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Question:

What are a mortgage lender’s responsibilities with regard to detecting and preventing appraisal discrimination?

Answer:

Appraiser discrimination is a significant concern for mortgage lenders today. In recent months, various agencies, including the CFPB and HUD, issued guidance and/or encouraged consumers to come forward to report incidents of suspected appraisal discrimination. Further, alongside appraisers, mortgage lenders have been named as defendants in lawsuits alleging appraisal discrimination.

Although appraisers – and the appraisals they produce – must be independent, there are steps mortgage lenders can take to help detect and prevent appraisal discrimination and the risks associated therewith. Below are some best practices mortgage lenders should consider implementing in this regard:

• Train employees, particularly mortgage loan originators, to identify concerns and/or complaints surrounding appraisal discrimination and to promptly escalate them to management. Such training should be in addition to the general fair lending training periodically required of all employees.
• Log all appraisal complaints and requests for reconsideration of value (including resolutions and results) and review periodically for concerning trends or patterns.
• Ensure underwriters thoroughly review appraisal reports for discriminatory pictures and/or comments. This may include photographs of the applicant or inappropriate comments about the neighborhood.
• Follow all agency guidelines with regard to appraisals and appraisal assessments.
• Utilize web-based tools, such as Collateral Underwriter or Loan Collateral Advisor, as appropriate, to analyze appraisal reports.
• Perform quality control or internal audits of appraisals that include comparing the assigned value against similar properties in the area. In the event of discrepancies in value, review the demographic information of the applicant for potential concerns.
• Develop and implement written policies and procedures surrounding appraisals, including detailed reconsideration procedures. Applicants should be made aware that they may request reconsiderations of value (ROV). ROV requests should be considered in all instances and a consistent process should be established and followed. Lenders should maintain a log documenting the reason(s) for granting or rejecting the request.
• Include appraisal issues, including discrimination, as a topic of discussion at Board, Risk Management, and/or Compliance committee meetings.