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Question: What is appraisal text scanning and why should a mortgage lender be aware of and concerned with it?

Answer: 
Appraisal text scanning is a process of scanning or reviewing appraisal reports for words or phrases specifically related to race, ethnicity, and/or religion that demonstrate appraisal bias or, at the very least, undermine the credibility of an appraisal by implying that demographics influenced the outcome of the appraisal (whether or not the appraiser intentionally factored race, gender, or other protected class information into the valuation).

In 2021, Fannie Mae initiated an appraisal text scanning process.  Among other terminology, the process specifically searches for terms and phrases like: 

•    "pride of ownership," "no pride of ownership," and "lack of pride of ownership";
•    "poor neighborhood";
•    "good neighborhood";
•    "crime-ridden area";
•    "desirable neighborhood or location"; or
•    "undesirable neighborhood or location";

Since initiating the appraisal text scanning process, Fannie Mae sent over 1,500 letters to appraisers advising them of potential discriminatory bias findings and reminding them that the use of the subjective phrases or terms may evidence non-objective valuations. 

In April 2023, Fannie Mae published a blog post, “How We Manage Appraisal Quality”, highlighting its text scanning efforts and indicating performance improvements in 2022 as compared to 2021.  However, the blog also indicated Fannie Mae sent 20 referral letters to state regulatory agencies based on identified egregious appraisal issues.  Further, Fannie Mae advised it will continue to enhance its appraisal text scanning review process, including establishing a regular cadence of scanning, to help further minimize appraisal bias.

Mortgage lenders should be aware of the types of terms and terminology that may undermine the credibility of an appraisal and train their underwriters or other appraisal review staff accordingly.