‘Options’ aim to protect homebuyers from use of ‘algorithmic bias’ in valuation process

Protecting homebuyers from bias resulting through the use of algorithms applied in property valuations is the aim of “options” released Wednesday by the federal consumer financial protection agency.

The Consumer Financial Protection Bureau (CFPB) said the options are intended to ensure that use of computer models does not result in “algorithmic bias,” and that such models are accurate and fair. The bureaus said the options will now be reviewed to determine their potential impact on small businesses.

The bureau said its options will strengthen oversight of the models, specifically by:

  • Ensuring a high level of confidence in the estimates produced by automated valuation models;
  • Protecting against the manipulation of data;
  • Seeking to avoid conflicts of interest;
  • Requiring random sample testing and reviews; and
  • Accounting for any other such factor that it and other federal financial regulatory agencies determine to be appropriate.

In issuing the options, the agency noted that the 2010 the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank) tasked it and other regulators with implementing rules on such models.

“Obtaining an accurate estimate of a home’s worth is one of the most important steps in the mortgage process for homebuyers. Inaccurate valuations, both too high and too low, can pose risks to consumers,” CFPB said in a release.

The agency asserted that overvaluing homes can put family wealth at risk, create reselling challenges, and lead to higher rates of foreclosure. Low valuations, the agency said, can jeopardize home sales and prevent homeowners from refinancing, “which makes it harder to build wealth or make repairs.”

Systematically low valuations driven by biased appraisers may exacerbate existing disparities in the housing market, the agency asserted.

Consumer Financial Protection Bureau Outlines Options To Prevent Algorithmic Bias In Home Valuations