FFIEC issues statement of principles for examining appraisal and valuation bias

The Federal Financial Institutions Examination Council (FFIEC) on Monday issued a statement outlining examination principles related to valuation and appraisal discrimination or bias in residential lending. 

FFIEC is a federal interagency coalition consisting of the Federal Reserve Board of Governors (FRB), the Federal Deposit Insurance Corp. (FDIC), the National Credit Union Administration (NCUA), the Office of the Comptroller of the Currency (OCC) and the Consumer Financial Protection Bureau (CFPB).

“The principles aid member entities in assessing whether their supervised institutions’ compliance and risk management practices are appropriate to identify and mitigate discrimination or bias in their residential property valuation practices,” the CFPB said in an announcement of the statement.

The statement is designed to clarify standards by which entities under the purview of individual regulators violate applicable rules and regulations. These standards can harm a residential lender beyond any identified violations, the statement explained.

“Institutions are required to comply with laws and regulations, including anti-discrimination laws,” the statement read. “From a safety and soundness perspective, each of the federal prudential regulators has appraisal regulations that address appraisal practices at institutions.

“Evidence of valuation discrimination or bias that negatively affects an institution’s safety and soundness should be reflected in an institution’s ratings assigned under the Uniform Financial Institutions Rating System (UFIRS).”

In addition to detailing the risks associated with valuation discrimination and bias, the statement outlines a series of laws applicable to these goals.

These include the Equal Credit Opportunity Act (ECOA) and Regulation B, which are designed to prohibit discrimination in any aspect of a credit transaction; the Truth in Lending Act (TILA) and Regulation Z, designed to govern credit-term disclosures; and Title XI of the Financial Institutions Reform, Recovery and Enforcement Act (FIRREA) of 1989, designed to bolster the reliability of appraisals in federal transactions.

The new document, however, should not be confused with new overarching guidance for the agencies within the coalition.

“The statement of principles should not be interpreted as new guidance to supervised institutions nor an increased focus on supervised institutions’ appraisal practices,” the announcement stated. “Instead, the statement of principles offers transparency into the examination process and supports risk-focused examination work.”