are filed [with state regulators] because the Agency performed the analysis in its December 2021 review, and it can identify the specific appraisers and appraisals that would be the subject of the individual complaints and provide the factual support for the complaints,” the report from Kyle Roberts, deputy inspector general for evaluations said. “The Associate Director of the FHFA’s Office of Fair Lending Oversight informed us that the Agency does not file complaints with the state licensing authorities and has no policy in place on the subject.”

The FHFA told the OIG that the requirement to report information to state authorities does not fall under the Financial Institutions Reform, Recovery and Enforcement Act, which governs appraisals.

The OIG recommended the FHFA ensure that complaints are filed with relevant state appraiser licensing authorities regarding appraisals from the December 2021 report that overtly reference to race, color, and other prohibited bases.

It also called for the agency to “coordinate with Fannie Mae and Freddie Mac to determine the extent to which the Enterprises currently use appraisals that improperly take into consideration race, color, and other prohibited biases under federal fair lending laws.”

The FHFA agreed with both recommendations, it said in its response written by Naa Awaa Tagoe, the deputy director for the Division of Housing Mission and Goals.

Starting next May, the FHFA will coordinate with Fannie Mae and Freddie Mac “to ensure complaints are submitted to the relevant state appraiser licensing authorities for the appraisals cited in the December 2021 review, which are determined to present USPAP compliance concerns,” Tagoe wrote.

The FHFA stated it will provide the OIG with evidence of its instructions to the GSEs to submit complaints to state appraisal regulators and of their coordination to monitor appraisal data for prohibited biases.