Banks expected to ensure appraisal vendors treat customers fairly, acting OCC leader says

Holding banks accountable to solve bias in appraisals is necessary but not sufficient, the acting head of the national regulator of banks said Tuesday. However, he added, the agency does expect banks to ensure their appraiser vendors treat customers fairly and do not discriminate.

Speaking at a conference Tuesday, Acting Comptroller of the Currency Michael J. Hsu said a “collective effort” among all stakeholders is needed to solve the problem of biased appraisals in mortgage lending, which he said can mean good loans to creditworthy customers go unmade.

Hsu was speaking at the Consumer Financial Protection Bureau’s (CFPB) Virtual Home Appraisal Bias event.

“Biased appraisals can keep a family from getting approved for a loan or raise the price of a loan,” Hsu said. “They can trap ‘undervalued’ neighborhoods by depressing property taxes, resulting in lower income to support education and infrastructure.

“That’s not just bad business, it locks people in unfairly, creating even more distance between the haves and the have-nots,” he added.

Referring to news articles, academic research, and arguments by advocacy groups, Hsu asserted that discrimination and bias in appraisals contribute to inequity in housing values and adversely affect a critical source of wealth accumulation for minority families.

“The impact is large and cannot be ignored,” he said. “Studies have found that homes in Black neighborhoods are valued at roughly half the price as homes in neighborhoods with few or no Black residents. That difference has led to a $156 billion cumulative loss in value nationwide for majority-Black neighborhoods, according to a study by the Brookings Institute.”

Hsu said there are “clear intersections” between the regulated banking industry and the largely unregulated appraisal business. “Banking regulations require appraisals on certain transactions, and banks rely on third-party appraisals in their underwriting and overall risk management practices,” he said. “Regulators, including the OCC, expect banks to ensure their vendors treat customers fairly and do not discriminate, and we are seeing banks held accountable for discrimination in appraisals they use.”

Remarks by the Acting Comptroller of the Currency on Reducing Bias in Real Estate Appraisals