Congress is knocking around some proposed legislation that may impact how the appraisal profession will conduct themselves and deliver services in the future. The Bill, HR 2533: Real Estate Valuation Fairness and Improvement Act of 2021, was introduced in April of 2021 and is meant to address the topic of racial disparities in the valuation of residential and commercial real estate.
Why it was created
The Bill starts off by citing the findings of unfair housing practices of federal agencies in the past, notably the Federal Home Owners’ Loan Corporation, an entity born out of the New Deal and terminated in the 1950’s, and the Federal Housing Administration, both of which had legacy processes that enabled and reinforced discriminatory lending practices. While such practices today are illegal, and no longer operational, recent published studies and testimony has been presented before the House Financial Services Committee identifying impacts that remain measurable in current times.
The Bill calls for the creation of an Interagency Task Force, consisting of representation of the 14 regulatory bodies and government agencies that currently preside, in one form or another, over real estate lending practices and the valuation of real estate collateral for mortgage lending purposes.
This Interagency Task Force is charged with pursuing the following:
- Harmonizing collateral underwriting standards and practices pertaining to valuations
- Developing definitions, standards, and guidance with respect to common underwriting challenges; in particular, energy efficient housing and limited or inactive markets
- Aggregating data across Task Force members to conduct a study to determine whether there are racial disparities at both the borrower and community levels in the valuation and price of residential real estate used as collateral for mortgage applications; and if disparities are found, adopt changes to address such causes
- Evaluate if barriers to entry in the valuation profession are disproportionately preventing minorities from entering the appraisal profession
The Bill also calls for the creation of an Advisory Committee, consisting of stakeholders, including civil rights advocates, consumer advocates, real estate appraisers, small lenders, private investors, appraisal management companies, experts on alternative valuation models and representation from the Appraisal Standards Board or Appraisal Standards Committee.
In the event the Task Force finds barriers to entry are disproportionately preventing minorities from entering the appraisal profession, there are provisions in the Bill to provide incentives to overcome any barriers.
The timelines proposed in the Bill are for reports to Congress to be completed within two years, and the Task Force is to be sunsetted in five years.
What results can we expect?
There are many merits to the spirit and content of this Bill. It looks to harmonize standards and practice, and calls for the transparent study and discussion of how valuations are performed and reported. Additionally, it requires an open review of an individual's requirements to enter and sustain in a highly regulated and scrutinized profession.
No profession is perfect. No process is perfect. This Bill creates opportunity for introspective illumination across multiple perspectives, and the opportunity to be open and honest about real estate valuations and lending activity. As an industry, we can proactively discover where we have been, where we are today, and where we need to be.
The challenges presented by this Bill are similar to any government effort that requires reliance on participation by government and non-government stakeholders, to support and foster a fair and equitable process with a fair and equitable outcome.
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